CARA BAROS — Dustex Corp., a Georgia-based company, recently asked a federal court in Iowa to vacate a $3.4 million arbitration award that was found in favor of an Iowa municipal facility. Dustex is seeking to vacate the award because it claims that its panel of three arbitrators was led by an arbitrator who was often confused, hard of hearing, and asleep during portions of the proceedings.
The Federal Arbitration Act (“FAA”) allows mutually consenting parties to arbitrate disputes. United States courts strictly enforce the terms of arbitration agreements and usually are not involved in the proceedings. For that reason, arbitration is often favored as a shorter, less expensive alternative to litigation. Most importantly, arbitration is favored because an arbitrator’s decision is final and binding.
Under section 10 of the FAA, a United States court may vacate an arbitrator’s final and binding decision. A court may vacate an arbitration award under the following four circumstances: (1) where the award was procured by corruption, fraud, or undue means, (2) where there was arbitrator bias, (3) where there was arbitrator misconduct, or (4) where the arbitrator exceeded his or her powers.
In a case like Dustex’s, it is unclear whether the claims fall within one of the four section 10 exceptions. An arbitrator who is often confused, hard of hearing, or sleeping through proceedings, may fall under the third exception, arbitrator misconduct:
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.
The lead arbitrator’s alleged conduct in this case may qualify as misbehavior if his behavior caused a prejudiced award against Dustex. However, it is not clear whether any of the allegations are true or if the arbitrator’s behaviors actually affected the final decision made by the panel. Thus, Dustex may have a difficult time persuading the court to vacate the award.
In Hall Street Associates, LLC v. Mattel Inc., the Supreme Court of the United States found that section 10 of the FAA provides the exclusive grounds for vacating an arbitration award. This means that a party’s allegations must fit perfectly within section 10 of the FAA. In Hall Street Associates, the Court determined that the FAA does not provide any reason for expanded interpretation, and the FAA does not “authorize contracting parties to supplement review for specific instances of outrageous conduct with review for just any legal error.” Therefore, a party is restricted to the strict confines of the section 10 exceptions.
If Dustex’s claims of incompetence and misconduct do not fit within the scope of section 10, its claim may be without merit. Although the FAA provides narrow grounds for vacating an award, the Hall Street Associates Court firmly supports “a national policy favoring arbitration with just the limited review needed to maintain arbitration’s essential virtue of resolving disputes straightaway.” If the Court allows a more expansive review of arbitration, every losing party may seek to relitigate, ultimately negating the many benefits of arbitration.
