The Federal Arbitration Act does not preclude a court challenge to an arbitration award. The FAA, however, does establish very limited grounds for vacatur of arbitration awards. The U.S. Court of Appeals for the Eleventh Circuit recently affirmed an award of sanctions in Inversiones y Procesadora Tropical Inprotsa SA v. Del Monte International GmbH for what it held was a frivolous attempt to vacate an arbitration award. The opinion signals the court’s strong policy of limiting arbitration challenges strictly to only a handful of recognized bases.

The Federal Arbitration Act recognizes four grounds for vacatur of an arbitration award: (1) corruption; (2) evident partiality; (3) refusing to hear evidence; and (4) exceed[ing] [arbitral] powers.[1] In addition to these four statutory bases, courts have recognized a handful of other nonstatutory bases for vacatur of an award, including public policy reasons and an arbitrator’s “manifest disregard” of the law^.[2]

Under any of these grounds, arbitration awards are subject to very limited review. The purpose of imposing such limited review is to protect the promise of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation. In Inversiones^,[3] the Eleventh Circuit affirmed a district court’s decision to impose sanctions against a party that tried to dodge an adverse-arbitration award by challenging it in court.

The case stemmed from a contract dispute involving pineapples between two foreign companies, Inversiones y Procesadora Tropical Inprotsa and Del Monte International. Del Monte claimed that Inprotsa, one of its former pineapple suppliers, continued growing and selling Del Monte’s MD-2 pineapples — a popular variety of pineapple — well after their agreement expired.

Del Monte pursued an arbitration action against Inprotsa in the International Court of Arbitration of the International Chamber of Commerce, which ultimately awarded Del Monte damages of $26.133 million and ordered Inprotsa to return or destroy the remainder of Del Monte’s MD-2 seeds.

Rather than accept the arbitration panel’s decision, Inprotsa filed a lawsuit in state court attempting to vacate the award under the Revised Florida Arbitration Code. Inprotsa argued that the arbitration panel had exceeded its powers by reaching an interpretation of the contract that was “completely irrational,” ignored Florida law and deprived Inprotsa of due process.

After removing the case to federal court, Del Monte, in turn, moved to dismiss the complaint and cross-petitioned to confirm the arbitration award, arguing that Inprotsa’s lawsuit was a “baseless,” “bad faith” attempt to sidestep the arbitration award. Del Monte also sought sanctions against Inprotsa for seeking vacatur of the award without a legitimate basis. Ultimately, the district court granted, and the Eleventh Circuit later affirmed Del Monte’s request for sanctions.

The case is notable because it followed through on warnings the Eleventh Circuit issued more than a decade ago to litigants who use court proceedings as a way to appeal arbitration awards. Specifically, in B.L. Harbert International LLC v. Hercules Steel Co., ^[4] the Eleventh Circuit expressed its frustration over frivolous court challenges to arbitration losses:

When a party who loses an arbitration award assumes a never-say-die attitude and drags the dispute through the court system without an objectively reasonable belief it will prevail, the promise of arbitration is broken. Arbitration’s allure is dependent upon the arbitrator being the last decision maker in all but the most unusual cases. The more cases there are, like this one, in which the arbitrator is only the first stop along the way, the less arbitration there will be. If arbitration is to be a meaningful alternative to litigation, the parties must be able to trust that the arbitrator’s decision will be honored sooner instead of later^.[5]

Thus, by seeking vacatur of the award without a proper basis, the appellant had deprived its adversary and judicial system of the principal benefits of arbitration. For the court, unless a party has a legitimate reason for vacating an arbitration award — like those provided by the Federal Arbitration Act — then it must live with the result. That is so even if the arbitration tribunal got the law wrong.

As the Hercules court stressed, “[i]f arbitration is to be a meaningful alternative to litigation, the parties must be able to trust that the arbitrator’s decision will be honored sooner instead of later.” ^[6] To nudge participants in that direction, it “insist[ed] that if a party on the short end of an arbitration award attacks that award in court without any real legal basis for doing so, that party should pay sanctions”— something that district courts have the inherent authority to impose.

Even though the Eleventh Circuit did not impose sanctions in that case, it warned that it would be “ready, willing, and able to consider imposing sanctions in appropriate cases. ^[7] Inversiones presented the appropriate case.

The notion of imposing sanctions for frivolous court challenges to arbitration awards is nothing new. For example, more than a decade ago, the U.S. Court of Appeals for the Seventh Circuit, in Cuna Mutual Insurance Co. v. Office & Prof. Employees International Union, Local 39, ^[8] affirmed an order granting sanctions for a “groundless” petition to vacate an arbitration award. ^[9]

Citing its own long precedent, the court emphasized that a party “will not be permitted to nullify the advantages [of arbitration] by spinning out the arbitral process unconscionably through the filing of meritless suits and appeals[.]” ^[10] The court elaborated by explaining that “[m]ounting federal caseloads and growing public dissatisfaction with the costs and delays of litigation have made it imperative that the federal courts impose sanctions on persons and firms that abuse their right of access to these courts.” ^[11]

The consequences of Inversiones, however, are potentially problematic. The FAA clearly authorizes legitimate court challenges to arbitration awards under the very limited circumstances it outlines. To the extent the opinion can be interpreted broadly to propound the view in the Eleventh Circuit that any post-award review is generally inappropriate, it has the potential of drifting too far. Still, Inversiones serves as a reminder that when parties choose binding arbitration, they agree to forgo litigation altogether.

When the losing party turns to litigation as a way to appeal an adverse-arbitration award, the whole “promise of arbitration is [rendered] broken.” Inversiones makes clear that, in order to protect the promise of arbitration, courts — especially those in the Eleventh Circuit — will guard against baseless efforts to avoid an adverse arbitration award, even if it means imposing sanctions. When parties sign up for arbitration, they must be willing to live with the result, whatever it may be.

*This article was republished with permission from Law360.*

[1] 9 U.S.C. § 10(a)

[2] B.L. Harbert Int'l, LLC v. Hercules Steel Co. , 441 F.3d 905, 910 (11th Cir. 2006) (“In addition to those four statutory grounds for vacatur, . . . [a]n award may be vacated if it is arbitrary and capricious, if enforcement of the award is contrary to public policy, or if the award was made in manifest disregard for the law.”) (internal citations omitted).

[3] Inversiones y Procesadora Tropical Inprotsa, S.A. v. Del Monte International GmbH

[4] B.L. Harbert International LLC v. Hercules Steel Co.

[5] 441 F.3d 905 (11th Cir. 2006).

[6] Id. at 13

[7] Id. at 914

[9] Cuna Mutual Insurance Co. v. Office & Prof. Employees International Union, Local 39 , 443 F.3d 556 (7th Cir. 2006)

[10] Id. at 561 (citing Dreis & Krump Mfg. Co. v. Int'l Ass'n of Machinists & Aerospace Workers , Dist. No. 8, 802 F.2d 247, 255-56 (7th Cir. 1986)).

[11] Id.