Law Update

A LAW UPDATE BY: RUSSEL WRAY | WRAY & ASSSOCIATES

Arbitration is a popular alternative dispute resolution process parties can utilize in lieu of filing a traditional lawsuit. Arbitration differs from litigation—and sometimes may be the preferred dispute resolution option—because it supposedly yields quicker results for a lower price than does litigation. Unlike litigation, the arbitration process is private and confidential, allowing parties to keep their disputes out of the public eye. Parties get to choose their arbitrator, who is supposed to act as an impartial third party who ultimately makes a binding decision. But what happens when the arbitrator makes a mistake? Only under extremely limited circumstances can a court vacate an arbitrator’s binding decision—the boundaries of which the Louisiana courts have yet to fully embrace. Such a lack of clarity regarding an arbitrators’ authority and the amount of deference courts should give them presents a serious, unresolved issue that breeds uncertainty. In construction, uncertainty usually results in higher prices. Everyone should be accountable to someone, arbitrators included. For an arbitration award to be enforced, a court must confirm it. While confirmation from a court is not a mere rubber stamp, courts rarely grant motions to vacate arbitration awards. There are, however, some instances in which an arbitrator’s award should be vacated because he or she based the decision on something other than the clear and unambiguous language of the contract at the center of the dispute. In doing so, arbitrators exceed their authority. The U.S. Supreme Court has held that arbitrators exceed their authority by ignoring the contract and instead imposing their own policy choices. In Stolt-Nielson S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 671-72, 130 S.Ct. 1767, 176 L.Ed.2d 605 (2010), the Supreme Court cited several other prior Supreme Court decisions in its reasoning that, under the analogous provision of the FAA (9 U.S.C. §10), vacatur was warranted for an excess of authority when arbitrators imposed their “own brand of industrial justice” rather than properly working within the confines of the contract.

In Kemper Corp. Servs., Inc. v. Computer Scis. Corp., 946 F.3d 817, 823 (5th Cir. 2020), the Fifth Circuit provided more factors courts can look to when deciding whether an arbitrator exceeded his or her authority by rendering an award without actually interpreting the text of the contract: (1) whether the arbitrator identified his or her task as interpreting the contract; (2) whether the arbitrator cited and analyzed the text of the contract; and (3) whether the arbitrator’s conclusions are framed in terms of the contract’s meaning. When an arbitrator tries to impose his or her own brand of justice through an arbitration award or otherwise disregards the clear and unambiguous terms and provisions of the parties’ contract, a court may vacate the award. In Preis Gordon, APLC v. Chandler, 2015-0958 (La.App.1 Cir. 2/26/160), 191 So.3d 31, 37-38, the Louisiana First Circuit Court of Appeal vacated part of an arbitration award in which the arbitrator’s award of attorney fees to defendants was beyond the scope of the parties’ agreement. Because that particular issue had not been submitted to the arbitrator, the court reasoned, the arbitrator exceeded his power in grating an award for attorney fees. Thus, it is well-settled in federal law that an arbitrator exceeds his or her authority by acting contrary to express contractual provisions. See, e.g., PoolRe Ins. Corp. v. Organizational Strategies, Inc., 783 F.3d 256, 265-66 (5th Cir. 2015); Delta Queen Steamboat Co. v. Dist. 2 Marine Engineers Beneficial Ass’n, AFL-CI, 889 F.2d 599, 602 (5th Cir. 1989) (“where the arbitrator exceeds the express limitations of his contractual mandate, judicial deference [to an arbitrator] is at an end.”) (emphasis added); Spencer v. Ryland Grp., Inc., 372 Ill.App.3d 200, 206, 865 N.E.2d 301,307 (2007); Monongahela Valley Hosp., Inc. v. United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int’l Union AFL-CIO, CLC, 386 F.Supp.3d 596, 600 (W.D. Pa. 2019) (“If an arbitrator changes the terms of a contract rather than interprets it, a court may overturn the arbitrator’s decision.” (emphasis added); Tecnocap LLC v. Graphic Communications Conference/Int. Brotherhood of Teamsters Local 24M, 777 Fed.Appx. 804, 806, 2019 L.R.R.M. (BNA) 227369 (6th Cir. 2019) (“If an arbitrator were not bound to enforce the parties’ [agreement], the entire system would be undermined.”) (emphasis added). The takeaway from these cases is that an arbitrator cannot disregard, rewrite, or ignore the clear language of parties’ contracts. Another recent example of a federal court recognizing this limitation on arbitrators’ authority is illustrated in the reasoning of the United States Court of Appeal for the Ninth District in Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors LCC, 913 F.3d 1162, 1169 (9th Cir. 2019). That case involved an arbitration between two contractors—one based in America and the other based in Afghanistan. The arbitrator disregarded the plain text of the parties’ agreement because he believed it was unreasonable for the Afghan company, which he perceived to be the less sophisticated contractor, to comply with particular regulations the parties had stipulated to in their agreement. That, along with the arbitrator’s other interpretations that were beyond the scope of the agreement, made vacatur appropriate; the arbitrator’s decision based on what he thought was just or unjust was completely improper. The Aspic court reasoned that courts’ duty sometimes requires a substantive review of the arbitrator’s findings and interpretations: We have become an arbitration nation. An increasing number of private disputes are resolved not by courts, but by arbitrators. Although courts play a limited role in reviewing arbitral awards, our duty remains an important one. When an arbitrator disregards the plain text of a contract without legal justification simply to reach a result that he believes is just, we must intervene. (emphasis added). Arbitration may be an attractive dispute resolution option because it occurs outside of the courtroom and thus is less complex and sometimes less costly than litigation. This does not, however, mean that courts should give too much deference to arbitrators. Louisiana courts need to clarify the boundaries in line with the federal courts to ensure parties can discern whether an arbitrator exceeded his or her authority in an arbitration award. Arbitrators make legally binding decisions that hold parties accountable. It is time that the courts consistently hold arbitrators accountable, too.