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Arbitration Becomes More Dangerous- an obvious error is not enough for Court intervention

I have noted in a prior post how difficult it is to have a court review legal errors in an Arbitrator’s decision. A recent Federal Court Ninth Circuit decision nails the coffin closed under the Federal Arbitration Act.

The FAA provides that a court may vacate an award “where the arbitrators exceeded their powers.” Arbitrators exceed their powers when they express a “manifest disregard of law.” For this to be shown, court’s have concluded that it must be clear from the record that the arbitrator recognized the applicable law and then ignored it.’

In this case regarding a lawsuit between limited and general partners, the Arbitrator awarded the GP $1.5 million damages, plus $20 million in punitive damages.

The Arbitrator’s decision did not include a substantial discussion of the law on which the decision was based. The court stated that the moving party must show that the arbitrator understood and correctly stated the law, but proceeded to disregard the same. Here, with no arbitrator discussion as to the law considered, the appellant lost his argument- the decision stands.

It is no surprise that the arbitrator did not provide an analysis- I for one have experienced arbitrators who provide only a bare bones win-lose decision, which I believe is specifically done to avoid any challenges. In this case, based on the facts, the appellant knew the arbitrator had made a mistake, but the court of appeals would not address it. Arbitration is dangerous.
Arbitration Between Bosack v. Soward
— F.3d —-, 2009 WL 3416227; 9th Circ. No. 08-35248

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