Arbitration Awards—No Longer The Final Word?

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Courts currently have very narrow grounds on which they can overturn an arbitration award.  The Federal Arbitration Act provides that a court cannot vacate an arbitration award except in cases where: (1) the award was procured through fraud, corruption, or undue means; (2) it was evident that the arbitrator was biased or corrupt; (3) the arbitrator was 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; or (4) the arbitrator exceeded his or her powers or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. Federal Arbitration Act, 9 U.S.C. § 10.

We recently discussed the difficulty a party can face in attempting to overturn an arbitration award in a court of law, even where the arbitrator’s analysis appears to be legally unsupportable under applicable precedents.   One of the leading alternative dispute resolution providers, the American Arbitration Association (“AAA”) has decided to give parties an opportunity to remedy such decisions.  At the end of 2013, the AAA implemented a new process that allows parties to appeal an arbitration award on broader grounds than are currently available through the judicial system.  The new AAA rules permit a party to appeal an underlying arbitration award to a selected panel in order to review errors of law that are material and prejudicial, and determinations of fact that are clearly erroneous. The appeal tribunal may not order a new arbitration hearing or send the case back to the original arbitrator(s) for corrections or further review; rather the tribunal’s actions are limited to adoption of the underlying award or substituting its own award.

In order to take advantage of the AAA appellate process, the parties must have included language in the arbitration provision that specifically allows either party to appeal the award.  Neither party can unilaterally avail itself of the appeals process after an award is entered.  The entire appellate process is designed to be completed in approximately three months.

The cost to utilize the AAA appeal process is quite steep.  It requires an initial $6,000 administrative fee.    Further, if the appellant is not the prevailing party, then appeal costs and other reasonable costs of the prevailing party, including attorneys’ fees incurred after the commencement of the appeal, may be assessed.  Due to this significant expense, the process may be best suited for cases with significant awards at issue.

The appeal process provision should not be included as a matter of course in all arbitration contracts.  Prior to including this appeal process in an arbitration clause, the pros and cons of the provision should be thoroughly evaluated.

Topics:  Arbitration, Arbitration Agreements, Arbitration Awards, Federal Arbitration Act

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates, Conflict of Laws Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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