Expanding the scope of judicial review of arbitration awards: speak clearly.

• Author: Bailey, Frank J.

IADC member Frank J. Bailey is a partner in the Boston law firm of Sherin and Lodgen LLP where he is the chair of the Litigation Department and a member of the firm's Management Committee. He concentrates" his practice in the areas of business and commercial litigation and product liability. This article, which originally appeared in the January, 2006 Business Litigation Committee newsletter, discusses arbitration clauses.

Introduction

Every commercial litigator knows that the existence of an arbitration clause carries with it an inherent risk: If the arbitrator misapplies the law or makes incorrect factual determinations the losing party is stuck with the award. The Federal Arbitration Act ("FAA") provides for an extremely limited scope of judicial review. Some business lawyers have attempted to expand the scope of judicial review by crafting appropriate arbitration clauses. These clauses allow the reviewing court to reverse the arbitration award if the court finds clear error of law. A recent decision of the First Circuit Court of Appeals makes it clear, however, that efforts to expand the scope of judicial review of arbitration awards must be accomplished by explicit and narrow contractual language evincing the parties' clear intent to subject the arbitration award to a standard of review different from that set forth in the FAA.

The Scope of Review of Arbitration Awards

Under the FAA, the reviewing court may intervene in an arbitration award only where the arbitration has been "tainted in certain specific ways." Advest, Inc. v. McCarthy, 914 F.2d 6, 8 (1st Cir. 1990) Indeed, it is central to the statutory scheme that awards may not be overturned simply because they contain garden-variety factual or legal errors. Id. The FAA, 9 U.S.C. [section] 10 (2000), provides that a district court may vacate an award only as follows:

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.

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.

Although the Act permits a court to vacate an award where the arbitrators demonstrate a...