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« Sanctions for attacking arbitration awards | Main | Three useful cases »

Arbitrator improperly imposed a one-year limitation period.
March 13, 2006 by Ross Runkel at LawMemo

Here is what the 4th Circuit says is "manifest disregard for the law" and failure to draw the essence of an award from the contract. Clearly wrong, in my view.

Ralph Patten and his employer, Hancock Mutual, agreed to arbitrate any claims arising between Patten and Hancock or any of Hancock's affiliates. Later Patten went to work for Signator (a Hancock affiliate) and entered into a new arbitration agreement that superceded the Mutual agreement. Signator discharged Patten, and he demanded arbitration of his claims for age discrimination, wrongful discharge, and breach of contract.

The arbitration demand was filed 14 months after the discharge.

The old Mutual agreement contained a one-year limitation period; the newer agreement was silent as to a limitation period. The arbitrator dismissed Patten's claims on the ground that he did not file within one year. The arbitrator reasoned that the newer agreement necessarily contained an implied limitation period, and he looked to the superceded agreement "for guidance," and set the limitation period at one year.

The 4th Circuit ordered that the arbitrator's award be vacated for two reasons: The arbitrator acted in manifest disregard of the law; and the award did not draw its essence from the contract. Patten v. Signator Insurance (4th Cir 03/13/2006) (2-1).

The court said that the arbitrator improperly looked to the superceded agreement for guidance on the question of a limitation period.

The governing agreement said it was governed by Massachusetts law, which would allow either a three-year or six-year limitation period for Patten's claims. The court seemed to suggest, but did not actually say, that the arbitrator had to use a statutory limitation period.

The DISSENT agreed that the arbitrator's interpretation was "clearly erroneous," but argued that "clear error alone is insufficient to vacate an arbitrator's award."

My view: Let's assume the arbitrator was wrong in his interpretation of the contract. That simply is not a legitimate ground for vacating an award.

The 11th Circuit has warned that it will impose sanctions on parties who try to get the courts to vacate arbitration awards simply because the arbitrator was wrong. See Sanctions for attacking arbitration awards.

What will lawyers do now? In the 4th Circuit, argue that the arbitrator was really really wrong. In the 11th Circuit, take your lumps and go home.

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