While a court may vacate an arbitration award if the arbitrator exceeds the scope of his authority, the City of Lebanon was unable to convince the Supreme Court of New Hampshire that an arbitrator exceeded his authority when siding against the City in a tax dispute.

The plaintiff in Lebanon Hanger Assoc. v. City of Lebanon, ___ A.3d ___, 2012 WL 2094387 (N.H. June 12, 2012), had been leasing property from the City for 15 years. During the first 14 years, the City only taxed the value of the buildings. In the 15th year, the City taxed the value of the buildings plus the value of the land, quintupling the taxable amount. The plaintiff objected and the parties then arbitrated under a clause in the lease saying “any controversy arising out of or relating to this lease…shall be settled by arbitration.”

The arbitrator ruled for the plaintiff. The arbitrator found the lease allowed the City to tax the value of the land, but that mutual mistake warranted reformation of the lease such that the plaintiff was not obligated to pay taxes on the value of the land. The trial court vacated that decision, finding that the arbitrator’s authority was limited to deciding the meaning of the “four corners of the lease agreement.”

The Supreme Court of New Hampshire wisely saw that the City was playing too cute with its arbitration clause and its static definition of “lease,” and held that the arbitrator did not exceed the scope of his authority. The Court relied on the broad scope of the arbitration clause, the parties’ statements to the district court in initially staying the case, and the parties’ submissions to the arbitrator in concluding that the parties’ agreed to have the arbitrator consider extrinsic evidence and to fully decide the dispute about whether the land was taxable.

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by Liz Kramer

Liz Kramer is a shareholder at Leonard, Street and Deinard, one of the largest law firms in Minnesota, where she litigates complex business and construction disputes. Liz graduated from Yale Law School and is deeply knowledgeable on arbitration law. Website: www.arbitrationnation.com