Arbitration Award Stands Despite Apparent Error of Law
March 12th, 2015
A federal appellate court has reminded the business community that a mistake of law by an arbitration panel will not ordinarily be grounds to overturn the award. The arbitration concerned a terminated financial services consultant, who filed for arbitration almost two years after the termination. Initial claims were arguably based on the wrong state’s laws, and proposed amendments to conform the pleadings with applicable (Florida) law were denied. Yet the arbitration panel appeared to apply the correct state law, just in a manner that the respondent thought was contrary to state law – specifically a one-year statute of limitations and a civil rights act that would apply to an employee but not an independent contractor. The district court had vacated the award on the grounds that the arbitrators exceeded their powers. The federal Court of Appeal directed reinstatement and confirmation of the arbitration award. Its decision notes a “high hurdle for finding reversible error by the arbitrators.” It also discusses the standard of “manifest disregard of the law” sometimes invoked in an effort to vacate an arbitration award, but did not apply that standard here (and noted as an aside that standard would not have changed the outcome). On the statute of limitations claim, the appellate court commented that Florida law had been in flux on that point. But more critically, “Given the legal uncertainty reflected in the certified question presented to the Florida Supreme Court, and the fact that even ‘serious error’ by arbitrators will not invalidate their award, any error by the panel in refusing to dismiss [the consultant]’s claims as untimely does not rise to the level necessary to justify vacatur.” As for the civil rights claim, “the panel’s unexplained reliance on the [Florida Civil Rights Act] leaves us perplexed, and may have been erroneous, [but] it does not render the award unsustainable.” The court ended with the critical message: “In opting for arbitration as its preferred mechanism for resolving employment disputes, [the financial services firm] ‘trade[d] the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.’ [citations omitted] Barring exceptions inapplicable here, our limited review of arbitral decisions requires us to uphold an award, regardless of its legal or factual correctness, if it ‘draw[s] its essence from the contract’ that underlies the arbitration proceeding.” In other words, a simple error of law will not justify vacating an arbitration award. Remember that point. The case is Raymond James Financial Services, Inc. v. Fenyk, 2015 U.S. App. LEXIS 3803 (1st Cir., Mar, 11, 2015).