“Grossly Excessive” Arbitration Award Overturned Due to “Evident Material Miscalculation”

Carlton Fields

Carlton Fields

An arbitration award rendered pursuant to section 301 of the Labor Management Relations Act (LMRA) was overturned upon a finding that the award was “grossly excessive” and based on an “evident material miscalculation.” The award stemmed from a collective bargaining agreement that required an employer to submit to audits to determine whether the employer had made required contributions to certain ERISA funds. Upon the employer’s alleged failure to submit to the audits, the CBA assumed the employer to be delinquent and provided a procedure for estimating the amount of the deficiency.

The prescribed calculation estimated the employer’s deficiency at approximately $1.7 million, which ultimately yielded an arbitration award of approximately $2.3 million when interest, liquidated damages, and fees were included. After the union filed a motion to confirm the arbitration award, the parties notified the court that they were working together to perform the audit of the employer’s books that had initially triggered the dispute. Upon completion of the audit, the parties expected to settle based on the audit amount. The audit then revealed the employer’s actual deficiency to be $116,369.60, approximately 6.7% of the estimated deficiency ($1.7 million) and just 5% of the total arbitration award ($2.3 million).

The court’s analysis of the petition began by noting that the case was brought under the LMRA and, as such, the Federal Arbitration Act (FAA) did not apply. Judicial review under the LMRA is “very limited,” and courts are “not authorized to review the arbitrator’s decision on the merits despite allegations that the decision rests on factual errors or misinterprets the parties’ agreement.” Further, under the LMRA, “unless the award is procured through fraud or dishonesty, a reviewing court is bound by the arbitrator’s factual findings, interpretation of the contract, and suggested remedies.”

However, the court also noted that “federal courts have often looked to the FAA for guidance in labor arbitration cases.” Section 11 of the FAA permits modification of an arbitration award to “effect the intent” of the award and “promote justice between the parties” when there is an “evident miscalculation of figures.” Although the court did not find any mistake related to the application of the arbitration agreement’s prescribed method of calculating the employer’s deficiency, the court nevertheless found that the huge disparity between the actual deficiency and the estimated amount demonstrated that the award suffered from “an evident material miscalculation.” “The difference is striking, and it is clear that the estimated deficiency cannot be considered an approximation because it is roughly fifteen times the actual deficiency.”

Therefore, despite the strictures applied to judicial review under the LMRA, the court denied the petition to confirm and remanded the case to the arbitrator. In so doing, the court relied in part on the union’s statements that it would “agree to vacate the arbitration award upon completion of the new audit” and the parties’ multiple representations that they intended to settle based on the audit amount. The court also found that remand furthered the LMRA’s policy of “promoting industrial stabilization” by “discouraging awards that parties agree are obviously erroneous in light of objectively ascertainable facts.”

Trustees of the New York City District Council of Carpenters Pension Fund v. Carolina Trim LLC, No. 1:17-cv-06485 (S.D.N.Y. Feb. 26, 2020).

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Carlton Fields

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