Seventh Circuit Is Sick Of Arbitration Appeals; Threatens “High Risk Of Sanctions”

by Stinson Leonard Street - Arbitration Nation
Contact an opinion released yesterday, the Seventh Circuit schooled appellant’s counsel first on the application of the New York Convention and Panama Convention, then on the high standard of review it applies to commercial arbitration awards, and finally expressed profound disappointment with the frequency of motions to vacate arbitration awards.  “Attempts to obtain judicial review of an arbitrator’s decision undermine the integrity of the arbitral process.”  Johnson Controls, Inc. v. Edman Controls, Inc., __ F.3d __, 2013 WL 1098411 (7th Cir. Mar. 18, 2013).  No doubt hoping to reduce that frequency, the court warned that ”challenges to commercial arbitral awards bear a high risk of sanctions.”

In this case, Johnson Controls contracted with an exclusive distributor in Panama.  The contract called for arbitration of any disputes and provided that the prevailing party was entitled to recover its attorneys’ fees and costs.  Johnson Controls started directly competing with the distributor in Panama, so the distributor demanded arbitration and won.  After finding for the distributor on claims of tortious interference and breach of good faith and fair dealing, the arbitrator awarded the distributor over $733,000 in damages, plus almost $300,000 in attorneys’ fees and costs.

Not kindly, the court noted “losers sometimes cannot resist the urge to try for a second bite at the apple.  That is what has happened here.”  Johnson Controls moved to vacate the arbitral award and its motion was denied by the district court.  Substantively, it made two primary arguments.  It argued that the arbitrator “exceeded its power” within the meaning of Section 10(a)(4) of the Federal Arbitration Act in two respects: 1) by awarding damages to the distributor, even though the distributor had planned to sell through two subsidiaries; and 2) by awarding attorneys’ fees in a contingent fee case without using the lodestar approach.  The district court and appellate court found the arbitrator acted within its power, because the distributor itself was injured by the breach (and the arbitrator properly refused to address separate claims by the subsidiaries), and because the lodestar method is not required in the Seventh Circuit when attorneys’ fees are shifted by contract.

The court also went out of its way to provide three kernels of wisdom to counsel in appeals from arbitrations.  First, it noted that the distributor is incorporated in the British Virgin Islands, and therefore any attack on the arbitration award “almost certainly falls under either the New York or the Panama Convention,” which have slightly different grounds for vacating awards.  (Counsel for both parties had argued under Chapter 1 of the FAA.)  Second, it emphasized that, at least in the Seventh Circuit, “even ‘manifest disregard of the law is not a ground on which a court may reject an arbitrator’s award.’”  (Not all circuits agree, see this summary post.)

Third and finally, the Seventh Circuit hinted that it will be liberal in its use of sanctions for parties who try to vacate arbitration awards without a strong basis.  It complained that “[b]ecause of Johnson’s appeal, [the distributor] has been deprived not only of the value of the distributorship it expected to have for Panama, but also part of the value of the arbitration to which both parties agreed.”  That sentence follows the explicit warning that, while the court did not award sanctions on this appeal because there was already a fee-shifting clause, “challenges to commercial arbitral awards bear a high risk of sanctions.”

Don’t say I didn’t warn you.

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.

© Stinson Leonard Street - Arbitration Nation | Attorney Advertising

Written by:

Stinson Leonard Street - Arbitration Nation

Stinson Leonard Street - Arbitration Nation on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.