If You Want A Right To Appeal An Arbitration Award, Build It Into Your Arbitration Agreement

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Many people opt for binding arbitration because it is supposedly faster and cheaper, and binding – thus final.  Some people have to arbitrate their matters that they cannot settle amongst themselves, because there are issues that they cannot try before a court given the court’s mandatory obligation to report certain matters to the proper authorities (e.g. taxing authorities). While many people seek the finality of a binding result, many others are concerned that because an arbitrator is human, she/he could make a mistake.  Accordingly, they want the ability to appeal the matter to a reviewing body of some sort.  However, the two main arbitration statutes have a very limited right of review.  Moreover, as we found out in 2007 in Hogoboom v. Hogoboom, parties cannot contract for a right of appeal of an arbitration decision to the Appellate Division.  So what do many people do?  As I have said on this blog before, their arbitration agreement provides a right of appeal to appellate arbitrators and expands the ability to review a matter to errors of law and fact, just like any other appeal.   Yet, time after time, we see Appellate Division decisions either rejecting appeals of arbitration awards or affirming the entry of an arbitration award and noting the limited rights of appeal.

These issues came up again in the case of Levinson v. Levinson, an unreported (non-precedential) Appellate Division decision released on November 9, 2020.  In the case, after mediation failed, the parties agreed to arbitrate their matter pursuant to the New Jersey Alternative
Procedure for Dispute Resolution Act (APDRA), N.J.S.A. 2A:23A-1 to -30.  After the arbitration was concluded, the plaintiff moved to confirm the arbitration award and the defendant moved to set it aside claiming fraud and that the arbitrator exceeded his authority.  The trial court entered a judgment of divorce and order incorporating the final arbitration decision. In its opinion, the trial judge rejected defendant’s arguments, finding the arbitrator reached his decision after reviewing ample evidence submitted by both parties and determining which of
the expert opinions in the record was most credible.  However, in reaching its decision, the trial court applied provisions of the Uniform Arbitration Act (UAA), N.J.S.A. 2A:23B-1 to -31, establishing the grounds on which the court may vacate or modify an arbitration decision, rather than the corollary provisions of the APDRA, which were applicable to the parties’ motions.

After substantially more motion practice, an appeal followed which ultimately affirmed the trial court’s orders even though the wrong statute was applied.  In doing so, the court noted right off the bat that the scope of re3view of an arbitration award is narrow.  The court then reviewed the law and the different arbitration statutes noting that when parties to a matrimonial proceeding agree to arbitrate disputed issues, they may designate whether the proceeding will be submitted pursuant to the APDRA or the UAA – and absent a specific designation, the UAA applies.

Under the APDRA, the court may only vacate, modify or correct an award for limited reasons, as follows:

“(b) In considering an application for vacation, modification or correction, a decision of the umpire on the facts shall be final if there is substantial evidence to support that decision; provided, however, that when the application to the court is to vacate the award pursuant to paragraph (1), (2), (3), or (4) of subsection c., the court shall make an independent determination of any facts relevant thereto de novo, upon such record as may exist or as it may determine in a summary expedited proceeding . . . .
(c) The award shall be vacated on the application of a party who . . . participated in the alternative resolution proceeding . . . if the court finds that the rights of that party were prejudiced by:

(1) Corruption, fraud or misconduct in procuring the award;
(2) Partiality of an umpire appointed as a neutral;
(3) In making the award, the umpire’s exceeding their power or so imperfectly executing that power that a final and definite award was not made;
(4) Failure to follow the procedures set forth in this act, unless the party applying to vacate the award continued with the proceeding with notice of the defect and without objection; or
(5) The umpire’s committing prejudicial error by erroneously applying law to the issues and facts presented for alternative resolution.
. . . .
(e) The court shall modify the award if:
(1) There was a miscalculation of figures or a mistake in the description of any person, thing or property referred to in the award;
(2) The umpire has made an award based on a matter not submitted to them and the award may be corrected without affecting the merits of the decision upon the issues submitted;
(3) The award is imperfect in a matter of form, not affecting the merits of the controversy; or
(4) The rights of the party applying for the modification were prejudiced by the umpire erroneously applying law to the issues and facts presented for alternative resolution.

The Appellate Division further noted that under the APDRA, there is no appellate review of the trial court’s decision to confirm, modify, or correct an arbitration award.   Moreover, as long as the trial court provides a rational explanation for its decision, the Appellate Division must dismiss the appeal “regardless of whether we may think the trial judge exercises that jurisdiction imperfectly.”  (Citing Fort Lee Surgery Ctr., Inc.
v. Proformance Ins. Co., 412 N.J. Super. 99, 104 (App. Div. 2010)).

By contrast, under, the UAA, the rights of review are as follows:

“ a. Upon the filing of a summary action with the court by a party to an arbitration proceeding, the court shall vacate an award in the arbitration proceeding if:
(1) the award was procured by corruption, fraud, or other undue means;
(2) the court finds evident partiality by an arbitrator, corruption by an arbitrator, or misconduct by  an arbitrator prejudicing the rights of a party to the arbitration proceeding;
(3) an arbitrator refused to postpone the hearing upon showing of sufficient cause for postponement, refused to consider evidence material to the controversy, or otherwise conducted the hearing contrary to section 15 of this act, so as to substantially prejudice the rights of a party to the arbitration proceeding;
(4) the arbitrator exceeded the arbitrator’s powers;
(5) there was no agreement to arbitrate . . . .;
(6) the arbitration was conducted without proper notice of the initiation of the an arbitration . . . .

The court may modify or correct an arbitration award under the UAA pursuant to N.J.S.A. 2A:23B-24. if:
(1) there was an evident mathematical miscalculation or an evident mistake in the description of a person, thing, or property referred to in the award;
(2) the arbitrator made an award on a claim not submitted to the arbitrator . . . .;
(3) the award is imperfect in a matter of form not affecting the merits of the decision on the claims
submitted.

In dealing with the fact that the wrong statute was applied, the Appellate Division found that the relevant review provisions were “substantive equivalents and thus, defendant suffered no meaningful harm by the application of the wrong statute.

Again, the issue here, stems not from the review, but arguably from the agreement to arbitrate, because agreeing under either statute, without contracting for an appellate arbitration, limited the scope of the review from the outset.

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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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