Chapter 17 - § 17.4 • GROUNDS FOR VACATING THE AWARD
| Jurisdiction | Colorado |
The grounds for vacating an arbitrator's award are sharply restricted under both the Federal and Colorado arbitration acts.60 Both statutes provide for a court to vacate an arbitration award if statutorily defined grounds are established.61
§ 17.4.1—Statutory And Common Law Grounds For Vacating An Award Under The FAA Statutory Grounds
The statutory grounds for vacating an arbitrator's award under the FAA are defined in 9 U.S.C. § 10.
1) The award was procured by corruption, fraud, or undue means.
2) There was evident partiality or corruption in the arbitrators, or either of them.
3) 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.
4) 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.
Common Law Grounds
See § 17.4.15.
The most frequently recognized common law grounds for vacatur, recognized by many federal courts under the FAA prior to the Hall Street Associates decision, were that the award was the result of the arbitrator's manifest disregard of the law or was against public policy.
Until the decision in Hall Street Associates, most federal circuits held that in addition to statutory grounds, there were also federal common law grounds for vacating an arbitration award, such as manifest disregard of the law. The Tenth Circuit recognized judicially created grounds for vacating an arbitration award, in addition to those listed in §10 of the FAA, but not those agreed upon by the parties.62
For example, PeopleSoft, Inc. v. Amherst, L.L.C.,63 emphasized that, under the FAA, there are only limited nonstatutory grounds — grounds in addition to those listed in 9 U.S.C. § 10 — for vacating an award: a manifest disregard of law, violation of public policy, or the denial of a fundamentally fair hearing. The Eleventh Circuit defined a further ground as an arbitrary and capricious award.64 In U.S. Energy Corp. v. Nukem, Inc.,65 the Tenth Circuit acknowledged manifest disregard as a ground for vacating an award.
Similarly, previously, at least in federal courts, if enforcement of an arbitral award would violate public policy, the award would not be confirmed, and instead would be vacated.66 For example, the issue arose regarding an award denying health insurance benefits for a liver transplant;67 an award that an employee who had been found to have sexually assaulted another be suspended for one month without pay;68 and an award ordering an employer to reinstate a truck driver who had twice tested positive for marijuana.69
Status of Common Law Grounds to Vacate Arbitration Awards Under the FAA
On March 25, 2008, the U.S. Supreme Court appeared to hold that under the FAA, the sole grounds for vacating an arbitration award are those listed in 9 U.S.C. § 10, and the sole grounds for modifying or correcting an award are those defined in 9 U.S.C. § 11.70
In so holding, the court may have eliminated the judicially created grounds for appeal of arbitration awards under the FAA. Examples of such grounds that may have been eliminated include manifest disregard of the law. See §§ 17.4.15-17.4.17. This decision generally tracks the earlier decision of the Colorado Court of Appeals holding that the statutory grounds of the CUAA were exclusive. See § 17.4.2.
The Hall Street Associates decision seemed to answer a very important question — as to appeal of awards under the FAA, at least in federal court, the statutory grounds listed in § 10 are exclusive: Sections 10 and 11 of the FAA "provide the FAA's exclusive grounds for expedited vacatur and modification."71 However, in reaching that conclusion, the Court raised new questions to be resolved:
In holding that §§ 10 and 11 provide exclusive regimes for the review provided by the statute, we do not purport to say that they exclude more searching review based on authority outside the statute as well. The FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable. But here we speak only to the scope of the expeditious judicial review under §§ 9, 10 and 11, deciding nothing about other possible avenues for judicial enforcement of arbitration awards.72
The court noted that in the instant case, the arbitration agreement was entered into in the course of district court litigation and adopted by the district court as an order. "[S]hould the agreement be treated as an exercise of the district court's authority to manage its cases under Federal Rule of Civil Procedure 16 [instead of as an arbitration under the FAA]?"73 Thus, the Supreme Court clearly left the door open for development of arbitration outside the FAA with vacatur grounds other than as stated in the FAA. Other questions include:
• Do the statutory grounds for vacatur encompass the common law grounds such as manifest disregard of the law and public policy?
• Can the parties agree that the arbitrator's jurisdiction extends only to an award in accordance with applicable law — and any award in manifest disregard of the law would be beyond the arbitrator's jurisdiction or outside of his or her powers?
• When the FAA is applicable in a state court proceeding, does the FAA preempt state law as to grounds for vacatur, or may a state court apply state vacatur law even when the FAA is otherwise applicable?
• Can the parties agree that state law of vacatur shall govern in a case otherwise governed by the FAA? (The Court seems to answer this question in the affirmative.)
The U.S. District Court for the District of Colorado noted that there was some question as to whether Hall Street Associates eliminated all judicially created grounds for vacatur.74 In November 2009, the Tenth Circuit discussed manifest disregard of the law, without mentioning Hall Street Associates.75 In January 2010, the Tenth Circuit referred to "a handful of judicially created reasons" as grounds for vacation of an award, but stated in a footnote that in Hall Street Associates, "the Supreme Court held that grounds set forth in 9 U.S.C. § 10 are the exclusive means to vacate an arbitration award. . . . But we need not decide what, if any, judicially-created grounds for vacatur survive in the wake of Hall Street Associates. . . ."76
Following its decision in Hall Street Associates, in 2010 the U.S. Supreme Court stated in a footnote: "We do not decide whether 'manifest disregard' survives our decision . . . as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10."77
In 2014, the Tenth Circuit expressly recognized violation of public policy, manifest disregard of the law, and denial of a fundamental fair hearing as judicially created grounds for vacating an arbitration award.78
However, the status of manifest disregard of the law under the FAA is presently uncertain in Colorado. In Abbott v. Law Office of Patrick J. Mulligan, the Tenth Circuit stated, "But in the absence of firm guidance from the Supreme Court, we decline to decide whether the manifest disregard standard should be jettisoned."79 However, subsequently the Tenth Circuit appears to continue to recognize the grounds.
The Tenth Circuit avoided determining whether the manifest disregard of the law ground exists after the Hall Street Associates decision as a ground for vacating an award.80 The court considered whether manifest disregard of the law remains an independent ground, and whether manifest disregard is simply a part of the grounds of arbitrators exceeding powers or imperfectly executing them. However, the court found the arbitrators did not manifestly disregard the law and hence did not need to determine whether the ground remains. The court defined that the ground is more than an error or misunderstanding of the law. "While the arbitration panel may have 'got the law wrong' and perhaps even 'really wrong' there is no evidence that it engaged in any type of egregious or intentional misconduct as required by the FAA."81 The alleged error was awarding gross damages instead of net damages.
Other federal courts have differed in their interpretation of the Hall Street Associates decision. For example, the Fifth Circuit has since held that "we may vacate the arbitration award in this case only if a statutory ground supports the vacatur."82 The Sixth Circuit interpreted Hall Street Associates to not expressly reject manifest disregard of the law and vacated an arbitration award on the basis that the arbitrator manifestly disregarded the law.83 The Second Circuit appears to have concluded that "manifest disregard of the law" remains a ground for vacation of awards.84
• Annot., Construction and Application of § 10(a-d) of United States Arbitration Act of 1947 (9 U.S.C. § 10(a-d)), Providing Grounds for Vacating Arbitration Awards, 20 A.L.R. Fed. 295.
• Annot., Determination of Validity of Arbitration Award Under Requirement that Arbitrators Shall Pass on All Matters Submitted, 36 A.L.R.3d 649.
• Annot., Arbitrator's Consultation with Outsider or Outsiders as Misconduct Justifying Vacation of Award, 47 A.L.R.2d 1362.
See generally §§ 15.8.2 and 16.4.2.
§ 17.4.2—Statutory And Common Law Grounds For Vacating An Award Under The CRUAA
CRUAA Statutory Grounds
The statutory grounds for vacating an award under the CRUAA are defined in C.R.S. § 13-22-223(1):
(a) The award was procured by corruption, fraud, or other undue means;...
(b) There was:
(I) Evident partiality by an arbitrator appointed as a neutral arbitrator;
(II) Corruption by an arbitrator; or
(III) Misconduct by an arbitrator prejudicing the rights of a party to the
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