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Arbitrators Acting Within and Exceeding Their Powers

First published on the New York Bar Association, ADR Section website July 15, 2014

Finding that an arbitrator has exceeded his or her powers is exceedingly rare. An arbitrator’s interpretation of the parties’ contract prevails even if there is “arguably a better [one].” American Postal Workers Union, AFL-CIO v. United States Postal Service, __ F.3d __ (2d Cir. June 6, 2014) (reversing the judgment). Exceeding powers is not satisfied by poor reasoning or bad logic. It requires showing the arbitrator has acted “outside the scope of his contractually delegated authority.” Oxford Health Plans LLC V. Sutter, 133 S.Ct. 2064, 2068 (2013).

In American Postal Workers Union, the plaintiff moved to vacate the award on the basis that the arbitrator exceeded his powers by applying the doctrine of collateral estoppel against plaintiff. However, the parties’ contract contained an issue preclusion provision. In the district court’s view “[i]f one were to draw any inference from [the provision], it would be the converse inference that, because the [provision] explains where principles of preclusion do apply, those principles do not apply elsewhere” (emphasis in original). While the Circuit panel may have agreed that the district court’s interpretation made more sense and was better reasoned, it nevertheless concluded that it erred in substituting its own judgment for that of the arbitrator and remanded the matter with instructions to confirm the arbitral award.

That different arbitrators may interpret the law and facts differently goes without saying. That one may find for the claimant and another for the respondent is not impossible, but neither does it require a conclusion that either exceeded his or her powers. In Aerotel, Ltd. v. IDT Corp., 13-3085 (2d Cir. June 3, 2014) the Court of Appeals noted that “[t]he District Court properly concluded that while another panel might have reached a different conclusion, the panel in this case, whether correctly or not, was unquestionably applying the governing law.”

What does it take for a finding that an arbitrator exceeded his or her powers? To judge from a variety of decisions from different circuits the answer is that it is exceedingly difficult. The “showing required to avoid confirmation is very high,” D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95 (2d Cir 2006). In Bain Cotton Company v. Chestnutt Cotton Company, 531 Fed.Appx. 500 (5th Cir. June 24, 2013) (Unpublished) (which involved issues regarding the management of an arbitration), the Court emphasizes an important overriding principle: it observed that “[t]his appeal presents a quintessential example of a principal distinction between arbitration and litigation, especially in the scope of review. Had this discovery dispute arisen in and been ruled on by the district court, it is not unlikely that the denial of Bain’s pleas would have led to reversal; however, under the “strong federal policy favoring arbitration, judicial review of an arbitration award is extremely narrow.” Id, at 500-501.

To clear the bar for exceeding powers, the movant must offer proof that the arbitrator “abandoned [his] interpretative role.” Oxford Health Plans, supra. In distinguishing Oxford from Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662, 684 (2010), the Supreme Court held the arbitrator had “construe[d] the contract (focusing, per usual, on its language), and did find an agreement to permit class arbitration.” Section 10(a)(4) “permits courts to vacate an arbitral decision only when the arbitrator stray[s] from his delegated task of interpreting a contract, not when he performed that task poorly.” Id. This standard grants arbitrators a wider space for their choices and decisions and supports a “narrow[er]” role for the court.

For this reason if the only argument the losing party can muster is the arbitrator was mistaken in construing the contract, there is no basis for vacating the award. This was made clear in American Postal Workers Union, supra, i.e., the fact that a different interpretation would have changed the result in favor of the losing party the arbitrator’s judgment is paramount. “The crux of the excess-of-powers standard is ‘whether the arbitrator’s award draws its essence from the [agreement]” citing St. Mary Home, Inc. V. Serv. Emps. Int’l Union, Dist. 1199, 116 F.3d 41, 44 (2d Cir. 1997). If the evidence does not support movant’s contention that “the arbitrator act[ed] outside the scope of his contractually delegated authority”–Oxford Health Plans, supra.–there is no legal basis for vacating the award.

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