Three Lessons On Appealing From Arbitrations

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Image placer pearls in a shell on a white background.Three decisions came out recently that offer guidance on appealing from arbitration awards.  Here are three pearls of arbitration appeal wisdom, one from each case:

1.  If you want to appeal from an arbitration, you must have a record.  Sounds basic, right?  But many parties, either due to confidence they will win in arbitration or due to penny-pinching, choose not to hire a court reporter to provide a transcript of the arbitration.  Similarly (though less frequently in my experience), parties sometimes opt for an arbitration award that does not include the arbitrator’s reasoning.  (I always advise clients to choose the highest level of award possible. If there were a Super Monster Supreme Award With Chocolate Sprinkles, I would recommend that.)  Those decisions can be the death knell of an arbitration appeal.  As the Sixth Circuit found recently, a party who fails to preserve a “complete record of the arbitration proceedings [] cannot meet its high burden of showing that the arbitration award must be vacated.”  Physicians Ins. Capital v. Praesidium Alliance Group, 2014 WL 1388835 (6th Cir. April 10, 2014).

2.  You cannot appeal in the middle of arbitration.  There are only two times to come to court about your arbitration: before it happens, when you want to figure out whether arbitration is required under your contract; and after it is complete, when you want to either vacate or confirm the final award.  The corollary is: you cannot appeal in between.  That rule was reiterated in Savers Property & Cas. Ins. Co. v. Nat’l Union Fire Ins. Co. of Pittsburg, 2014 WL 1378134 (6th Cir. April 9, 2014).  (Other circuits take note — Savers was argued on March 21 and the decision came out less than three weeks later.  Such efficiency!)  In Savers, the panel of arbitrators had issued an interim award on liability and were accepting submissions on damages when the liable party convinced the federal court to enjoin any further orders from the panel (based largely on allegations of evident partiality).  The Sixth Circuit reversed the district court’s injunction saying that the liable party “is entitled to its day in court to challenge the fairness of the proceedings and the partiality of the arbitrators — just not until the panel has concluded its work and issued a final award.”

3.  If your arbitration itself includes an appellate review, the court may review both levels of arbitral awards.  As you likely are aware, the AAA started offering optional appellate rules a few months ago. (CPR and JAMS already had optional appellate rules.)  If parties incorporate those appellate rules into their arbitration agreement, then they are entitled to have a first arbitrator/panel decide the issues in the case, and then a second panel of arbitrators decide if the first arbitrator(s) made any material errors of law or “clearly erroneous” factual determinations.  (I didn’t blog about it because *everyone* was blogging about it.  The same reason I am not blogging about the new General Mills policy today…)  One of the practical questions I had about that process was how the courts would review those two levels of arbitral awards on motions to confirm or vacate.  Would a court review only the “final” award of the appellate panel?  Or would it conduct an independent review of the initial arbitrators’ decision?  The Alaska Supreme Court had occasion to address that situation and decided to give both levels of arbitration award the same level of scrutiny.  In Dunham v. Lithia Motors Supports Servs., Inc., 2014 WL 1421780 (Alaska April 9, 2014), the employment agreement allowed a second arbitrator to review the award made by the first arbitrator.  Both arbitrators concluded the employees’ claims lacked merit.  In considering the employees’ allegations that the award should be vacated, the court applied the Section 10 standards to both levels of arbitration: “neither arbitrator manifestly disregarded the law nor issued a completely irrational award;”  “the arbitrators’ awards do not violate public policy.”  While that is a good belt-and-suspenders approach, it strikes me as inefficient and unworkable in cases where the appellate arbitrators actually reversed an aspect of the trial arbitrator’s award.

 

Topics:  Appeals, Arbitration, Arbitration Agreements

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, Civil Remedies Updates, General Business 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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