Two Circuit Courts Demonstrate How Difficult It Is To Vacate Arbitration Awards

by Stinson Leonard Street - Arbitration Nation
Contact Second Circuit decision has more drama, so I’ll start there.  In Kolel Beth Yechiel Mechil of Tartik-Ov, Inc. v. YLL Irrevocable Trust, __ F.3d __, 2013 WL 4609100 (2d Cir. Aug. 30, 2013), the losing party in an arbitration tried to vacate the award using both Section 10(a)(1) and 10(a)(2) of the Federal Arbitration Act — i.e., corruption and evident partiality.  The dispute was over ownership of life insurance policies, and when the dispute arose, the parties agreed to arbitrate before a panel of three rabbis.  Each party appointed a rabbi and the parties jointly selected the third rabbi (the only neutral arbitrator).  The arbitration agreement allowed the rabbinical panel to make its decision in any way the rabbis wished.  After seven unrecorded sessions, but after only one witness testified, two members of the panel issued an award in favor of the claimant.

In its effort to vacate the award, the losing party primarily alleged that the neutral arbitrator had actually been corrupt and partial.  It presented testimony that the neutral arbitrator had called the winning party almost two weeks before the award was issued, indicating a ruling was coming in its favor.  The district court refused to vacate the award, and the Second Circuit affirmed that decision.  In analyzing whether the panel was corrupt or sufficiently partial to vacate the award, the Second Circuit held that the standard it has used for evident partiality will be used in cases of corruption as well: “Evidence of corruption must be abundantly clear in order to vacate an award.”  Because there was no record of the arbitration proceedings, and the testimony about the phone call was not direct or definite evidence of bias, the law did not support vacatur.

In Teamsters Local Union No. 436 v. The J.M. Smucker Co., 2013 WL 4750782 (6th Cir. Sept. 5, 2013), two related arbitration proceedings were at issue.  An employer had eliminated the position of a union member (Graham), and the rules allowed Graham to then “bump” an employee with less seniority.  Graham chose to “bump” — take the position of — Rose, but the employer refused to allow the change.  So, Graham filed a grievance and ended up arbitrating the issue of whether she had the right to take Rose’s position.  The arbitrator ruled in favor of Graham.  After that ruling, the employer did not allow Rose to turn around and “bump” someone else.  Rose arbitrated his claim that he should get the same opportunity.  The second arbitrator made findings that were directly contrary to the first arbitrator’s (including about Graham’s job change) and then concluded Rose had no right to bump someone else.

The union sought to vacate the second arbitrator’s award, alleging the arbitrator had exceeded his powers by disregarding the issue preclusive effect of the first arbitrator’s findings.  The district court agreed and vacated the award.  But the Sixth Circuit reversed.  In language similar to SCOTUS’ decision in Sutter (but citing cases specific to labor arbitrations — do we really need a separate set of rules specific to labor arbitrations?), the court found that the arbitrator had done enough, even though he applied the collective bargaining agreement in a “cursory, meandering, and unclear” way.  “In summary, it does not matter that [second arbitrator] erred in failing to give the [first award] preclusive effect, as long as he was arguably construing or applying the CBA.  This is true even if [he], as he did here, committed ‘serious,’ ‘improvident,’ or ‘silly’ errors in resolving the merits of the dispute.”

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Stinson Leonard Street - Arbitration Nation

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