Two cases recently fit in one of my favorite categories: those awards that get “un-vacated.” These cases went through arbitration, had that arbitration award vacated by a district court, only to have the award later resurrected by an appellate court. In today’s edition, the whiplash happens in both state and federal court.
In Caffey v. Lees, 2018 WL 327260 (R.I. Jan. 9, 2018), Lees was the winner after bringing a personal injury case in arbitration. He was awarded nearly $200,000. Caffey moved to vacate the award, arguing every possible basis under the Rhode Island arbitration statute. The trial court granted the motion to vacate, based on the initial failure of Lees’ counsel to disclose a document from its expert. Not just any document, of course, but an early assessment that contradicted the expert’s eventual opinion about causation. The trial court found that omission meant the award was procured by “undue means.”
On appeal, the Supreme Court of Rhode Island noted it had not addressed “undue means” since 1858. It looked to more recent definitions from federal circuit courts of the phrase — noting that proving undue means involves proving “nefarious intent or bad faith” or “immoral” conduct. It found that standard was not met in this case, since the losing party had the critical document well before it submitted its final brief to the arbitrator. Indeed, the issue of the untimely disclosure was placed before the arbitrator, and the expert explained the discrepancy. Because the expert had a plausible explanation, the court could not agree that Lees’ counsel obtained the award through underhanded or conniving means. The Supreme Court reinstated the award.
A case in the Ninth Circuit followed the same path. In Sanchez v. Elizondo, 2018 WL 297352 (9th Cir. Jan. 5, 2018), an investor won a $75,000 award in a FINRA arbitration. The district court granted the broker’s motion to vacate based on an argument that the arbitrator exceeded his powers. In particular, the arbitrator allowed the arbitration to proceed with a single arbitrator, even after the claimant had submitted a pre-hearing brief increasing its damage request to just over the FINRA line that requires a three-arbitrator panel. (The FINRA rules provide that claims over $100,000 must be heard by three arbitrators. The claimant had initially requested exactly $100,000, so was assigned the single arbitrator, but then sought $125,000 in the pre-hearing brief, without amending the claim.)
The Ninth Circuit reinstated the award. After first establishing that it had appellate jurisdiction, it considered the arbitrator’s powers. Importantly, the court affirmed that arbitrators have discretion on matters of substance as well as matters of procedure. In this case, FINRA rules explicitly gave the arbitrator power to interpret the FINRA Code and rules. Furthermore, the arbitrator asked the parties to address the issue of the increased damage amount, considered their arguments, and interpreted the rule to reference the amount initially claimed in the demand, instead of any amount later sought in the arbitration. Because the arbitrator had power to interpret the rule and did so, the court found he did not exceed his powers.
These don’t seem like hard cases to me. Given the standard for vacating awards, these arbitration awards should have been straightforward to confirm. The fact that they weren’t suggests either that the speed of development under the FAA is difficult for advocates and judges to keep up with, or that there may be some judicial hostility toward arbitration coloring the application of the standard for vacatur.
By Liz Kramer