Arbitration Law FAQs: Challenging Arbitration Awards in Court under the Federal Arbitration Act
This Arbitration Law FAQ guide is designed to provide individuals and businesses with some basic information about challenging arbitration awards under the Federal Arbitration Act in a federal district court having subject matter jurisdiction. It is not legal advice or a substitute for it.
Does the Federal Arbitration Act ("FAA") allow me to appeal to a court an adverse arbitration award?When a person agrees to arbitrate he or she gives up the right to appellate review by the courts. You therefore cannot—at least in any meaningful sense of the word—“appeal” an FAA-governed arbitration award to a court. An appeal involves judicial review by an appellate court under which a panel of judges reviews trial-court rulings on questions of law independently—that is, as if the appellate court were deciding the question for itself in the first instance—and reviews questions of fact for clear error. Appellate review is pretty broad and searching, particularly where the outcome turns on a question of law. As we'll see, judicial review of arbitration awards under the FAA is much more narrow and limited in scope.
If I can’t appeal, how can I challenge an arbitration award under the Federal Arbitration Act?The Federal Arbitration Act provides some limited remedies for certain kinds of unusual, serious, and material violations of an arbitration agreement by an arbitrator or an opposing party, as well as for situations where the arbitrators have made an obvious mathematical, typographical, or technical error that appears on the face of the award. These remedies are orders: (a) modifying or correcting the award; or (b) vacating the award in whole or in part.
To vacate an award means to annul it, that is, to declare it null and void. When an award is modified or corrected, there is generally no need for more arbitration of the matters addressed in the award. When an award is vacated, then the parties generally must (absent a settlement) go back and re-arbitrate the matters that were the subject of the award.
These remedies are available only in very limited circumstances, which, for the most part, are set out in the FAA itself. Strict and very short time limits apply, and the chances of success are usually not very high (except in extraordinary circumstances).
When and how can a court modify or correct an arbitration award under the FAA?A motion to modify an award is ordinarily limited to correcting mathematical, typographical or other technical errors appearing on the face of the award, or severing from the award rulings on issues not submitted to the arbitrators (i.e., issues the parties did not ask the arbitrators to decide). See 9 U.S.C. § 11(a) (“evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award”); 9 U.S.C. § 11(c) (“award is imperfect in matter of form not affecting the merits of the controversy”); 9 U.S.C. § 11(b) (“arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted”). The court’s “order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties.” 9 U.S.C. § 11. If a party only seeks modification or correction of an award, even if the challenging party prevails, the end result of the proceeding will be the court’s entry of a judgment on the modified or corrected award.
On what grounds may a court vacate an award under the FAA?An application to vacate an award under Section 10 of the FAA may be granted only where:
(a) “the award was procured by corruption, fraud, or undue means” (9 U.S.C. § 10(a)(1)); (b) “there was evident partiality or corruption in” any of the arbitrators (9 U.S.C. § 10(a)(2)); (c) “the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced” (9 U.S.C. § 10(a)(3)); or (d) “the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made” (9 U.S.C. § 10(a)(4)). 9 U.S.C. § 10(a)(1)-(4).
The U.S. Supreme Court has held that these four, statutory grounds are exclusive in FAA-governed cases, and parties cannot expand their narrow scope by agreement or agree that courts may vacate awards on any other grounds. See Hall Street Assoc., L.L.C. v. Mattel, Inc., 552 U.S. 576, 578 (2008). The same is true for the grounds for modifying or correcting an award.
Can I challenge the outcome of the award?Although none of the four grounds explicitly authorizes review of an award’s outcome, the U.S. Supreme Court has held that arbitrators “exceed their powers” under Section 10(a)(4) if they “stray from interpretation and application of the agreement” and substitute for the parties’ agreement their “own brand of . . . justice.” See Stolt-Nielsen, S.A. v. AnimalFeeds, Int’l Corp., 559 U.S. 662, 668 (2010) (quotation and citations omitted). Under this standard—sometimes referred to as the “essence of the agreement” or "manifest disregard of the agreement" standard—the court may review an arbitrator’s decision on issues that the parties agreed to arbitrate to determine whether there is some arguable basis on which to conclude that the arbitrator construed or applied the parties’ agreement. See, e.g., Stolt-Nielsen, 559 U.S. at 668-72; Oxford Health Plans LLC, v. Sutter, 133 S. Ct. 2064, 2068-71 (2013). If there is not, the award may be vacated.
The standard is narrow and meeting it presents a “high hurdle” that a challenger cannot overcome simply by showing that the arbitrators “committed an error —or even a serious error.” Id. The sole question for the court “is not whether the arbitrator or arbitrators erred in interpreting the contract; it is not whether they clearly erred in interpreting the contract; it is not whether they grossly erred in interpreting the contract; it is whether they interpreted the contract.” See Hill v. Norfolk and Western Ry. Co., 814 F. 2d 1192, 1194-95 (7th Cir. 1987) (Posner, J). If the arbitrator is even “arguably” interpreting the contract, then the arbitrator’s award cannot be vacated. See Oxford, 133 S. Ct. at 2068 (citation and quotation omitted).
What if the arbitrator manifestly disregards the law?Some (but not all) U.S. Circuit Courts of Appeals also hold that courts may—under Section 10(a)(4), or “as a judicial gloss” on all the Section 10(a) grounds—vacate awards for “manifest disregard of the law,” a standard that overlaps to some extent with the “essence of the agreement” or “manifest disregard of the agreement” standard. See Stolt-Nielsen, 559 U.S. at 668 n.3; Oxford, 133 S. Ct. at 2068-71 (2013); see, e.g., Schwartz v. Merrill Lynch & Co., Inc., 665 F. 3d 444, 451-52 (2d Cir. 2011) (manifest disregard of the law is a judicial gloss on Section 10(a)); Comedy Club, Inc. v. Improv West Assoc., 553 F.3d 1277, 1290 (9th Cir. 2009) (manifest disregard of the law falls under Section 10(a)(4)). Vacatur under that standard may be appropriate if arbitrators disregard or ignore a well-defined, explicit, clearly applicable and outcome determinative rule of law that the challenger argued to the arbitrators. See, e.g., Schwartz, 665 F.3d at 451-52. Manifest disregard of the law does not authorize courts to vacate awards for errors of law—even serious ones—or “a failure on the part of the arbitrators to understand or apply the law.” See, e.g., Lagstein v. Certain Underwriters at Lloyd’s, 607 F.3d 634, 641 (9th Cir. 2010) (quotation and citation omitted).
Is there any other basis on which a court may vacate an award based on its outcome?The only other possible avenue of something resembling outcome review is if the award interprets the contract in a way that causes it to violate a well-defined and explicit public policy, or if the remedy the arbitrator awards violates the criminal law or requires one of the parties to do so. For example, one would not expect a court to enter judgment on an award that purported to authorize the prevailing party to inflict bodily harm on the losing party or vice-versa. That principle is simply an application of the contract-law rule that courts will not enforce contracts that violate public policy. See, generally, W. R. Grace & Co. v. Rubber Workers, 461 U.S. 757, 766 (1983); United Food & Commercial Workers Int’l Union v. King Soopers, 743 F.3d 1310, 1315 (10th Cir. 2014).
This “public policy” exception to enforcement is principally a creature of labor arbitration, which is not technically governed by the FAA, but by Section 301 of the Labor Management Relations Act, pursuant to which federal courts have created a body of common-law applicable to the enforcement of collective bargaining agreements, and the arbitration agreements that are commonly part of them. While some courts may apply the very narrow public policy exception to enforcement commercial arbitration awards governed by the FAA (or at least pay lip service to it), it is unclear to what extent it would be available under the FAA (except perhaps in extreme and highly unusual circumstances where, for example, the award might purport to force a person to commit a crime).
Aren’t these “outcome review” standards analogous to appellate review of an award?No. The “outcome review” standards discussed above authorize vacatur only when there is not even a barely colorable basis in the contract or controlling law for the award. They do not even vaguely resemble the appellate review standards that are ordinarily applied to trial court decisions on the merits.
How much time do I have to vacate, modify, or correct an award?The FAA strictly limits the time within which an application to vacate, modify, or correct an award may be made. While a party applying to confirm an award has one year to make its application, a party that wants to vacate, modify or correct one has to assert its grounds within three-months. See 9 U.S.C. § 12. If the party seeking confirmation makes its application after that three-month period elapses, then the opposing party cannot, as a matter of law, assert Section 10’s or 11’s grounds for vacating, modifying or correcting an award, even as affirmative defenses to the application to confirm. See, e.g., Florasynth, Inc. v. Pickholz, 750 F.2d 171, 175-76 (2d Cir. 1984).
How do I know whether I have at least arguable grounds on which to seek to vacate an award?There is a two step process you can use to help you determine whether you or your business might have grounds to vacate an arbitration award. First, ask yourself whether you have any evidence that:
(a) your adversary in the arbitration procured the award through fraud, corruption, or other improper means; (b) any of the arbitrators failed to disclose any significant relationships with your adversary or anyone else that are strongly suggestive of bias; (c) any of the arbitrators failed to disclose a financial or personal interest in the outcome; (d) any of the arbitrators were in fact biased; (e) you were prejudiced by the arbitrator’s failure to postpone the hearing in response to your request, which was supported by good cause; (f) you were prejudiced by the arbitrator’s failure to hear important, noncumulative evidence which, if considered by the arbitrator, reasonably could or would have changed the outcome of the award; (g) you were otherwise prejudiced because the arbitrator’s procedural or evidentiary rulings denied you a fundamentally fair hearing; (h) the arbitrator acted in excess of his or her authority because she ruled on an issue that the parties did not submit to the arbitrators; (i) the arbitrator disregarded a well-defined, explicit, clearly applicable and outcome determinative rule of law that you or your attorney argued to the arbitrator, and the resulting award therefore does not have even a barely colorable basis in the law; or (j) the arbitrator’s award is not even arguably an interpretation of the contract and there is therefore no barely colorable basis for it in the parties’ contract.
Second, if the answer to any of the preceding 10 questions is “yes,” then consult as quickly as possible with an attorney with substantial experience in arbitration law, including the confirmation, vacatur, modification, and correction of awards. That attorney may be the attorney who represented you in the arbitration, or it may another attorney that you might engage to handle the post-award litigation. If it is another attorney, you may or may not want that attorney to work together with the attorney who represented you in the arbitration. Every situation is different.
How can an attorney help me challenge an arbitration award?As discussed above, if you are considering whether to challenge an arbitration award, you are well-advised to hire an attorney with substantial experience and skill in handling FAA litigation. The first thing an attorney should do is to help you determine whether you have an arguable basis on which to seek vacatur, and if so, what your chances of success are. Unless it is fairly obvious that you have no possible ground on which to file a motion to vacate, then to determine whether, and if so to what extent, you have at least an arguable basis for seeking vacatur, your attorney will need to review pertinent documents, interview you about the facts, and, review and consider applicable case law.
If it turns out that your attorney determines that you have at least an arguable basis to proceed, then the question becomes what, roughly, are your chances of success. The attorney should be able to give you a ballpark estimate of those chances as part of the initial analysis described above.
Then you, as the client, need to decide whether you wish to proceed with the filing of papers required to make your application to vacate the award. Your attorney can advise you what is required in the circumstances, but ordinarily you will be required to serve and file timely a notice of application or petition; the application or petition (which is akin to a detailed pleading in a regular law suit); one or more affidavits, affirmations, or declarations, some or all of which may attach documentary evidence in the form of exhibits; a memorandum of law (which is legal brief detailing the facts and legal arguments, and citing to pertinent portions of the affidavits and applicable legal authorities). Depending on what arguments the other side makes in response to your application, you will also probably want to serve and file reply papers, which address certain or all of the arguments your adversary makes in its opposition papers.
To help you make the cost-benefit decision about whether to proceed, your attorney should also be prepared to either provide fixed-fee quotes for the projects comprising the work, or at least to give you a realistic estimate of what your fees will be if billing is to be on an hourly basis. If you decide to proceed, then the attorney will prepare and file the papers for you, answer any questions you have, and otherwise keep you apprised of the progress of your matter.
We cannot over-emphasize how important it is to act as quickly as possible if you want to challenge an award. Such applications are subject to a three-month statute of limitations, as discussed above. If you fail make the application within that period then you are, for all intents and purposes, out of luck.
Given the amount of paperwork that must be submitted to support an application to vacate, and given busy schedules and the like, it is important to make the decision about proceeding in time to allow at least 15 days or so for your attorney to prepare, serve, and file the papers.