One of the very few grounds to vacate an arbitration award is if the arbitrator exceeded his/her authority under the arbitration clause or pertinent contract. The First Circuit Court of Appeal has reminded one party, though: if you submit the issue to the arbitrator, then don’t try to argue that he exceeded his authority by ruling on that issue.
The contract in question was for operation of a fiber optic network. As part of the network operator agreement (NOA), the network operator provided a parent company guarantee (referred to throughout the decision as the “Guaranty”) to the network owner. The network owner and operator eventually ended up in arbitration, per an arbitration clause in the agreement between them.
The arbitrator found that the network owner had breached the NOA. And, as a result of that breach, the arbitrator ruled that there was no consideration for the Guaranty and the network owner was not entitled to the benefit of the Guaranty. In the subsequent court battle to confirm or vacate the arbitration award, the network owner argued that the arbitrator had exceeded his authority when effectively invalidating the parent company Guaranty.
But in the arbitration, the network owner had asked the arbitrator, after a preliminary award had been issued, to clarify the award relative to the Guaranty. The network owner had also argued that the Guaranty should remain valid and enforceable. The arbitrator’s final award confirmed that the network owner’s breach “went at once to the ‘essence’ or ‘foundation’ of the NOA and underlying consideration of the Guaranty.”
The federal district court sided with the network owner and partially vacated the arbitration award, as it concerned the parent Guaranty. But the First Circuit Court of Appeal reversed: “The question of the Guaranty’s validity was squarely before the arbitrator as a result of [the network owner]’s strategic choices.” The network owner had elected arbitration and had sought in that arbitration a declaration that the “Guaranty and NOA . . . are valid and enforceable contracts . . .”
So by placing the validity of the Guaranty in front of the arbitrator, the network owner would not be justified in later arguing that the arbitrator had exceeded his authority in finding the Guaranty to be without consideration and unenforceable.
The case is Axia NetMedia Corp. v. Mass. Technology Park Corporation, 2020 U.S. App. LEXIS 27666 (1st Cir., Aug. 31, 2020).
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