Appealing Arbitration Decisions

The Third Circuit recently found that the Federal Arbitration Act preempts a Pennsylvania statute that restricts corporate plaintiffs in state and federal court in Pennsylvania to those companies that are registered to do business in Pennsylvania.  Generational Equity, LLC v. Schomaker, 2015 WL 708481 (3d Cir. Feb. 19, 2015).  In other words, a company that was not a Pennsylvania business could still confirm its arbitration award in a Pennsylvania court.

The Pennsylvania law at issue states that a “nonqualified foreign limited partnership doing business in this Commonwealth may not maintain any action or proceeding in any court of this Commonwealth until it has registered.”  After Generational Equity prevailed in its arbitration, it sought to confirm the arbitration award in the Western District of Pennsylvania.  The other side moved to dismiss on the basis of subject matter jurisdiction, citing the Pennsylvania statute.  The district court confirmed the award and refused to address the jurisdiction argument.

The Third Circuit, however, took up the question of jurisdiction.  It noted that the FAA allows a federal court in “the district within which” the award was made to confirm the award.  It also noted that the AAA rules, which the parties had incorporated, provided that judgment on the award could take place in any federal or state court with jurisdiction.  Therefore, the Court reasoned that both Congress and the parties had conferred jurisdiction on the Pennsylvania federal court (among others).  Therefore, the Pennsylvania statute at issue “stands as an obstacle” to the execution of the FAA and is preempted.

The Court noted that state laws are usually preempted when they stand in the way of enforcing an arbitration agreement, and here the state law was standing in the way of enforcing an arbitration award.  But, the Court found, “that is a distinction without a difference.”

A federal judge in Minnesota today vacated the arbitration award that confirmed the NFL’s discipline of Adrian Peterson.  You can read the decision here.  The judge found two separate bases for vacating the award: 1) the award failed to “draw its essence” from the parties’ Collective Bargaining Agreement; and 2) the arbitrator exceeded his authority by deciding an issue not submitted to him.  (Last week it was Lance Armstrong, this week it’s Adrian Peterson. Sports stars are giving us great opportunities to discuss arbitration law lately…)

The court began its analysis by acknowledging the high bar for vacating arbitration awards, but then immediately noted that deference has its limits.  “Arbitration awards, however, are not inviolate, and the court need not merely rubber stamp the arbitrator’s interpretations and decisions.”

In this case, the court concluded that the award did not draw its essence from the CBA.  The court made that finding primarily because the NFL applied its new Personal Conduct Policy to Peterson, even though Peterson’s conduct took place before that new policy was enacted.  The court cited testimony showing that the NFL Commissioner had previously admitted he could not retroactively apply the new policy, as well as cited a previous arbitration award finding that the NFL could not apply its policies retroactively.  Those two factors convinced the court that the “law of the shop,” which it considered part of the “essence” of the CBA, precluded the NFL from applying the new policy to Peterson.  Therefore, it found the arbitration award–which affirmed the application of the new policy–failed to draw its essence from the parties’ agreement and must be vacated.

The court also found a second basis to vacate the award: the arbitrator’s willingness to analyze whether the discipline was allowed under the old policy.  Because the Players Association did not ask the arbitrator to address that issue, the court found the arbitrator lacked authority to do so.

Other sites will talk about the implications of this decision for the Vikings, for Adrian Peterson’s career, for the NFL’s image, or for child protection, so I only offer a few thoughts about the arbitration analysis.  This case drives home again that labor arbitration is different.  For example, failing to “draw its essence” from the parties’ agreement is not one of the four bases for vacating arbitration awards under the FAA.  Indeed, it seems that if a court applied the very hands-off review prescribed by SCOTUS in Sutter to the Adrian Peterson arbitration award, the award would have survived.  (You may recall that Justice Kagan said even if an arbitrator committed “grave error” in his analysis, the award must be confirmed as long as the arbitrator was even arguably construing the parties’ agreement.)  In this case, the court’s discussion of the arbitration award makes clear that the arbitrator was at least arguably construing the parties’ CBA, and makes equally clear that the court vehemently disagreed with the construction.

After reading the reasons the court stacked up as to why the new policy should not have been applied to Peterson, and the NFL’s previous acknowledgement of the prohibition against retroactive application, I was left wondering whether the vacatur decision was animated by a sense that the arbitrator had been biased.  One of the arguments the Players’ Association made in favor of vacatur was, in fact, that the arbitrator was biased in favor of the NFL as a result of his previous employment by the NFL and his continuing receipt of funds from the NFL.  But the court found it did not have to address that issue head on after it found two other bases for vacating the award.  Was that just a Minnesota Nice solution that avoided pointing fingers? Maybe that issue will be discussed in more depth if this case gets appealed.

On February 4, an arbitration panel ordered Lance Armstrong to pay $10 million to his former promotions company, SCA, as a result of his “unparalleled pageant of international perjury, fraud and conspiracy” that covered up his use of performance-enhancing drugs.  (Read the NYT story about it here.)  What is curious about the award, from an arbitration law standpoint, is that SCA essentially re-opened an arbitration that it had lost with Armstrong in 2005 to obtain this new award.

The general rule of thumb is that arbitrators lose jurisdiction once they issue the final award.  Other than the short period within which parties may request that arbitrators correct a clerical or computational error under the arbitral rules (AAA gives 20 days; JAMS gives only 7), the arbitrators turn into pumpkins for all practical purposes after the final award is issued.  The arbitral rules do not have any equivalent to Rule 60, which in state and federal courts allows a judge to re-do a judgment or order based on newly discovered evidence, fraud, or mistake.  (But even Rule 60 sets a deadline of one year after the judgment is entered to request that the judgment be vacated…)

There is even a fancy Latin name for the reason that arbitrators turn into pumpkins after they issue final awards: functus officio.  The policy is that arbitration awards are suppoed to bring finality, and we wouldn’t want arbitrators revisiting awards based on improper or ex parte information.  However, one of my favorite arbitration resources, Domke on Arbitration, suggests that there are now so many exceptions to the functus officio doctrine that they just about swallow the rule.  Courts have allowed arbitrators to revisit their awards to correct mistakes, to rule on an issue that was submitted but not decided, to clarify an ambiguity, and always, if the parties contractually authorize the same panel to hear a new issue.

That last exception explains how the SCA got a second bite at its arbitration with Armstrong.  SCA’s petition to confirm the new arbitration award gives some important additional facts about what happened at the 2005 arbitration.  Before the arbitration concluded, SCA and Armstrong entered into a settlement agreement requiring SCA to pay Armstrong $7.5 Million.  That settlement agreement specified that the same panel of three arbitrators who heard the 2005 evidence would have “exclusive jurisdiction over” “any dispute or controversy [between the parties] arising under or in connection with” the settlement agreement.

After Armstrong admitted to Oprah Winfrey that he lied in his arbitration with SCA, SCA pursued two new claims with the three original arbitrators: sanctions for perjury and forfeiture of prize money that SCA had paid to Armstrong.  Armstrong objected that the initial panel lacked authority to reconvene, but a majority of the panel disagreed.  After hearing the evidence, a majority of the panel awarded SCA $10 million in sanctions against Armstrong.

Is there any lesson in this highly unusual tale for the run-of-the-mill arbitration?  Of course.  In general, parties and their advocates have one shot at getting the right result in arbitration, so every effort should be made to uncover important evidence and submit it to the panel.  But, in the circumstance where one party is convinced that material evidence remains hidden, why not find a way to make sure the same arbitrator(s) could hear that evidence in the future?  The settlement agreement between Armstrong and SCA is a good vehicle for that.

[Thanks to Karl Bayer and his Disputing Blog for alerting me to this award.]

Post Script: I received great advice from readers that I want to pass along to other advocates.  A few readers noted that the case law authorizing arbitrators to sanction parties is still developing, so attorneys who are involved in drafting arbitration agreements should consider granting the arbitrator specific authority to punish bad behavior.  Additionally, another reader noted that if the parties agree to have the same panel hear any future disputes, they would be wise to consider what happens if one of the panelists is no longer available.  Otherwise, a party who later refused to arbitrate could say that the precise makeup of the panel was integral to the parties’ agreement, such that the inability of any of the arbitrators to serve destroys the agreement to arbitrate.

“When an arbitration goes an opponent’s way on the basis of questionable contract interpretation, parties often seek refuge in [Section] 10(a)(4).  But the Supreme Court has made clear that district courts’ review of arbitrators’ awards under [that Section] is limited to the ‘sole question… of whether the arbitrator (even arguably) interpreted the parties contract.'”

Those two sentences of the Fifth Circuit’s recent opinion in BNSF Railway Co. v. Alstom Transportation, Inc., __F.3d__, 2015 WL 507874 (5th Cir. Feb. 5, 2015), are indicative not only of the result of the opinion, but also of the Court’s attempt to educate the district courts within its reach.  You almost get the sense the Court is saying “if I have to say this one more time…”

The Northern District of Texas had vacated an arbitration award.  The arbitrators found, in part, that BNSF breached its covenant of good faith and fair dealing when it exercised its termination rights under the parties’ agreement.  The agreement gave BNSF the right to terminate without cause, at any time.  The district court could not see how the arbitrator avoided that contractual language to find against BNSF, and therefore ruled that the arbitrators had exceeded their power within the meaning of Section 10(a)(4) of the FAA.

The Fifth Circuit disagreed.  For the benefit of any other district courts that had mis-understood the meaning of Sutter, the Fifth Circuit took this opportunity to give a “how to” tutorial on evaluating motions to vacate arbitration awards.  As a start, the Court notes that “district courts should consult the arbitrator’s award itself” and look for textual evidence that the arbitrator interpreted the contract.  To be even more helpful, the Court suggests that evidence may be found in the arbitrator’s definition of her task, or citations to the contract, or analysis of the contract, or conclusions that “are framed in terms of the contract’s meaning.”  Because in this case, the arbitrators framed their analysis as an interpretation of the “without cause” provision of the contract, the Fifth Circuit found reversal required and reinstated the arbitration award.

[The Fifth Circuit also easily tossed aside the railroad’s argument that the award should be vacated under the Texas or Illinois state arbitration acts.  It cited case law that the FAA rules apply unless there is clear and unambiguous contractual language selecting state arbitration acts.]

It is generally accepted that courts may only engage in the very front and very back end of an arbitration. At the outset, courts may determine whether the parties agreed to arbitrate the dispute, and at the end, courts may determine if the arbitration met the basic fairness requirements of the Federal Arbitration Act.  However, in a 1973 case the Ninth Circuit had indicated there may be some “extreme” circumstances where mid-arbitration intervention was appropriate.  This week, the Ninth Circuit reversed a district court’s attempt to characterize an arbitration as one of those “extreme” cases and nearly disavowed its 1973 ruling creating the loophole.

In Sussex v. U.S. Dist. Ct. for D. Nevada, __ F.3d __, 2015 WL 327558 (9th Cir. Jan. 27, 2015), the underlying issue was whether the arbitrator had a disqualifying conflict of interest.  A single arbitrator was hearing three similar actions by condominium owners against the developer.  During the course of his service, the arbitrator founded a company to invest in “high-value, high-probability legal claims.”  The arbitrator did not disclose that investment activity, but the developer discovered it and moved the AAA to disqualify the arbitrator.  The AAA denied the developer’s request after the arbitrator said his investment company was “dormant”.

Undeterred, the developer moved the federal district court to disqualify the arbitrator and stay the arbitration.  The district court granted the motion.  It relied on Aerojet-General Corp. v. Am. Arbitration Ass’n, 478 F.2d 248 (9th Cir. 1973), which allowed for the possibility that court intervention in ongoing arbitrations may be appropriate in “extreme cases.”  The district court reasoned that the arbitrations were in their early stages, and that the developer would likely be able to vacate any resulting arbitration award based on evident partiality.  The partiality came from the potential that a large financial award for the condominium owners could help the arbitrator promote his company.

On appeal, the Ninth Circuit issued a writ of mandamus, instructing the district court to vacate its disqualification of the arbitrator.  It noted that no court after Aerojet had approved of a mid-arbitration intervention and that a majority of circuit courts “expressly preclude” such intervention.  It found that the district court had clearly erred in its arbitration analysis.  In particular, the district court erred in predicting any award from the arbitrator would be vacated due to evident partiality.  Because there was no “direct financial connection” between the arbitrator and any party or law firm involved, and instead only an attenuated and potential relationship, the Ninth Circuit found insufficient grounds for vacatur.

More interesting, the court found that even if the connection was sufficient to establish evident partiality, that would not be the type of “extreme case” envisioned in Aerojet.  The increased cost and delay associated with a vacated arbitration award are “manifestly inadequate to justify a mid-arbitration intervention.”

This is a hard arbitration pill to swallow.  If a party is convinced that it has a solid basis under the narrow provisions of FAA Section 10 to vacate the arbitration award in its proceeding, and the arbitral venue does not eradicate that basis, this case stands for the proposition that the party has to simply continue through the end of the arbitration, go through the process of vacating the award (and the likely appeal), and then decide whether it wants to re-arbitrate the dispute.  The result drives home the point that the point of the FAA is not efficient resolution of disputes, but enforcing arbitration agreements.

We all know that the doctrines of issue preclusion (collateral estoppel) and claim preclusion (res judicata) apply with equal force to both arbitration awards and court orders.  But, if your adversary brings new claims that you believe have already been determined in arbitration, where do you go to shut down those new claims — court or arbitration?  A recent decision from the Second Circuit clarifies that arguments about issue or claim preclusion should generally be made in arbitration.  Citigroup, Inc. v. Abu Dhabi Investment Authority, __ F.3d__, 2015 WL 161745 (2d Cir. Jan. 14, 2015).

In Citigroup, the parties’ investment agreement provided that “any dispute that arises out of or relates to” the agreement will be decided in AAA arbitration.  The Abu Dhabi Investment Authority (ADIA) asserted claims against Citigroup in arbitration, and after a full hearing, the panel ruled in favor of Citigroup.  ADIA moved to vacate the award, but the Southern District of New York found no “manifest disregard” and confirmed the award.  At that point, ADIA did two things.  It appealed the confirmation to the Second Circuit and served Citigroup with a new arbitration demand, asserting some of the same claims it asserted in the first arbitration.  (Gutsy move.)

At that point, Citigroup started a new federal action, seeking to enjoin the second arbitration under the All Writs Act (or the Declaratory Judgment Act).  ADIA moved to dismiss the complaint and compel arbitration.  The district court compelled arbitration.

The Second Circuit affirmed, but after some soul-searching.  It had to weigh the FAA’s policy favoring arbitration on the one hand, against its concern for “the integrity of federal judgments.”  It also had to address its own 2011 ruling , which enjoined a pending arbitration because the claims had been settled and the settlement implementation remained under the district court’s exclusive authority.

In the end, the Second Circuit appears to have concluded that agreeing to enjoin arbitrations in situations like this would be opening a Pandora’s Box.  “The FAA’s policy favoring arbitration and our precedents interpreting that policy indicate that it is the arbitrators, not the federal courts, who ordinarily should determine the claim-preclusive effect of a federal judgment that confirms an arbitration award.”  The court distinguished its 2011 ruling by noting that in Citigroup, the district court did not retain any jurisdiction over the judgment confirming the arbitration award.  It will be for a new AAA panel to determine whether ADIA’s claims are precluded by the previous arbitration award.

The Second Circuit reversed a district court’s vacatur of an arbitration award this week, finding that the arbitration panel did not manifestly disregard the law when it refused the respondent’s reading of a state statute.  Sotheby’s Int’l Realty, Inc. v. Relocation Group, LLC, 2015 WL 64265 (2d Cir. Jan. 6, 2015).  In doing so, the Second Circuit suggests that 2014’s theme (arbitrator authority) is continuing into the new year.

The dispute in Sotheby’s was between two realty firms over their commissions from the sale of a $16M property in Greenwich, Connecticut. (See Sotheby’s Int’l Realty, Inc. v. Relocation Group, LLC, 987 F. Supp. 2d 157 (D. Conn. 2013).)  A three-member arbitration panel awarded the Relocation Group the commission it sought.  In accordance with the applicable arbitration rules, the panel offered no rationale for its decision.

The federal district court vacated the arbitration award, finding that the arbitration panel had manifestly disregarded the law.  It ruled that the Relocation Group’s commission was precluded by a Connecticut statute requiring brokers to fulfill certain conditions before recovering commissions.  Because the district court concluded the law was clear, and the arbitration panel knew of it but improperly applied it, it vacated the award.

The Second Circuit reversed, un-vacating the arbitration award.  In just two pages, the appellate court concluded that the district court did not properly apply the test for manifest disregard.  In particular, the district court was wrong in finding the state statute “clear”, and it did not look for any colorable justification for the panel’s decision.  [The three part test for manifest disregard in the Second Circuit is: whether the law that was allegedly ignored was clear; whether the arbitrators erred in their application of the law, thereby affecting the outcome; and whether the arbitrators knew of the law’s existence.]

Two things about this opinion are particularly interesting.  First, although the Second Circuit continues to assert “manifest disregard” as a viable basis for vacating arbitration awards under the FAA after Hall Street, I can find no opinion where the Second Circuit has actually found an arbitrator manifestly disregarded the law.  (Despite the issue coming up at least 30 times since 2008.)  Is that because it is such a high standard, or because the Second Circuit does not want to give SCOTUS a test case for whether manifest disregard survives??  Second, as previously noted, it is very hard to vacate an award without any rationale behind it.

The Minnesota Supreme Court today unanimously confirmed an arbitration award of over $600 million in punitive sanctions. Seagate Technology, LLC v. Western Digital Corp., (Minn. Oct. 8, 2014).  Although the appellant argued the arbitrator exceeded his authority by severely sanctioning appellant for fabricating evidence, the court concluded that the parties’ agreement gave the arbitrator power to impose the sanctions. In contrast to the two recent state court decisions vacating arbitration awards, this decision deserves a gold star. (Of course it does. In Minnesota, the women are strong, the men are good looking, and the judges are all above average.)

The parties’ arbitration agreement provided that arbitration would proceed “in accordance with the rules then in effect of the American Arbitration Association. The arbitrator may grant injunctions or other relief in such dispute or controversy.” The relevant AAA rules in turn empowered the arbitrator to “grant any remedy or relief that would have been available to the parties had the matter been heard in court.”  The court found that both the language of the agreement and the incorporated rule were broad enough to allow the arbitrator to issue sanctions, even big sanctions, against a party who fabricated evidence.

The court found the sanctions were “injunctions or other relief” within the meaning of the agreement, and a “remedy or relief” contemplated in the AAA rules. The court therefore held the arbitrator did not exceed his power and the award could not be vacated. (The court also disagreed with the opinion below by finding that arbitrators do not automatically have power to sanction parties, it must come from the language of the parties’ agreement or any incorporated arbitral rules.  The court refused to get into the merits of whether punitive sanctions was an appropriate remedy given the specific facts of this case, noting that the parties chose arbitration and with that choice comes “very limited review of the final award.” )

The court also found the arbitrator did not “refuse to hear evidence” within the meaning of the statute allowing vacatur. Because the arbitrator conducted a full evidentiary hearing before issuing his sanctions award, the court construed the appellant’s challenge as centering on how the arbitrator used or weighed evidence, which is not a basis for vacatur.

The most surprising thing about this case is that the parties do not appear to have argued for application of the FAA.  In fact, the court analyzed the case under Minnesota’s Uniform Arbitration Act (which has since been replaced by the Revised Uniform Arbitration Act).  Given that both of these parties engage in interstate commerce every day, never mind the sheer dollars at issue in this dispute, the FAA definitely applies.  Although the award would be confirmed under both state and federal arbitration statutes, I would have loved to see the Minnesota Supreme Court use this case as an opportunity to help educate the Minnesota bar about the broad application of the federal act.


Other ArbitrationNation News

The University of the District of Columbia Law Review is looking for practitioners to present at its March 2015 conference: “Not All Controversies End in Court: Checking the Balance In Alternative Dispute Resolution.” If you are interested, send an abstract of 200 words or less to by November 1.

Two good new articles are available from Prof. Thomas Stipanowich, both including empirical data from recent surveys of arbitrators and mediators. The first is “Commercial Arbitration and Settlement: Empirical Insights into the Roles Arbitrators Play,” available at The second is “Managing Construction Conflict: Unfinished Revolution, Continuing Evolution” available at


In an example of “What Not to Vacate,” the South Dakota Supreme Court just vacated an arbitration award because the arbitrator dared to apply a South Dakota statute allowing attorneys’ fees to the claimant. A week earlier, the Ohio Supreme Court also vacated an arbitration award for granting a remedy that the court found exceeded the panel’s contractual power.

In the South Dakota case, the arbitrator awarded the claimant attorneys’ fees and costs under South Dakota’s Uniform Limited Liability Company Act. Black Hills Surgical Physicians, LLC v. Setliff, __ N.W.2d __, 2014 WL 4815715 (S.D. Sept. 24, 2014). The state supreme court vacated those fees and costs, finding they exceeded the arbitrator’s power because the contract stated that the parties “agree . . . that each shall pay their own attorneys’ fees.” Citing mostly to labor law cases from the 1960s-1980s, the court concluded that because the arbitrator based her award on law outside the contract (i.e. the applicable statute), she exceeded her power.

Similarly, the Supreme Court of Ohio vacated a portion of an arbitration award reinstating a high level employee to his previous position because it found the arbitration panel exceeded its power. Cedar Fair, L.P. v. Falfas, __ N.E.3d__, 2014 WL 4649951 (Ohio Sept. 18, 2014). Again citing liberally from decades-old labor law cases, the court found that the contract limited the panel’s authority on remedies by stating the panel had authority “to award any remedy or relief that [a state] or federal court in Ohio could grant.” Because the “general rule” in Ohio is that specific performance is not an available remedy for breach of an employment contract, the court found the arbitrators exceeded their power and vacated the reinstatement award. (Instead, the court awarded the employee his base salary for the remainder of his employment term.)

These cases gave me an idea. Instead of reviewing limited cases on an individual basis, SCOTUS should issue a list of guidelines for state courts deciding arbitration disputes. (Can’t you just see it? MEMO TO: All state courts. RE: Your Opinions Are Screwing Up Our Arbitration Jurisprudence. FROM: SCOTUS.)

For example, the subset of guidelines for state courts considering whether to vacate an award could include these five pearls of wisdom:

  • Consider whether the Federal Arbitration Act applies to the dispute (ask the parties to brief that issue if they did not already).
  • Do not rely on any cases before 2000. The law in this area has been evolving rapidly. [This could have changed the outcome of both Black Hills and Cedar Fair.]
  • Do not use standards or language from labor law cases when considering whether to vacate cases that do not involve a collective bargaining agreement. The standards are different. See Associated Elec. Coop., Inc. v. Int’l Bhd. of Elec. Workers, Local No. 53, __ F.3d __, No. 12-3712, 2014 WL 1910604, at *6 (8th Cir. May 14, 2014). [This also could have changed the outcome of both Black Hills and Cedar Fair.]
  • Consider the impact of the arbitral rules on the dispute (ask the parties to brief that issue if they did not already). For example, if AAA rules are mentioned in the arbitration agreement, the arbitrator has the powers outlined in those rules. [This could have changed the outcome of both Black Hills and Cedar Fair, but the opinion does not show whether any set of rules was incorporated.]
  • Read Sutter. And Hall Street.

Any others I should add to the list??!

By the way, the Supreme Court of Florida deserves a gold star on this topic. In Visiting Nurse Assoc. of Fl. v. Jupiter Medical Ctr., Inc., __ So.3d__, 2014 WL 3360314 (Fl. July 10, 2014), it provides a good example of how to analyze a claim for vacatur. The losing party in arbitration claimed the award “impermissibly construed the parties’ contract in a manner that violated multiple federal laws” and the arbitration panel “exceeded its powers by contravening the express contractual limitations.” The court first conducted a sua sponte analysis to determine that the FAA controlled, then agreed with federal circuits finding the four bases for vacatur in Section 10 are exclusive, so that “illegality of the award” is not recognized. It then applied the analysis in Sutter to conclude that the argument about exceeding power was essentially an argument that the losing party “simply disagrees with the panel’s construction of the contract.”

Two posts ago, I reviewed four recent cases in which appellate courts enforced arbitration awards that district courts had refused to enforce.  Today I review two more appellate courts coming to the rescue of arbitration, this time by confirming arbitration awards that had been vacated by lower courts.

In SPX Corp. v. Garda USA, Inc., __A.3d__, 2014 WL 2708631 (Del. June 16, 2014), the Delaware Court of Chancery vacated an arbitration award (under its state arbitration act) after concluding the arbitrator manifestly disregarded the terms of the parties’ agreement. That court found that a section of the parties’ agreement unambiguously required the company’s working capital to reflect liabilities associated with workers compensation claims and the arbitrator manifestly disregarded that contractual requirement in issuing its award. The Supreme Court of Delaware reversed that decision. It found that there were two “colorable” interpretations of the contract, and that even if the arbitrator’s interpretation was wrong, it did not constitute manifest disregard because the arbitrator did not consciously choose to ignore a contract term that is not subject to reasonable debate.

In American Postal Workers Union, AFL-CIO v. U.S. Postal Service, __F.3d__, 2014 WL 2535249 (2d Cir. June 6, 2014), the district court had vacated an award in favor of the Postal Service after finding the arbitrator exceeded his powers. The district court found the arbitrator exceeded his power when he found the worker’s claims were barred based on the doctrine of collateral estoppel, because the collective bargaining agreement (CBA) did not explicitly provide for collateral estoppel. The Second Circuit reversed, finding that even if the CBA did not specifically allow collateral estoppel, it did not explicitly preclude it either, and case law allows arbitrators to apply collateral estoppel under broad arbitration agreements. Because of that, the arbitrator was arguably construing the contract (within the meaning of Sutter) and the award must be confirmed.

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