Judicial Review of Arbitration Awards and Mediation Agreements: Tips for Sustaining Deference
Rabich, Julia, Stoner, Sarah, Welsh, Nancy A., Dispute Resolution Journal
Courts generally extend deference to arbitration awards and mediated settlement agreements, but there are exceptions. This article discusses what arbitrators and mediators should do to sustain such deference.
Courts value the results produced by arbitration and mediation. Both processes dispose of disputes that might otherwise clog court dockets. Both processes also provide parties with the opportunity to be heard. Finally, both processes are supposed to involve the exercise of party selfdetermination. As a result, and consistent with the provisions of the Federal Arbitration Act (FAA), courts extend great deference to arbitrators when determining whether to enforce or vacate arbitral awards. Similarly, courts are highly unlikely to set aside or refuse to enforce settlement agreements facilitated by mediators.
Arbitrators and mediators may be tempted to take judicial deference for granted. They should not. Recent cases reveal occasions when courts have concluded that an arbitrator or mediator forfeited the right to deference. Based on these cases, this article suggests some trends and common-sense practice tips that could help arbitrators and mediators avoid unnecessary missteps.
A. Adhere to Procedural Rules and Remedies Established by the Parties
It is often said that arbitration is a "creature of contract." Through their contracts, parties determine the arbitrators' substantive and procedural powers. Arbitrators who comply with the resulting substantive and procedural limits de monstrate deference to the parties and reinforce the parties' autonomy. Arbitra tors who exceed the scope of the authority granted to them in the contract provide unhappy parties with the opportunity to challenge the en forcement of arbitration awards on two different grounds-ex ceeding arbitral authority and manifest disregard of the law.
State v. Connecticut State Em - ployees Association1 provides an example of the recent use of the "exceeding authority" ground. The collective bargaining agreement (CBA) in this case re - quired the arbitrator to determine whether an employee's demotion was based on "just cause." If the arbitrator failed to find just cause, the arbitrator was empowered to award the appropriate remedy. In this instance, the arbitrator found just cause for the employee's demotion but nonetheless proceeded to prescribe a remedy. The Connecti cut Appellate Court partially vacated the award, finding that the arbitrator had exceeded the authority explicitly conferred in the CBA. The arbitrator's prescription of a remedy was not welcomed as a useful extra service. Rather, it had the effect of undermining the parties' autonomy.
In Hall Street Associates, L.L.C. v. Mattel, Inc.,2 the U.S. Supreme Court limited judicial review of awards to grounds expressed in Sec tions 10 and 11 of the FAA. However, the Court refrained from resolving whether manifest disregard of the law, a common law ground for vacating an award, constituted a valid ground for va catur. Because this issue remains unanswered, lower courts have continued to vacate arbitral awards on the basis of manifest disregard of the law in all of the following circumstances: when an arbitrator has rendered an award that is inconsistent with the plain language of the parties' agreement, or fails to "draw the award from the es sence of the agreement," or ignores applicable law despite recognition of such law.3
When a contract specifically incorporates the rules governing the conduct of arbitration proceedings, the arbitrator's failure to follow these rules has been found to represent manifest disregard of the "essence of the agreement."4 In Kashner David son Securities Corp. v. Mscisz,5 the 1st Circuit ruled that the award dismissing the claims against Kashner Davidson with prejudice had to be vacated for manifest disregard of the law be - cause the arbitrator ignored "plainly stated procedural rules" that were implicitly incorporated into an agreement pursuant to the "Con stitution, By-Laws, Regula tions and/or Code of Arbitra tion Procedures of the 'sponsoring organization,' in this case, the NASD [National Asso - ciation of Securities Dealers]. …