2006/Vol. 5 No.1 - Hamline Law - Hamline University

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62 THE JOURNAL OF AMERICAN ARBITRATION [Vol. 5:1 method to appeal an arbitration decision. For example, the AAA outlines this interesting appeals process: Within 30 days of receipt of any award (which shall not be binding if an appeal is taken), any party may notify the AAA of an intention to appeal to a second arbitral tribunal, constituted in the same manner as the initial tribunal. The appeal tribunal shall be entitled to adopt the initial award as its own, modify the initial award or substitute its own award for the initial award. The appeal tribunal shall not modify or replace the initial award except [for manifest disregard of law or facts] [for clear errors of law or because of clear and convincing factual errors]. The award of the appeal tribunal shall be final and binding, and judgment may be entered by a court having jurisdiction thereof. 243 Even when a court decides to review an arbitration award, its legal right to review the arbitration decision is very limited. 244 Dissatisfaction with the amount is not grounds to vacate an award. 245 Judicial review is substantially limited. Section 10 of the FAA lists four grounds for a court to vacate an arbitration award: (1) corruption, fraud, or undue means was employed in reaching the award; (2) partiality or corruption exhibited by arbitrators; 246 (3) refusing to postpone the hearing upon sufficient cause; (4) arbitrators exceeded their powers. 247 In vacating an award, a court can rely on several doctrines: manifest disregard of the law, unconscionability, and public policy. “Manifest disregard” of the law is a high standard. It requires a showing that the arbitrator knew and understood the law but chose to not apply it. 248 243. AAA, Drafting Dispute Resolution Clauses, supra note 45. 244. See, e.g., French v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 784 F.2d 902, 906 (9th Cir. 1986) (quoting Swift Indus., Inc. v. Botany Indus., Inc., 466 F.2d 1125, 1131 (3d Cir. 1972) (holding that “[a]n arbitrator’s decision must be upheld unless it is ‘completely irrational’”). 245. Biscanin v Merrill Lynch & Co., Inc., 407 F. 3d 905, 907 (8th Cir. 2005). 246. One test that has been proposed for evaluating an arbitrator’s bias includes a reasonable person standard. If a reasonable person would conclude that the arbitrator was partial, then the arbitral award may be vacated. No actual bias must be shown under this standard. However, bias must be “direct, definite, and capable of demonstration, not remote, uncertain or speculative.” Lisa B. Bingham, On Repeat Players, Adhesive Contracts, and the Use of Statistics in Judicial Review of Employment Arbitration Awards, 29 MCGEORGE L. REV. 223, 248 (1998). 247. 9 U.S.C. § 10(a)(1)-(4) (2004). 248. Upshur Coals Corp. v. United Mine Workers of Am., 933 F.2d 225, 229 (4th Cir. 1994). The court held that an arbitrator’s interpretation of the law “may only be overturned where it is in manifest disregard of the law.” Id. The court
2006] ARBITRATION: THE BASICS 63 “Unconscionability” can be a basis for vacating an award, 249 but even an arbitration agreement pre-packaged in a computer box was not unconscionable or adhesionary enough to warrant a court’s intervention to stay the arbitration. 250 There are two categories of unconscionability: substantive and procedural. 251 When terms are extremely favorable to one side, the contract is said to be of substantive unconscionability. 252 “Courts have suggested . . . a large amount of one type of unconscionability can make up for only a small amount of the other.” 253 Courts have overturned arbitration decisions on “public policy” grounds. 254 For example, an arbitrator who returned a police officer to his job, even though the officer had engaged in a pattern of offensive and predatory conduct toward women for ten years, was reversed by a court because “the arbitrator’s decision under the extreme facts of this case violated public policy.” 255 But for a court to overturn an arbitration decision the public policy violated must be “well defined and elaborated further stating that “[a]n arbitration award is enforceable ‘even if the award resulted from a misinterpretation of law, faulty legal reasoning or erroneous legal conclusion.’” Id. (quoting George Day Constr. Co. v. United Brothers of Carpenters Local 354, 722 F.2d 1471, 1479 (9th Cir.1984)). An arbitration decision “may only be reversed ‘when arbitrators understand and correctly state the law, but proceed to disregard the same.’” Id. (quoting San Martine Compañía de Navegación, S.A. v. Saguenay Terminals Ltd., 293 F.2d 796, 801 (9th Cir. 1961)). 249. E. ALLEN FARNSWORTH, FARNSWORTH ON CONTRACTS, § 4.28, at 552-53 (Aspen Law & Bus. 1998) (citing RESTATEMENT (SECOND) OF CONTRACTS § 208). 250. Hill v Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997), cert. denied, 522 US 808 (1997). 251. Brower v. Gateway 2000, Inc., 676 N.Y.S.2d 569, 573 (N.Y. App. Div. 1998). 252. Id. at 574. 253. FARNSWORTH, supra note 249. 254. W.R. Grace & Co. v. Local Union 759, 461 U.S. 757, 766 (1983) (quoting Muschany v. United States, 324 U.S. 49, 66 (1945)) (holding that to invalidate an arbitration award on public policy grounds, “a public policy . . . must be well defined and dominant, and is to be ascertained ‘by reference to the laws and legal precedents and not from general considerations of supposed public interests’”). But see E.I. DuPont de Nemours & Co. v. Grasselli Employees Indep. Ass’n of E. Chi., Inc., 790 F.2d 611, 618 (7th Cir. 1986) (Easterbrook , J., concurring) (expressing the opinion that “power to set aside awards on grounds of public policy, as distinct from rules of law, is too sweeping”). For further discussion, see Daryl Andrews, The Public Policy Exception to Arbitral Finality: Protecting Children and Preserving the Sanctity of Arbitration, 12 B.U. PUB. INT. L.J. 461 (2003). 255. City of Brooklyn Ctr. v. Law Enforcement Labor Servs., Inc., 635 N.W.2d 236, 244 (Minn. Ct. App. 2001), rev. denied (Minn. Ct. App. 2001).
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