Academic journal article Albany Law Review

Agreements to Expand the Scope of Judicial Review of Arbitration Awards

Academic journal article Albany Law Review

Agreements to Expand the Scope of Judicial Review of Arbitration Awards

Article excerpt

It has long been considered axiomatic in arbitration that parties who agree to submit their disputes to arbitrators engage in a sort of quid pro quo: in exchange for reduced costs and speedier resolution, parties agree to limit their right to appeal. Consistent with this philosophy, judicial review of arbitration awards has been extremely limited. The few statutory grounds available for appeal are aimed at procedural irregularities. Consequently, any substantive grounds for appeal are narrowly interpreted.

Entering into arbitration naturally entails risks beyond those normally associated with litigation. Arbitrators, like judges, make mistakes. When the mistakes fall within a foreseeable range, parties are generally willing to accept the risks as part of the price of arbitration. On the other hand, the risk that an arbitrator grossly misinterprets a contract or grants hugely disproportionate remedies is clearly less acceptable. Since few grounds for appeal exist, the party afflicted by such maverick arbitration awards is often left with no recourse. This is of particular concern as the use of arbitration is expanding into a wide range of new fields.

In recent years there has been a growing concern over the "Russian Roulette" nature of arbitration. In several conspicuous, high stakes disputes and untold lower profile arbitrations, arbitrators have rendered decisions that have fallen well outside the reasonable expectations of the parties.(1)

One possible alternative is for the parties to agree in their arbitration clause that awards may be subject to more extensive judicial review than that available for arbitration awards under most statutes.(2) The prevailing view, which is most consonant with recent Supreme Court precedent, holds that parties may broaden the scope of judicial review via contract.(3) On the other hand, the court in UHC Management Co. v. Computer Sciences Corp.,(4) which appears to be in the minority, has called into doubt the ability of parties to expand judicial review of arbitration awards contractually.(5) The Eighth Circuit indicated that "it is yet a foregone conclusion" that parties can agree to ignore provisions of the Federal Arbitration Act (the Act or the FAA).(6) Although the majority of authority appears to support the contractual expansion of judicial review of arbitration awards, this article addresses a difficult question: whether or not parties should agree to judicial review and risk losing the time and cost savings that make arbitration so attractive.


A. The Federal Arbitration Act

Generally, courts have interpreted the FAA(7) as establishing extremely limited grounds for judicial review of arbitration awards.(8) Section 10(a) of the Act sets forth only a few narrow grounds on which an award may be vacated:(9)

   (1) Where the award was procured by corruption, fraud, or undue means. (2)
   Where there was evident partiality or corruption in the arbitrators, or
   either of them. (3) Where the arbitrators were guilty of misconduct in
   refusing to postpone the hearing, upon sufficient cause shown, or in
   refusing to hear evidence pertinent and material to the controversy; or of
   any other misbehavior by which the rights of any party have been
   prejudiced. (4) Where the arbitrators exceeded [the scope of] their powers,
   or so imperfectly executed them that a mutual, final, and definite award
   upon the subject matter submitted was not made.(10)

The first three of these grounds are essentially procedural in nature: their concern is not with the content or merit of the award, but with the means used by the arbitrators (and, in the case of Section 10(a)(1), the parties) in reaching the award.

Section 10(a) does address the substance of the award, but in a somewhat oblique fashion. Pursuant to this provision, courts may strike down awards where the arbitrators decide issues not submitted to them or grant relief not authorized by the parties. …

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