Paul Peter Nicolai
SUING TO VOID AN ARBITRATION AWARD GETS EXPENSIVE
Updated: Jul 15, 2021
Back about 10 years ago, the US Supreme Court limited the grounds for voiding arbitration awards under federal law. Before that, courts said arbitration awards could be voided if the arbitrator's actions were arbitrary and capricious, if enforcement of the award was contrary to public policy or if the arbitration award showed a manifest disregard for the law.
The new standard is that arbitration awards can only be voided if they were (1) based on corruption, fraud or undue means; (2) there was evident partiality or corruption by the arbitrator; (3) the award involved arbitrator misbehavior by which the rights of any party had been prejudiced or (4) the arbitrator had exceeded their power or so imperfectly executed their power that a mutual, final and definitive word on the subject matter was not made.
Despite this new limitation, cases are frequently brought to void arbitration awards on the old grounds, primarily because the old grounds were much more ambiguous. Appellate and district courts have over the past couple of years started to accept motions for sanctions against parties who bring cases to void arbitration awards where there is no evidence that the new standard can be complied with.
Why this is important... These cases, which are springing up around the country, raise the stakes for bringing actions to avoid arbitration awards not founded on the new, tighter standards. The sanctions generally are the legal fees paid by the party defending against the action to void the arbitration award.