This page contains entries under the topic: "Court review of award" | Main
Hall Street: Non-statutory grounds for review
March 27, 2008 by Ross Runkel at LawMemo
Hall Street Associates v. Mattel [details] (US Supreme Court 03/25/2008) (6-3) held that "§§10 and 11 respectively provide the [Federal Arbitration Act's] exclusive grounds for expedited vacatur and modification" of an arbitrator's award.
And some brave souls are asking "Do they really mean that? What about the various non-statutory grounds that courts seem to use for overturning arbitrators' awards, such as manifest disregard of the law, public policy, arbitrary and capricious, irrational?"
Well, here comes the truth:
- "Public policy" is the easiest. Yes, it exists as a non-statutory ground, but it will very rarely succeed. A court will not enforce an award that violates public policy because this is an inherent limitation on a court's power, and it needs no statutory statement.
However, "public policy" is an extraordinarily narrow concept. You have to show that enforcing the award would violate a clear and well-articulated policy that is stated in statutes, regulations, or precedents. Courts can't just make up policy as they go along.
- "Manifest disregard of the law" is trickier. The Supreme Court has never said (and I believe never will say) that "manifest disregard" exists as a ground separate from the FAA. In Hall Street the Court referred to the concept as "a supposed judicial expansion by interpretation," and mused that it might refer to the §10 grounds collectively, or might be "shorthand" for §10(a)(3) (“guilty of misconduct”) or §10(a)(4) (“exceeded their powers").
And "manifest disregard" is extremely narrow. Usually it means that there is proof that the arbitrator knew there was a law, but then ignored it. This is not the same as making a legal error, which is not a ground for overturning an award.
- Other grounds such as "arbitrary," "capricious," "irrational," will never make the cut at the Supreme Court. At their best, these concepts lack precision. At their worst, they are simply restatements of disagreement with the arbitrator's reasoning process.
- Bottom line: If you are attacking an arbitrator's award under the FAA, then you must use the statutory grounds, or "public policy," but don't get your hopes up if you must resort to public policy.
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Hall Street: No expansion of FAA grounds for vacating award
March 27, 2008 by Ross Runkel at LawMemo
The Federal Arbitration Act (FAA) contains specific grounds for a federal court to vacate or correct an arbitrator's award. None of the statutory grounds includes correcting the award if the arbitrator's conclusions of law were erroneous.
In Hall Street Associates v. Mattel [details] the parties agreed to arbitrate a portion of their lawsuit, and included an agreement that a federal district court
"shall vacate, modify or correct any award: (i) where the arbitrator’s findings of facts are not supported by substantial evidence, or (ii) where the arbitrator’s conclusions of law are erroneous."
The US Supreme Court decided (6-3) on March 25
- "§§10 and 11 respectively provide the FAA’s exclusive grounds for expedited vacatur and modification."
In other words, if you're using the FAA's statutory method for vacating (or confirming) an award, then you can use only the statutory grounds. You can't make a court review the arbitrator's award under a more expansive standard.
[My comment on October 22, 2007: "It is beyond my imagination that the Supreme Court would allow private parties to convey on federal courts a review power that Congress withheld."]
- The Hall Street case was a bit more complex than some cases because the agreement to arbitrate was approved by the district court, and was entered as a court order. Therefore, it is possible that court review of the award could be had in some way other than the FAA. For example, there might be a state statutory method or a common law method. In the alternative, it could be that the district court had authority as part of its case-management powers. However, these possibilities did not become part of the parties' arguments until after the case got to the Supreme Court, and the Court did not want to consider them without giving lower courts the first chance. Therefore, the Court remanded so the lower courts can look at these possible alternatives.
[My comment on December 1, 2007: "If the procedure followed by the district court was allowed by either its local rules or state law, then the FAA does not purport to disallow that. Therefore, the Supreme Court should (1) declare that the FAA does not block the procedure followed here if it is otherwise allowed by local rules or state law, and (2) remand to the lower courts to decide whether the procedure is allowed. (The Supreme Court should not tackle local issues that have not been previously ruled on by the lower courts.)"]
Many onlookers are asking what effect the Hall Street case will have on other "non-statutory" grounds for overturning an arbitrator's award: manifest disregard for the law, public policy, arbitrary and capricious, irrational, etc. I'll give you my answer in a later post.
I was surprised that a couple of law professors were surprised by this decision. See Marcia McCormick, Hall Street v. Mattel and the Future of Arbitration on Workplace Prof Blog; and Sarah Cole, Hall Street Decision Today: Parties Cannot Expand Judicial Review of Arbitration Awards on ADR Prof Blog.
Other comments on this case:
- The Word on Hall Street Is No Expanded Review on National Arbitration Forum Blog
- U.S. Supreme Court finds Federal Arbitration Act states exclusive grounds for review of arbitration awards on Northwest Business Litigation Blog (from the Ater Wynne law firm)
- SCOTUSwiki
- No Longer can you Craft Your Own Arbitral Standard of Review on Disputing
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Order vacating arbitration award reversed
January 06, 2008 by Ross Runkel at LawMemo
The 6th Circuit applied its recent decision in Michigan Family Resources, Inc. v. Service Employees International Union, 475 F3d 746 (2007) which held that courts were without authority to overturn an arbitrator's award which was arguably construing or applying the contract and acting within the scope of his authority.
Truck Drivers Local v. Allied Waste (6th Cir 01/04/2008)
The arbitrator set aside the employee's discharge and ordered reinstatement with back pay and benefits. The trial court granted the employer's motion to vacate. The 6th Circuit reversed.
The major issue was whether the arbitrator's award violated Section 9.4(G) of the agreement stating that "the degree of discipline ... imposed for just cause shall be in the sole discretion of management and shall not be subject to modification by an arbitrator."
The arbitrator, citing Section 8.1 which prohibited the employer from "discharg[ing] or otherwise disciplin[ing] an employee without just cause[.]," reasoned that the just cause-inquiry required evaluation of whether the employee violated a work rule and then to consider whether the discipline was reasonable under the circumstances.
The court found that Section 9.4(G) was not clear on its face and could reasonably be interpreted as the arbitrator had done. The court found no basis upon which to vacate the arbitrator's award because the arbitrator was arguably construing and applying an unclear contractual provision.
The court awarded back pay from the date of the arbitrator's award until the date of the employee's eventual reinstatement. The court stated this was an appropriate judicial remedy reasoning that if an arbitration award was to be final and binding, the employer was required to reinstate the employee and pay him.
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Arbitrator nixes mandatory flu shots for nurses
December 23, 2007 by Ross Runkel at LawMemo
Virginia Mason Hospital implemented a mandatory flu immunization program requiring proof of flu vaccination as a "fitness for duty requirement" for all nurses. And for obvious reasons. Staff-to-patient transmission is prevalent in hospitals, and the hospital's previous voluntary immunization program resulted in only 55% of the staff being immunized.
The nurses' union filed a grievance under the collective bargaining agreement (CBA), and the matter went to arbitration.
The arbitrator ruled against the hospital. He interpreted the CBA's preamble and union recognition clause as requiring the hospital to bargain collectively with the union over all terms and conditions of employment. He also found the immunization requirement did not come under the management rights clause. Because the hospital imposed the new requirement unilaterally and without first bargaining with the union, the arbitrator ordered the hospital to rescind the requirement.
The hospital sued to get the arbitrator's award overturned, but the trial court refused, and the 9th Circuit also refused. Virginia Mason Hospital v. Washington State Nurses Association (9th Cir 12/21/2007).
The 9th Circuit's opinion is textbook analysis of the role of courts in reviewing the decisions of arbitrators.
The hospital argued that the arbitrator ignored three provisions in the CBA that permitted the hospital to unilaterally implement the program. The court pointed out that the arbitrator in fact considered these three items, but found the hospital's arguments unpersuasive. As the court put it, there was no "failure to apply" the relevant CBA provisions, and a court cannot overturn an arbitrator's award merely because the court is "convinced that the arbitrator misread the contract or erred in interpreting it." [Please note that the court did not express any view as to whether the arbitrator properly interpreted the CBA, as that was "neither necessary nor appropriate."]
The hospital argued that the arbitrator improperly read into the contract a duty to bargain that was not explicitly stated in the contract. The court's reaction was that "the arbitrator is not adding new terms to the agreement but is simply finding the inferred terms already in the agreement, albeit only implied."
The hospital argued that the award was contrary to public policy. After reciting a number of statutes and administrative rules regarding infection control in hospitals, the court concluded that requiring the hospital to bargain with the union before implementing its program was not "directly incompatible" with the regulations or the public policies underlying them.
My view: This court understands the limited role courts play once an arbitrator issues a decision. I usually put it this way: The parties agreed to have an arbitrator resolve their dispute, so they can't complain to a court that the arbitrator was wrong. This does not mean that the arbitrator was right or wrong; it just means a court won't fix it.
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Hall Street v Mattel: An FAA case? Or not?
December 01, 2007 by Ross Runkel at LawMemo
It is better that I eat crow now, while it is young and tender. So let the feast begin.
Up until now I have viewed Hall Street Associates v. Mattel [Details; all briefs] as an ordinary FAA case, raising the issue of whether courts must (or may) enforce a private arbitration agreement that purports to give a district court broader review powers than the FAA specifies.
Recently-filed supplemental briefs have made it clear to me that this case is in a unique posture, and that it might not be an FAA case at all.
The parties agreed - in the middle of litigation - to submit some of their issues to an arbitrator, and to reserve to the district court the authority to review the arbitrator's award for legal errors. The district court signed-off on this agreement by entering it as an order in the litigation. Later, the district court did review the arbitration award for legal error.
The 9th Circuit's holding, which is now being reviewed by the US Supreme Court, was that the Federal Arbitration Act (FAA) barred this kind of court review of an arbitrator's award. The idea, which I think is correct in a normal FAA case, was that private parties cannot expand the Congressionally-determined role of the courts in reviewing arbitration awards.
Hall Street Associates v. Mattel is quite different from the ordinary FAA case because the arbitration agreement was entered as a court order during ongoing litigation. The Supreme Court, after hearing oral arguments on November 7, asked the parties for more briefs on three questions. Here are the questions, and an outline of the parties' responses filed November 27:
- Does authority exist outside the Federal Arbitration Act (FAA) under which a party to litigation begun without reliance on the FAA may enforce a provision for judicial review of an arbitration award?
- Hall Street: Yes. (1) The district court has authority from its local rules and the Federal Rules to order the parties to arbitrate the way they did, and then review the award as ordered. (2) The common law of Oregon allows enforcement of arbitration awards.
- Mattel: No. (1) Oregon courts would not allow this form of judicial review. (2) No case-management or other authority would allow grounds for judicial review that differ from state law or the FAA.
- If such authority does exist, did the parties, in agreeing to arbitrate, rely in whole or part on that authority?
- Hall Street: Yes. The parties relied on state law and the district court's case-management authority.
- Mattel: No. The parties relied exclusively on the FAA.
- Has petitioner in the course of this litigation waived any reliance on authority outside the FAA for enforcing the judicial review provision of the parties’ arbitration agreement?
- Hall Street: No. Hall Street sought judicial review under the court's order effectuating the arbitration agreement, and did not bring a claim under the FAA.
- Mattel: Yes. Non-FAA arguments were first presented on appeal to the 9th Circuit. Hall Street's petition for certiorari relied exclusively on the FAA, and enforcement "under the FAA" was the thrust of Hall Street's brief on the merits and oral argument.
Now what? One thing is clear to me: If the procedure followed by the district court was allowed by either its local rules or state law, then the FAA does not purport to disallow that. Therefore, the Supreme Court should (1) declare that the FAA does not block the procedure followed here if it is otherwise allowed by local rules or state law, and (2) remand to the lower courts to decide whether the procedure is allowed. (The Supreme Court should not tackle local issues that have not been previously ruled on by the lower courts.)
If I'm right this time, this case will not resolve the basic question of whether, in a normal FAA case, the courts must (or may) enforce an agreement that provides for expanded judicial review.
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Hall Street Associates v. Mattel: more briefs to be filed
November 16, 2007 by Ross Runkel at LawMemo
The US Supreme Court on November 16 ordered supplemental briefing in Hall Street Associates v. Mattel
Oral arguments were held November 7. The issue in this case is whether a federal court must (or may) enforce the parties' agreement that expands the scope of judicial review of an arbitration award beyond what is provided by the Federal Arbitration Act.
The Court's order identified three issues for the parties to brief:
(1) Does authority exist outside the Federal Arbitration Act (FAA) under which a party to litigation begun without reliance on the FAA may enforce a provision for judicial review of an arbitration award?(2) If such authority does exist, did the parties, in agreeing to arbitrate, rely in whole or part on that authority?
(3) Has petitioner in the course of this litigation waived any reliance on authority outside the FAA for enforcing the judicial review provision of the parties’ arbitration agreement?
Briefs are due November 27. Replies are due December 3.
My view: I thought this case would be easy, and that the Court would not allow private parties to expand the role of the federal courts beyond what is laid out in the Federal Arbitration Act.
Now it appears that the Court is looking for some other way (outside of the FAA) to enforce the parties' agreement. As far as I can tell, this legal argument was never brought up previously in this litigation, and I think it should be too late to bring it up now.
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Justice Breyer: "The case of the century"
November 07, 2007 by Ross Runkel at LawMemo
"The case of the century" - That's what Justice Breyer said about Hall Street Associates v. Mattel during today's oral argument.
Click here for full transcript.
At issue is whether a federal court must (or may) enforce an arbitration agreement that gives the court authority to review the arbitrator's award to see whether "the arbitrator's conclusions of law are erroneous."
Justice Breyer referred to this case as the "case of the century" "because it's going to take a hundred years to finish."
Arbitration awards typically are enforced by courts without inquiring into the correctness of the arbitrator's legal conclusions. The Federal Arbitration Act provides this framework. Justice Breyer seems to think that allowing the parties to expand the review power of the federal court will result in additional delay and lack of finality. Me too.
It's pretty hard to tell - from reading the transcript - which way the Supreme Court is leaning in this case. I'm still betting [here's my prediction] that the Court will not allow private parties to expand the role of federal courts -- simply because that's Congress's job.
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Statute of limitations for vacating an award (ouch)
November 02, 2007 by Ross Runkel at LawMemo
The Federal Arbitration Act has a three months statute of limitations for moving to vacate an award.
This invites two questions, both of which were answered today in Webster v. A. T. Kearney, Inc (7th Cir 11/02/2007):
- When does the period begin?
- When does the period end?
Webster took his age discrimination and breach of contract case to arbitration, and lost. So he wanted to get a court to vacate the arbitrator's award.
The three months begins:
On January 4 the award was placed in the mail and emailed.
On January 4 the email reached Webster's attorney's computer.
On January 5 Webster's attorney opened the email.
On January 9 Webster's attorney received the award in the mail.
The FAA says the three months begins when the award is "filed or delivered."
The court noted that Webster agreed to use the AAA Rules, including this one: "The parties shall accept as legal delivery of the award the placing of the award or a true copy thereof in the mail."
Aha! The court held that the statutory word "delivered" meant putting the award in the mail, because that's what Webster agreed to.
This way, the court ducked the issue of whether "delivered" normally means when the mail arrives, and the issue of whether "delivered" means when an email comes into one's computer.
The three months ends:
On April 3 Webster filed his motion to vacate.
On April 5 the employer was served.
(Oops, one day after the end of three months.)
The court had to pick between the filing date and the service date.
This was easy. The Federal Arbitration Act says "service of notice." Never mind what the Rules of Civil Procedure say, because the FAA trumps the rules.
In the end, Webster lost because he didn't serve the defendant within three months of when the award was delivered.
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Hall Street: Contract vs. statute
October 22, 2007 by Ross Runkel at LawMemo
One key feature of arbitration is that an arbitrator's award is "final." Courts do not review arbitration awards to be sure the arbitrator was correct in making fact-findings, or correct in interpreting a contract, or correct in applying the law.
Federal Arbitration Act Section 10 specifies the grounds for vacating an award. It is plain from Section 10 that these grounds are "collateral attacks" on the award, and do not empower a court to inquire into the merits of the case.
In Hall Street Associates v. Mattel the issue before the US Supreme Court is whether the arbitrating parties can convey additional powers on the court to review an award.
Specifically, the issue is whether courts must (or may) enforce the parties' contractual agreement that their award can be vacated by a federal district court "where the arbitrator's conclusions of law are erroneous."
All of this will be the subject of oral argument at the US Supreme Court on November 7, 2007. [All briefs collected here]
The basic arguments are simple: (1) The FAA specifies the grounds for vacating an award, and courts cannot go beyond the statute. (2) Parties have freedom to decide, via contract, the procedural aspects of their arbitration.
In my view the Supreme Court will have little difficulty deciding this case. The Court has previously made it clear that the parties can agree to whatever arbitration procedures they want. So, the parties can - by contract - set the rules of evidence, determine how many arbitrators there will be, and otherwise control exactly how the arbitration proceedings will be carried out.
However, this case involves the powers and duties of a federal court after the arbitration is finished. Those powers and duties are decided by Congress. It is beyond my imagination that the Supreme Court would allow private parties to convey on federal courts a review power that Congress withheld.
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NASD arbitrators botched attorney fee award
August 10, 2007 by Ross Runkel at LawMemo
A prevailing plaintiff is entitled to statutory attorney fees in an ADEA case, but NASD arbitrators acted "in manifest disregard of law" by capping the fee award by the amount agreed to in the attorney-client fee agreement.
Bernhard Porzig claimed his employer discharged him in violation of the Age Discrimination in Employment Act (ADEA), and his claim went to arbitration by a National Association of Security Dealers (NASD) arbitration panel.
The panel found for Porzig on the merits and awarded $220,079. The panel did not award attorney fees or costs, and assessed $13,840.75 in forum, filing, and arbitrators' fees against Porzig. The trial court vacated the award as to attorney fees and costs.
Porzig's attorney represented to the panel that $82,437.81 was Porzig's obligation under the attorney fee agreement. The panel's revised award included $83,500 in attorney fees plus an order that Porzig's lawyer repay $82,437.81 to Porzig.
Porzig v. Dresdner, Kleinwort, Benson (2nd Cir 08/07/2007)
The 2nd Circuit held that the attorney fee award was "in manifest disregard of law" and the panel had no jurisdiction to order the attorney to return funds to Porzig.
- As to attorney fees, the court concluded that the arbitrators had used the contingency fee agreement to set a cap, which is contrary to established precedent. In ADEA cases, a prevailing plaintiff's attorney fees are normally calculated by a lodestar analysis and should include fees for pursuing the statutory right to fees.
- As to the panel's award directing the attorney to reimburse fees, the court the court held this to be a violation of the Federal Arbitration Act (FAA) because neither the attorney nor Porzig had agreed to arbitrate the attorney fee contract.
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Continental v. ALPA - taking sides
June 01, 2007 by Ross Runkel at LawMemo
I often get calls from reporters about cases, and am happy to help them out. The normal risk is that I'll get misquoted, and I can live with that.
Yesterday's article in the Houston Chronicle, "Continental sues union over pilot who drank," was a big surprise because the reporter said I was taking sides with the airline.
Simply not true.
I gave the reporter a rundown of the basic legal arguments that would be presented by both sides. She accurately quoted part of the argument on behalf of the airline, and left out the argument on behalf of ALPA. This is common in journalism and I can't complain about it.
I can complain when a journalist falsely reports that I have taken sides in a case that is pending in the trial court. I have not lost my mind.
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"Good cause" defined without a dictionary
May 12, 2007 by Ross Runkel at LawMemo
Arbitrator Carroll Daugherty's famous seven-part test of "just cause" has been around for many decades. Now the Ohio Supreme Court has bestowed its blessing.
Why would this even get to the supreme court of any state? Because a lower court had the interesting idea that Black's Law Dictionary's definition was the only way to go.
An arbitrator issued an award reinstating an employee who had been discharged.
The employer argued that the arbitrator improperly defined the term "good cause" in the collective bargaining agreement, asserting that only an ordinary definition such as from Black's Law Dictionary could be used.
The lower court agreed and vacated the award. [I can see all the arbitrators rolling their eyes.]
The Ohio Supreme Court cleared things up. "Good cause" was not defined in the agreement, and a law dictionary might be a poor place to find a definition of a phrase like "good cause" that has a special meaning.
Summit County v. Communication Workers (Ohio 05/09/2007)
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New Supreme Court case?
March 22, 2007 by Ross Runkel at LawMemo
Will the Supreme Court grant certiorari to review Dane Investments, LLC v. H & R Block Financial Advisors? [Details; court documents]
The case raises issues dealing with the courts' authority to review an arbitration award - especially when the losing party thinks the arbitrators were wrong on the law.
The Federal Arbitration Act lists specific grounds for courts to use when asked to vacate an award. Most courts add at least one more "non-statutory" ground: "manifest disregard of the law."
Dane Investments thought its stock broker - H & R Block - sold it unsuitable stocks, so it went to arbitration. Dane lost. Dane now argues that the arbitrators did not follow the law.
As Dane puts it in a petition to the Supreme Court for a writ of certiorari, the Court should deal with the following questions:
The U.S. District Court for the Eastern District of Louisiana vacated the arbitration award on the ground that the "unconscionable results" in the case demonstrated that the respondent breached a fiduciary duty to petitioner insofar as the margin interest and brokerage fees were concerned (App. 6). Then the District Court reversed its decision and granted respondent's Motion for Reconsideration because the Fifth Circuit Court of Appeals allows only one non-statutory ground for vacating arbitration awards, the ground of "manifest disregard of the law" (App. 4). The Fifth Circuit Court of Appeals affirmed (App. 1). The Fifth Circuit Court of Appeals' decision not only conflicts with decisions of other federal courts of appeals, but the courts are in disarray on what non-statutory grounds can be used. Guidance is needed or the conflict is going to be difficult for the securities industry and public investors to live with.The questions presented are:
1. Whether "manifest disregard of the law" is the only acceptable non-statutory ground for federal courts to use in vacating National Association of Securities Dealers ("NASD") public investor arbitration awards or are other non-statutory grounds, such as "unconscionable results" acceptable as independent grounds for vacatur, and if not, are the other non-statutory grounds used by the various circuit courts different ways of saying that there has been "manifest disregard of the law (and/or rules)."
2. Whether a U.S. Securities and Exchange Commission ("SEC") release of an enforcement proceeding and consent decree that was directed at respondent for actions and transactions and alleged securities violations that took place while the petitioner did business with the respondent and that the petitioner complained of in his NASD arbitration proceeding as having happened to him, and for which the SEC issued cease-and-desist orders, should be admissible in a NASD arbitration hearing and be treated as law and/or have some probative value. 3. Whether the failure of an arbitration panel to make an audible tape recording or other useable recording or transcript of a NASD arbitration proceeding, in contravention of NASD Uniform Code of Arbitration rules, denies the claimant his constitutional rights to due process and trial by jury since no useable record of the arbitration proceeding is created and made available for judicial review.
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6th Circuit changes test for reviewing arbitration awards
January 29, 2007 by Ross Runkel at LawMemo
After 21 years of using a highly interventionist test for reviewing labor arbitration awards, the 6th Circuit has overruled a key case and adopted the "arguably construing or applying the contract" test.
Michigan Family Resources v. SEIU (6th Cir en banc 01/26/2007)
An arbitrator ruled in favor of the union on a cost-of-living pay dispute. The employer sued to vacate the award. The trial court vacated the award, and the 6th Circuit reversed. The court unanimously overruled its 21-year-old four-part test for reviewing arbitration awards, and split 8-5 in applying its new test.
The union grieved the employer's cost-of-living increase, arguing that there must be parity between union and non-union employees. The arbitrator agreed in a 10-page opinion. The arbitrator found the agreement was ambiguous, and resolved the ambiguity by relying on the employer's prior practice of granting identical increases to all employees. The company argued that the award failed to draw its essence from the agreement.
The court overruled Cement Divisions, National Gypsum Co v. United Steelworkers, 793 F.2d 759 (1986), which established a four-part test for determining whether an award "fails to draw its essence from the agreement." Instead, the court will now ask whether the arbitrator was "arguably construing or applying the contract." If so, "the request for judicial intervention should be resisted even though the arbitrator made 'serious,' 'improvident,' or 'silly' errors in resolving the merits of the dispute."
The majority said "we have an arbitrator who plainly was 'arguably construing' the contract and who perhaps just as plainly made a 'serious error' in construing the contract, a confluence of circumstances that does not invest us with authority to 'overturn [the] decision.'"
Five judges wrote two partial DISSENTS. They agreed with the overruling of the Cement Divisions case and with the newly-adopted test. However, they would have vacated the arbitrator's award. One said the arbitrator's opinion involved "a completely non-sensical construction." The other said the arbitrator ignored the plain language of the contract, which made "implausible any contention that the arbitrator was construing the contract."
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"Manifest disregard for the law" case could go to Supreme Court
August 17, 2006 by Ross Runkel at LawMemo
Back in March I spotted a 4th Circuit case - Patten v. Signator Insurance Agency - that I said was "clearly wrong."
Perhaps the US Supreme Court can fix it. There's a petition for certiorari pending.
Here is the list of "QUESTIONS PRESENTED" by the petition:
1. Whether (in conflict with the decisions of ten other federal courts of appeals) a court may vacate an arbitrator’s award for “manifest disregard of the law” on the ground that the arbitrator construed an “unambiguous” contract in a way that is “not reasonable”?
2. Whether (in conflict with the decisions of at least eight other federal courts of appeals) a court may vacate an arbitrator’s award for not “drawing its essence from the agreement” on the ground that the arbitrator construed an “unambiguous” contract in a way that is “not reasonable”?
3. Whether (in conflict with the decision of at least one other federal court of appeals) an arbitrator’s award may be vacated on the ground that it does not “draw its essence from the agreement,” even though the award was rendered under a private agreement subject to the Federal Arbitration Act rather than a collective bargaining agreement governed by the Labor- Management Relations Act?
4. Whether an arbitral award may be vacated on nonstatutory, merits-based grounds – such as that the arbitrator manifestly disregarded the law or that the award did not draw its essence from the agreement – despite the explicit requirement of 9 U.S.C. § 9 that a court “must” confirm an arbitral award unless the award is vacated or corrected as provided in 9 U.S.C. §§ 10 and 11?
(I first learned about this from Workplace Profs Blog - Cert Request Challenges Manifest Disregard Standard for Reviewing Arbitration Awards.)
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RLA excludes "public policy" as ground for vacating arbitration award
July 17, 2006 by Ross Runkel at LawMemo
Arbitration awards can be vacated on the ground that they "violate public policy." But not awards issued under the Railway Labor Act.
That's the holding in Netjets Aviation v. Teamsters (SD Ohio 06/02/2006).
Netjets, a company covered by the federal Railway Labor Act, fired an employee for posting a nasty video on the union web site. The union grieved the discharge, and an arbitrator ordered the company to reinstate the employee.
The company sued to set aside the arbitrator's award, arguing that reinstating the employee would violate the public policy favoring safety in air travel and workplace safety.
I thought the company's argument was weak, and that reinstatement would not violate public policy.
The court, however, did not even look at the merits, saying:
The Court holds that public policy does not constitute a basis for reviewing the [award] under the RLA.
The court's theory was simple. The Railway Labor Act states three grounds for overturning an award: (1) failure to comply with the RLA, (2) exceeding jurisdiction, (3) fraud or corruption. Public policy is not on the list.
Interesting because courts typically say that public policy is a ground for vacating an award under the Federal Arbitration Act, even though the FAA has a specific list of grounds that does not include public policy.
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$2 million award for employee
June 24, 2006 by Ross Runkel at LawMemo
An arbitration panel awarded over two million dollars to an employee who was fired by UBS Financial Services. The case illustrates some trends, according to Professor Richard Bales.
Details at Workplace Prof Blog - Employee Wins Big in Arbitration; Court Restricts Employer's Ability to Claim Arbitral Bias.
The trends according to Bales, followed by my reactions:
- Arbitrators are not necessarily stooges, and often find in favor of employees, and award large damages.
- Reputable arbitration providers such as AAA, NASD, and JAMS/ENDISPUTE work hard to provide neutral arbitrators. As for how "often" they award in favor of employees, this is not a useful observation without looking at the merits of individual cases. (The same is true of cases that are litigated.)
- Employees are increasingly less likely to challenge the enforceability of arbitration agreements.
- Probably true. The grounds for court challenges of arbitration agreements are quite narrow, so why would an employee spend a lot of money on a sure-to-lose challenge?
- Employers are increasingly challenging awards that went in favor of the employee.
- Of course. Employers challenge court decisions in favor of employees, so why not challenge arbitration awards? (This trend should end soon, as employers learn how hard it is to overturn an arbitrator, and as courts begin awarding sanctions for non-meritorious challenges.)
- Most big-win cases are brought by employees who are highly-paid white males in the securities industry .
- Of course. The same is true in court cases. High-paid employees have more money at stake. White males, on average, are more likely to be high-paid.
- "So, even if these cases demonstrate that employees can win in arbitration, they don't necessarily demonstrate that employees who the antidsicrimination laws most seek to protect can win consistently."
- Assuming that the antidiscrimination laws were designed mostly to protect low-paid employees who are not white males, I see no reliable evidence that they do better in court than in arbitration. And, I don't think "win consistently" is a useful benchmark. The overall win-loss statistics always ignore the merits of individual cases.
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Hospital must fire 73 nurses says arbitrator
May 25, 2006 by Ross Runkel at LawMemo
The collective bargaining agreement between a hospital and its nurses union contained a standard "union security" clause. Individual nurses were required to pay dues to the union. If they refused, then the hospital was obligated to discharge them.
Seventy-three nurses didn't pay. The hospital didn't fire them. So the union took the matter to arbitration.
The arbitrator ordered the hospital to fire the nurses, as the contract required. He also ordered the hospital to pay the nurses' overdue fees and dues.
The hospital refused to implement the award, so the union took off in two directions:
NLRB unfair labor practice
The NLRB ruled that it was an unfair labor practice for the hospital to refuse to fire the nurses. The hospital argued that firing the nurses would violate public policy. The 8th Circuit enforced the NLRB decision, finding that there was no statute forbidding a discharge of nurses on the ground that they had not paid union dues, and finding that state law did not require the hospital to maintain any specific number of nurses on its staff. St. John's Mercy Health Systems v. NLRB (8th Cir 02/01/2006).
Suit to enforce the award
The 8th Circuit again got this case when the union sued to enforce the award. Applying standard analysis to the review of an arbitrator's award, the court enforced the award. The same public policy argument was made and rejected.
UFCW v. St. John's Mercy Health Systems (8th Cir 05/24/2006).
My view: The 8th Circuit got it right both times. A contract is a contract.
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Union can't assign judicial review right to employee
April 09, 2006 by Ross Runkel at LawMemo
After a town fired a firefighter, the union took the matter to arbitration and lost. The union then assigned to the individual firefighter the union's right to seek "judicial review" of the award. The New Hampshire Supreme Court held that this right was non-assignable.
| Dillman v. Town of Hooksett (New Hampshire 04/07/2006). Employment Law Memo notified its readers about this case in the April 10 issue, emailed on April 9. |
Two reasons the union could not assign its rights to the employee:
(1) Contrary to public policy (harmonious relationships between employers and employees, and orderly operation of government).
(2) It would materially change the duty of the obligor (the town) under Restatement of Contracts Section 317.
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Common law grounds for vacating arbitration awards clarified
April 05, 2006 by Ross Runkel at LawMemo
The Nevada Supreme Court has made clear how difficult it is to overturn an arbitration award.
Nevada recognizes two common-law grounds for vacating arbitration awards. Saying they are "common law grounds" really means these are grounds that the legislature did not include in its list of reasons for overturning an award.
The case itself was routine. The arbitrator upheld the non-renewal of a school teacher's contract. The Nevada Supreme Court held that the award should not be vacated. Clark County Education Assn v. Clark County School Dist (Nevada 03/30/2006).
| Employment Law Memo notified its readers about this case on 04/05/2006. |
The court had previously recognized that an arbitration award may be vacated under two grounds: 1) where the award is "arbitrary, capricious, or unsupported by the arbitration agreement;" or 2) where "the arbitrator manifestly disregarded the law."
The court said:
- "Under the first ground, we clarify that the reviewing court may only concern itself with the arbitrator's findings and whether they are supported by substantial evidence or whether the subject matter of the arbitration is within the arbitration agreement."
- "Under the second ground, we conclude that the reviewing court may only concern itself with whether the arbitrator knew of the law and, if so, consciously disregarded it, not whether the ... arbitrator's interpretation of the law was correct."
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Arbitrator awards sales commissions; court affirms
March 31, 2006 by Ross Runkel at LawMemo
An arbitrator ruled that the parties' contract for sales commissions did not apply, and awarded the salesman a commission anyhow. The 9th Circuit upheld the award. Schoenduve Corp v. Lucent Technologies (9th Cir 03/22/2006).
Lucent and Schoenduve had a contract authorizing Schoenduve to solicit orders for Lucent's wireless communication products. Schoenduve courted Apple Computer, and two days before Lucent signed a deal with Apple, Lucent terminated its contract with Schoenduve.
Schoenduve went to arbitration, seeking commissions. Schoenduve won.
The arbitrator ruled that the Lucent-Schoenduve had been lawfully terminated because that contract expressly allowed termination. Therefore, there could be no commissions awarded under the terms of that contract. Then the arbitrator awarded commissions on the basis of "quasi-contract." ("Quasi-contract" is a non-contract legal theory that often is called restitution for unjust enrichment.)
Lucent claimed that the arbitrator's award should be vacated on the grounds that the arbitrator went outside of the submission agreement and modified the express language of the contract.
The 9th Circuit upheld the award on the following reasoning:
The arbitration clause in the contract was broad enough to cover non-contractual claims. It applied "if a dispute arises out of or relates to this Agreement."
The submission agreement was broad enough to include non-contractual claims. Schoenduve's demand for arbitration asked for damages for "breach of contract and other claims." Lucent did not object to this statement of the issues.
The 9th Circuit also made it clear that "the arbitrator's interpretation of the scope of his powers is entitled to the same level of deference as his determination on the merits."
My view: The court got it right. The parties used broad language in describing the disputes that were covered by the agreement to arbitrate. It was no stretch for the arbitrator to decide that the language included claims for commissions based on quasi-contract.
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Rule 11 sanctions for attacking award
March 20, 2006 by Ross Runkel at LawMemo
An interesting trend: Courts awarding sanctions against parties who lose in arbitration and then attack the award in court.
The latest: CUNA Mutual Insurance v. Office and Professional Employees (7th Cir 03/16/2006)
The employer brought an action seeking to vacate a grievance arbitration award rendered in the union's favor. The trial court granted summary judgment in favor of the union and awarded sanctions under Fed.R.Civ.P. 11.
The employer appealed only the Rule 11 sanctions. The 7th Circuit affirmed.
The court noted that there exists a "long line of Seventh Circuit cases that have discouraged parties from challenging arbitration awards and have upheld Rule 11 sanctions in cases where the challenge to the award was substantially without merit."
In particular, in Dreis & Krump Manufacturing Co., v. Int'l Assoc. Machinists District 8, 802 F.2d 247 (7th Cir 1986), the 7th Circuit observed that "[a] company dissatisfied with the decisions of labor arbitrators need not include an arbitration clause in its collective bargaining contracts, but having agreed to include such a clause it will not be permitted to nullify the advantages to the union by spinning out the arbitration process unconscionably through the filing of meritless suits and appeals. For such conduct the law authorizes sanctions that this court will not hesitate to impose."
The court concluded ultimately, "[w]e find that [the employer's] claims were meritless and were very unlikely to succeed in the lower court based on the straight-forward case law relevant to these claims."
Other recent cases: Sanctions for attacking arbitration awards.
Last week the ABA Journal eReport carried this article (including fairly accurate quotes from yours truly): NO PITY FOR 'POOR LOSERS' The 11th Circuit threatens sanctions against some litigants appealing arbitration rulings.
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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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Sanctions for attacking arbitration awards
March 01, 2006 by Ross Runkel at LawMemo
Two courts have said they've had enough of appeals from parties who have lost at arbitration, have no legal basis for attacking the award, and take it to court anyhow.
Sanctions against the "never-say-die" litigants and lawyers?
The 11th Circuit has issued a warning:
"this Court is exasperated by those who attempt to salvage arbitration losses through litigation that has no sound basis in the law applicable to arbitration awards. The warning this opinion provides is that in order to further the purposes of the FAA and to protect arbitration as a remedy we are ready, willing, and able to consider imposing sanctions in appropriate cases."
The quote is from B.L. Harbert Intl v. Hercules Steel (11th Cir 02/28/2006), in which one of the parties did not like the way the arbitrator interpreted a contract, and fought it all the way up to the federal court of appeals. (For those who don't know, the fact that an arbitrator was "wrong" in his or her interpretation of a contract is not a ground for having the arbitrator's award overturned by a court.)
A California court of appeal did award sanctions, saying:
"Courts have repeatedly instructed litigants that challenges to the arbitrator's rulings on discovery, admission of evidence, reasoning, and conduct of the proceedings do not lie. [citations omitted.] Plaintiffs' crude attempt to characterize their claims so they would fall within acceptable bases for an appeal is an artifice we condemn. Further, most of plaintiffs' claims are patently disingenuous."
The quote is from Evans v. Centerstone (California Ct App 11/21/2005). The sanctions: (1) Attorney fees and (2) an equal amount as a sanction.
Earlier reports on the 11th Circuit case: Workplace Prof Blog (by Paul Secunda) and How Appealing (by Howard Bashman). Thanks Paul and Howard!
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Arbitrator's non-disclosure was OK
February 11, 2006 by Ross Runkel at LawMemo
Must an arbitrator disclose that he is on a permanent panel?
The City of North Las Vegas and the North Las Vegas Police Officers Association selected an arbitrator under FMCS rules. The arbitrator did not disclose that he was on a permanent panel under the collective bargaining agreement between the Las Vegas Metropolitan Police Department and the Las Vegas Metropolitan Police Department.
The losing parties in the arbitrations sued to vacate the awards, the trial court did vacate the awards, but the Nevada Supreme Court reversed. Thomas v. City of North Las Vegas (Nevada 02/09/2006).
FMCS rules govern. The parties agreed to arbitrate under FMCS Rules. Therefore, the court used the FMCS disclosure rules and did not apply the state statute on arbitrators' disclosure obligations. The FMCS uses the Code of Professional Responsibility for Arbitrators of Labor-Management Disputes (originally a joint effort of the National Academy of Arbitrators (NAA), American Arbitration Association (AAA), and FMCS).
http://www.naarb.org/code.html
National Academy of Arbitrators Opinion. The court relied on a 1991 Advisory Opinion promulgated by the NAA. In that case an arbitrator was hearing a case between an employer and Union A, and the arbitrator did not disclose that the arbitrator regularly served as an expedited arbitrator in cases between the same employer and Union B. The NAA opinion held that disclosure was not required. Quoting NAA Opinion 22:
Previous or current service as a neutral arbitrator for a particular employer and/or union is not a relationship requiring disclosure under the Code. Absent some personal relationship or other special circumstance mandating disclosure, such service is not a "circumstance ... which might reasonably raise a question as to the arbitrator's impartiality.
My view:
- Certainly the correct outcome.
- Extremely interesting that the court cited Chevron U.S.A. v. Natural Resources Defense Council, 467 US 837 (1984) (courts give deference to administrative agencies' interpretations of statutes), and said that the NAA's "Opinion 22 is the equivalent of an agency interpretation of the FMCS guidelines." Wow, they gave Chevron deference to the opinion of a non-profit private organization.
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6th Circuit award review standards under fire
January 29, 2006 by Ross Runkel at LawMemo
A 6th Circuit panel has practically begged the rest of the court to grant a rehearing en banc to review the 6th Circuit's test for vacating arbitrators' awards. Michigan Family Resources v. SEIU (6th Cir 01/27/2006).
First the court decided that an arbitrator's decision did not "draw its essence from the collective bargaining agreement." The flaw, according to the court, was that the arbitrator took a contract that was perfectly clear, decided it was actually ambiguous, and then used the parties' custom of granting wage increases as a source for construing the agreement. The court said this imposed an additional requirement not expressly provided for in the agreement.
What really happened is that the court believed that the arbitrator's legal analysis was wrong. Maybe it was, but that is not a valid ground for vacating an award (except in the 6th Circuit).
As one of the judges pointed out, the 6th Circuit's test for vacating a labor arbitration award is not as deferential as the US Supreme Court has indicated it must be.
Appended to the opinions is an appendix of published and unpublished opinions that have either upheld or vacated awards. It's quite a list. 27 percent have been vacated.
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Nondisclosure results in vacated arbitration award
January 13, 2006 by Ross Runkel at LawMemo
Oops. After an arbitrator issued an award, the losing party discovered that seven years earlier he and his former law firm were co-counsel in a lengthy litigation with one of the law firms and counsel in the current arbitration.
The 5th Circuit held that the arbitrator was required to disclose these facts "because it might have created an impression of possible bias," and failure to disclose justified vacating the arbitration award. Positive Software Solutions v. New Century Mortgage (5th Cir 01/11/2006).
The court based its decision on the "evident partiality" language in Section 10 of the Federal Arbitration Act (FAA), and on a number of court decisions from the Supreme Court and other Circuits.
In addition, there was no "waiver" of objection because the losing party did not discover the situation until after the award was issued.
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Arbitrator relied on document "extraneous" to CBA
November 28, 2005 by Ross Runkel at LawMemo
Can an arbitrator's award "draw its essence from the collective bargaining agreement" when she relies on a document that is neither contained in the collective agreement nor referred to in the collective agreement?
Yes, says the Ohio Court of Appeals. Cincinnati v. Queen City Lodge (Ohio Ct App 11/23/2005).
The City discharged a police officer, who grieved the matter to arbitration under the collective bargaining agreement. The discharge was for the cumulative effect of six charges against the officer. The arbitrator dismissed three charges and sustained three others, and issued an award reducing the discharge to a 40 hours suspension.
The City sought to have the award vacated on the ground that the arbitrator relied on "The Matrix," a table of discipline contained in the departmental Rules Manual. The trial court found for the City, but the Court of Appeals reversed - upholding the arbitrator's award.
The court held that it was proper for the arbitrator to use the disciplinary matrix in order to bring the officer's discipline into line with the discipline that the City imposed on other officers involved in the same incident.
The court noted that the "no-extraneous-source rule" would lead to ludicrous results in disciplinary-arbitration cases because an arbitrator could never compare the severity of discipline in similar offenses.
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Reinstatement of nurse did not violate public policy
November 22, 2005 by Ross Runkel at LawMemo
A hospital fired a nurse, charging that she diverted drugs. The union grieved. The arbitrator ruled that the nurse did not do what the hospital said, and reinstated the nurse with back pay.
The hospital did not like the decision and tried unsuccessfully to get a federal district court to overturn it. The 1st Circuit affirmed, refusing to throw out the arbitration award. The Mercy Hospital v. Massachusetts Nurses Assoc (1st Cir 11/21/2005).
The hospital's argument was that there was a violation of public policy.
The court pointed out that the arbitrator had exonerated the nurse. The arbitrator's findings of fact were that she didn't do it. Therefore, an award reinstating her to work could not violate public policy.
My view: I think the 1st Circuit was actually being kind to the hospital by devoting 18 pages to the decision, which made it appear that the hospital's arguments had some merit.
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Appeal from arbitration violated rules and was frivolous.
November 22, 2005 by Ross Runkel at LawMemo
Following an arbitration award, the loser failed to get a trial court to set aside the award, and then appealed from that decision. In a blistering opinion (Evans v. Centerstone (California Ct App 11/21/2005)), the California Court of Appeal has awarded substantial financial sanctions for
- Violations of court rules of appellate procedure. "Plaintiffs' briefs are cornucopias of such violations." One example: "Plaintiffs presented 'facts' not supported by or contrary to the record and failed to include other relevant facts."
- Frivolous appeal. "Courts have repeatedly instructed litigants that challenges to the arbitrator's rulings on discovery, admission of evidence, reasoning, and conduct of the proceedings do not lie. [citations omitted.] Plaintiffs' crude attempt to characterize their claims so they would fall within acceptable bases for an appeal is an artifice we condemn. Further, most of plaintiffs' claims are patently disingenuous."
Now for the sanctions. The trial court was instructed to award attorney fees incurred in defending the appeal and in making the motion for sanctions. An equal amount must be awarded as sanctions, jointly and severally against plaintiffs and their lawyer.
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Contract deprived appellate court of jurisdiction
October 28, 2005 by Ross Runkel at LawMemo
An arbitration agreement provided that a court judgment entered on an arbitration award was nonappealable. The 10th Circuit holds that this deprives the appellate court of jurisdiction.
MACTEC v. Gorelick (10th Cir 10/26/2005).
On the other hand, that same court previously held that parties cannot expand the level of appellate review through their contract.
My view: There is no statutory bar to having the parties agree to eliminate appellate review of a judgment confirming an award. Therefore, the parties are free to have such an agreement.
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Nondisclosure voids arbitration award
October 27, 2005 by Ross Runkel at LawMemo
An employee who lost in an employer-employee arbitration got the award set aside because the arbitrator did not comply with California's stringent disclosure rules. Ovitz v. Schulman (California Ct App 10/26/2005).
Catherine Schulman had an arbitration agreement with her employer. After she left (resigned or fired, depending on whom you ask), the employer filed an arbitration demand with the American Arbitration Association (AAA).
- The parties agreed on an arbitrator "subject to all of the disclosure requirements imposed" by the AAA and the California Code of Civil Procedure.
- Later, the parties agreed that "judicial review shall be limited as provided by California Code of Civil Procedure Section 1286.2 or other applicable law."
- As it turned out, the arbitrator's disclosure form failed to meet the requirements of the California Ethics Standards for Neutral Arbitrators in Contractual Arbitration.
Meanwhile, the case went before the arbitrator who issued an award in favor of the employer for about $1.5 million plus another $1.8 million in attorney fees and costs.
Schulman petitioned the court to vacate the award on the ground that the arbitrator failed to comply with California's disclosure rules. The trial court vacated the award, and the Court of Appeal affirmed.
Two key holdings:
- The arbitrator's nondisclosure triggers a statute that requires a court to vacate any award issued by the arbitrator. No discretion.
- California's law on automatically vacating an award is not preempted by the Federal Arbitration Act (FAA) provisions which state the grounds for vacating an award. Three reasons:
- The relevant FAA sections (Sections 10 and 12) apply only to federal district courts, and not to state courts at all.
- The California statute is not inconsistent with the FAA's purpose; it neither limits the use of arbitration nor discourages the use of arbitration; it does not reflect a hostility toward arbitration.
- The parties agreed to California disclosure rules and also agreed to judicial review under California law.
My view:
- I think a good case can be made that the California disclosure rules themselves discourage the use of arbitration. Even more so when the statute requires that the award be overturned even though there was no actual bias on the part of the arbitrator.
- The outcome of the case is correct for one simple reason. The parties agreed on the disclosure rules and agreed on the California rules for judicial review of the award. Those agreements were made after the dispute arose, and everybody had their eyes wide open.
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No agreement for enhanced judicial review
October 20, 2005 by Ross Runkel at LawMemo
Circuit courts are split on the issue of whether parties to an arbitration agreement can agree on a broader form of judicial review than what the Federal Arbitration Act (FAA) provides.
The 1st Circuit has now announced that it is in the "yes they can" camp. Puerto Rico Telephone v. U.S. Phone Manufacturing (1st Cir 10/14/2005.
However, such an agreement must be clearly made.
When the parties simply agree to use the law of a particular state (and that state's law allows an enlarged form of review), that's not enough. It's not clear enough.
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Manifest disregard for the law
August 06, 2005 by Ross Runkel at LawMemo
"Manifest disregard for the law" is an issue that rarely comes up when courts review arbitration awards, especially in the context of a collective bargaining agreement.
The company fired an employee for excessive absences. The union grieved arguing that the last absence should have been excused because it qualified as FMLA leave. The collective agreement expressly incorporated the requirements of the FMLA.
The arbitrator reinstated the employee, finding that the absence was FMLA-qualified.
The company tried to overturn the arbitrator's award, claiming the arbitrator exhibited a manifest disregard for the requirements of the FMLA. Specifically, the argument was that the employee's illness did not render her unable to work.
The court affirmed the award, Electrolux v. UAW (8th Cir 08/05/2005), saying:
- The evidence "shows at most that the arbitrator committed an error in judgment, and mere error by the arbitrator is not a basis for reversal."
- The decision, "while possibly erroneous, drew its essence from the collective bargaining agreement, and we must enforce his award."
My view:
- Correct decision.
- Technically, analysis of "disregard of the law" should be used only when an arbitrator is directly interpreting the law, such as in an individual arbitration where an employee claims that the employer violated the FMLA. Here, the FMLA was incorporated into (and became part of) the contract, so the question is whether the award drew its essence from the contract. Same result either way.
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"Reverse" discrimination violates public policy
July 18, 2005 by Ross Runkel at LawMemo
Arbitration awards will not be enforced if they violate public policy. "Clear" public policy, that is. And it's not always clear whether the public policy is clear, and that split the 8th Circuit 2 to 1.
Federal law does not prohibit employers from preferring older workers over younger ones. State law can, and Minnesota law does prohibit older worker preferences.
A collective bargaining agreement required 1 out of every 5 electrical workers in a unionized shop to be 50 years of age or over. The employer let go two over-50 employees as part of a reduction in force. The union filed a grievance, which went to arbitration.
The arbitration panel ruled that the employer violated the agreement by not maintaining the 1-to-5 ratio, and awarded lost wages to the two employees.
The 8th Circuit held (2-1) that the arbitration award could not be enforced because it violated public policy - a rare outcome. The public policy was found in the Minnesota Human Rights Act. That statute, says the court, "prohibits using a person's age as a basis for a decision if the person is over the age of majority." Ace Electrical Contractors v. IBEW (8th Cir 07/14/2005).
The dissent would have upheld the arbitration award under the usual highly deferential rules for reviewing such awards, noting that "the law of Minnesota simply does not provide the clarity necessary to invoke the public policy exception.
My view:
- A reminder that federal and state law can be quite different on important questions of employment discrimination law.
- This case is an unusual example of a court refusing to uphold an arbitration award, on the ground that the award violated public policy.
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Teamsters v. Continental: Certiorari?
June 07, 2005 by Ross Runkel at LawMemo
I have previously criticized [here] the 5th Circuit's decision in Continental Airlines v. Teamsters (5th Cir 11/15/2004) because that court intends to continue being a renegade - correctly reciting the rules on judicial review of arbitrator awards and then refusing to apply them.
Teamsters filed [here] a petition for certiorari in the US Supreme Court, and Continental has filed [here] its reply. The issue now is whether the Supreme Court will consider this case worthy of its time and attention.
My view: The 5th Circuit was spanked in Paperworkers v. Misco, 484 US 29 (1987), and it's time for another one.
The Supreme Court will get excellent lawyering on both sides:
For Continental: Teresa Valderrama and Jarod D. Bonine of Baker Botts.For Teamsters: Roland P. Wilder Jr. and William R. Wilder of Baptiste & Wilder
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Reinstatement violated public policy
April 04, 2005 by Ross Runkel at LawMemo
An arbitrator ordered reinstatement of a police officer whom the City discharged for egregious and outrageous misconduct toward a civilian followed by filing a knowingly untrue statement and providing a distorted version during an internal investigation. Oh, and let's add that the officer gave phony testimony at the arbitration hearing.
The arbitrator reduced the penalty to a one year suspension on the time-honored ground that the City had meted out penalties short of discharge for similar or more serious conduct.
The trial court and Court of Appeals were satisfied that the arbitrator's award should be confirmed, "albeit with a lack of enthusiasm."
The Massachusetts Supreme Judicial Court vacated the arbitrator's award on the ground that it violated public policy. City of Boston v. Boston Police Assn (Massachusetts 04/04/2005).
The court reasoned that an arbitrator cannot "order a party to engage in an action that offends strong public policy." Sounds like a high threshold, but later the court put it this way: The City must demonstrate that the officer's conduct was such that a penalty less than discharge "would frustrate public policy."
A statute prohibits appointing to a police officer position anyone "convicted of any felony." The fact that the officer was not convicted of a felony was "beside the point" because it is the conduct rather than the conviction that is determinative.
My view: I won't beat up on the arbitrator or the Massachusetts court. It's enough to point out that the parties picked arbitration and picked the arbitrator, and there was no showing that the arbitrator's award required the City to perform any unlawful act.
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Arbitrator went outside the contract
April 04, 2005 by Ross Runkel at LawMemo
Can an arbitrator rely on an employer's rules that are not incorporated into the collective bargaining agreement? Maybe not, in Ohio.
The facts were simple in Cincinnati v. Queen City Lodge (Ohio Ct App 04/01/2005). A police officer lied during a criminal trial, the City discharged him, and he grieved under the collective bargaining agreement. An arbitrator reinstated him and imposed a three day suspension.
The arbitrator's reasoning was simple. The City could discipline or discharge an officer for just cause, and the City had just cause to discipline this officer. The City's Rules Manual provided for a one to three day suspension for a first time violation of the rule prohibiting giving misleading information. Therefore, the arbitrator reduced the penalty to a three day suspension.
The Ohio Court of Appeals concluded (2-1) that the arbitrator's decision did not draw its essence from the collective bargaining agreement, and held that the arbitrator's award should be vacated. This was because the arbitrator relied on a source outside the agreement, and there was no "rational nexus" between the agreement and the award.
My view: This case is a lesson on how an arbitrator should write an opinion. Always make it clear that the reasoning is rooted in the contract. There should be nothing wrong with referring to outside documents such as the employer's rules. But the Ohio court noted that this arbitrator relied entirely on the employer's rules. Why couldn't the judges see the connection between the rules and the contract? Because the arbitrator did not explain the connection.
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A frolic of its own
March 20, 2005 by Ross Runkel at LawMemo
What to do with a federal Circuit Court that is grossly insubordinate to the will of Congress and instructions from the US Supreme Court?
The 5th Circuit in Continental Airlines v. Teamsters (5th Cir 11/15/2004) made it clear that it intends to continue to be a renegade - reciting the rules correctly and then refusing to apply them.
On March 14 the union filed a petition for a writ of certiorari asking the Supreme Court to bring the Circuit back into line.
Brief facts:
Employee Johnson was on a last chance agreement and an EAP agreement. The company discharged him because he tested positive for alcohol. The union grieved and the dispute went to an Adjustment Board - an arbitration board provided for by the Railway Labor Act. The agreements disallowed any use of alcohol, and required Johnson to notify the company "if your doctor prescribes medication that contains alcohol." Johnson took cough medicine on instructions from his doctor's staff, and notified the company. The Board held that he had complied with his agreements and ordered him reinstated.
The 5th Circuit's decision:
Because there was no evidence that Johnson ever saw his doctor or that the doctor's staff consulted with the doctor, "Johnson's doctor never approved the use of cough medicine." The Board's "interpretation is not an arguable construction of the agreements" because "the Board's interpretation effectively reads 'doctor' out of the EAP agreement."
What's really happening here:
Rebellion, pure and simple. The 5th Circuit (1) recited the correct standard of review, and then (2) reversed the Board on its findings of fact and (3) reversed the Board on its interpretation of the agreement.
The 5th Circuit is a recidivist.
Paperworkers v. Misco, 484 US 29 (1987), came from the 5th Circuit. There the Supreme Court chose the strongest possible words about court review of arbitrators' factfinding and contract interpretation. (1) There is no court remedy for an arbitrator's "improvident, even silly factfinding." (2) "The courts ... have no business weighing the merits of the grievance, considering whether there is equity in a particular claim, or determining whether there is particular language in the written instrument which will support the claim." [Quoting Steelworkers v. American Mfg, 363 US 564 (1960)]
What's at stake?
(1) The structure Congress created for resolving disputes in the rail and airline industries, and the arbitration systems in use in other industries. If the 5th Circuit continues substituting its own version of the facts and its own interpretation of agreements, then these systems will be wrecked. Cough syrup grievances will be resolved in the courthouse instead of by arbitrators - flouting the will of Congress and needlessly adding to judicial workloads. (2) The rule of law. The 5th Circuit's defiant approach of paying lip service to the rules and then refusing to follow them undermines the rule of law, the supremacy of Congress in law-making, and the supremacy of the Supreme Court in the federal judicial system. Yuck!
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Editor: Ross Runkel, Professor of Law Emeritus. email Ross@LawMemo.Com, Phone 503-399-8028. Copyright LawMemo, Inc.
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