Un-Vacated: Appellate Courts Save Arbitration Awards

Mountain Reflection SunsetTwo posts ago, I reviewed four recent cases in which appellate courts enforced arbitration awards that district courts had refused to enforce.  Today I review two more appellate courts coming to the rescue of arbitration, this time by confirming arbitration awards that had been vacated by lower courts.

In SPX Corp. v. Garda USA, Inc., __A.3d__, 2014 WL 2708631 (Del. June 16, 2014), the Delaware Court of Chancery vacated an arbitration award (under its state arbitration act) after concluding the arbitrator manifestly disregarded the terms of the parties’ agreement. That court found that a section of the parties’ agreement unambiguously required the company’s working capital to reflect liabilities associated with workers compensation claims and the arbitrator manifestly disregarded that contractual requirement in issuing its award. The Supreme Court of Delaware reversed that decision. It found that there were two “colorable” interpretations of the contract, and that even if the arbitrator’s interpretation was wrong, it did not constitute manifest disregard because the arbitrator did not consciously choose to ignore a contract term that is not subject to reasonable debate.

In American Postal Workers Union, AFL-CIO v. U.S. Postal Service, __F.3d__, 2014 WL 2535249 (2d Cir. June 6, 2014), the district court had vacated an award in favor of the Postal Service after finding the arbitrator exceeded his powers. The district court found the arbitrator exceeded his power when he found the worker’s claims were barred based on the doctrine of collateral estoppel, because the collective bargaining agreement (CBA) did not explicitly provide for collateral estoppel. The Second Circuit reversed, finding that even if the CBA did not specifically allow collateral estoppel, it did not explicitly preclude it either, and case law allows arbitrators to apply collateral estoppel under broad arbitration agreements. Because of that, the arbitrator was arguably construing the contract (within the meaning of Sutter) and the award must be confirmed.

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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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