Until the 1925 enactment of the Federal Arbitration Act (FAA), 9 U.S.C. [section][section]1-14, courts were reluctant to enforce contracts to arbitrate disputes. Section 2 of the FAA provides for the enforceability of written contracts to arbitrate "save on such grounds as exist at law or in equity for the revocation of any contract." After the FAA's passage, the enactment of [section]301 of the Labor Management Reporting Act of 1947, also known as the Taft Hartley Act, 29 U.S.C. [section]185(a), ([section]301) further promoted arbitration as a process for resolving labor disputes. Additionally, state statutes modeled after the FAA, such as the Florida Arbitration Code (FAC), F.S. [section]682.01, et seq., are often available to enforce agreements to arbitrate disputes not covered by the FAA or [section]301. Courts are not inclined to set aside or modify decisions of arbitration panels and will do so only under limited circumstances. This article discusses the authority considered in determining challenges to arbitration awards.
Challenging Arbitration Awards Under the FAA
Section 10 of the FAA sets out the following four circumstances under which a court is authorized to vacate an arbitration award:
(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration--
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where 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; or
(4) where 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.
The FAA requires a notice of a motion to vacate, modify, or correct an award to be served on the adverse party or the party's attorney within three months after the award is filed or delivered. (1) When the parties have agreed that a judgement must be entered on the award and specified in which court, a party may, within one year after the award was made, apply to that court for an order confirming the award. (2) Where the FAA applies, challenges to arbitration awards are commonly decided where a party has invoked one of these two provisions.
Award Procured by Corruption, Fraud, or Undue Means
Challenges to awards under [section]10(a) (1) are commonly based on disclosures regarding witnesses or counsel. Courts have placed a high bar to vacating arbitration awards based on fraud but fraud will constitute grounds for vacation when it is shown to affect an award. It is important for counsel from the inception of the proceeding to look thoroughly for any relationships with opposing counsel, witnesses who have been identified and the parties as well.
In Bonar v. Dean Witter Reynolds, 835 F.2d 1378 (11th Cir. 1988), the court reversed the lower court's refusal to vacate an arbitration award of punitive damages. One of the claimant's two expert witnesses lied about his academic credentials, falsely claiming he had a degree from the University of Alabama and had attended Columbia. He also untruthfully testified that he worked for St. Paul Fire and Marine Insurance Company, where he managed a $30 million-dollar portfolio. The court observed that a party moving to vacate an award for fraud must demonstrate 1) that fraud existed by clear and convincing evidence; 2) the fraud would not have been discoverable by the exercise of due diligence, either before or during the evidentiary hearing; and 3) that the fraud related to an issue in the proceeding. (3) The court reasoned that if the expert had not falsified his credentials it was questionable if he would have been permitted to testify as an expert witness. It further noted that the arbitration decision reflected the influence of the individual's testimony, which "materially related to an issue in the arbitration." (4)
In International Brotherhood of Teamsters, Local 519 v. United Parcel Service, Inc., 335 F.3d 497 (6th Cir. 2003), the grieving employee, Thomas Loftis, was dismissed for violating the employer's "zero-tolerance policy" during a confrontation with a co-worker, Adkins. The Sixth Circuit remanded the case to the district court, which had denied the union's motion to vacate the award based on fraud on the part of UPS in obtaining the award. Adkins had told the investigating supervisor of security that Loftis had assaulted him both verbally and physically. Subsequently, Adkins partially recanted his allegations stating that Loftis' assault had only been verbal and not physical. A UPS supervisor later disclosed that in his initial statement, Adkins only mentioned the verbal assault and did not claim physical contact by Loftis until later. The appellate court, applying [section]10(a) (1) for this [section]301 action, instructed the district court on remand to determine whether there was clear and convincing evidence of fraud and whether the complainant could have discovered the fraud prior to the arbitration by the exercise of due diligence. (5)
Evident Partiality or Corruption in the Arbitrators Under FAA [section]10(A)(2)
In Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968), a supposedly neutral arbitrator who was appointed by the arbitrators selected by each party had not disclosed that he had performed consulting work for one of the parties. While Commonwealth Coating's unsuccessful district court challenge to the award based on this failure to disclose was affirmed by the First Circuit, Justice Black, writing for a four-justice plurality of the Supreme Court, reversed, noting:
It is true that arbitrators cannot sever their ties with the business world, since they are not expected to get all their income from work deciding cases, but we should, if anything, be even more scrupulous to safeguard the impartiality of arbitrators than judges, since the former have free rein to decide the law as well as the facts and are not subject to appellate review. (6)
Justice Black further opined at: ... any tribunal permitted by law to try cases and controversies not only must be unbiased but also must avoid even the appearance of bias. We cannot believe that it was the purpose of Congress to submit their cases and controversies to arbitration boards that might reasonably be thought biased against one litigant and favorable to another. (7)
Emphasis was placed on the importance for arbitrators to "disclose to the parties any dealings that might create an impression of possible bias." (8) In a concurring opinion joined by Justice Marshall, Justice White wrote, "The...