One of the great advantages of Arbitration is that it provides efficiency and certainty. Over the past decade or so, courts on both the federal and state level have reaffirmed the finality of arbitral awards. Except in rare circumstances, there is no appeal from an arbitral award.
Courts have recognized an exception to the general rule of finality by ruling that an arbitration award could be set aside upon a showing of a “manifest disregard” of existing settled law on the part of the arbitrator(s). The argument was that, while arbitrators have wide latitude in shaping any award, if the premise of that award is contrary to well-established legal precedent or regulatory or statutory law, it could be set aside.
The federal court, Southern District of New York, has addressed the argument that the award should be set aside upon showing of disregard for the law. In NS Kaiun Kaisha, Ltd. v. Cogent Fibre, Inc. 15civ1782 (2015), SDNY the Court landed squarely on the side of finality and rejected this argument. There, the parties submitted a contractual dispute to a panel of arbitrators pursuant to the governing contract. After extensive discovery, multiple exhibits, 10 days of hearing and extensive briefing by both sides, the panel issued a decision which awarded $10 million to the plaintiff. The losing party argued before the Federal District Court that the panel had disregarded the law of damages in making its award and, further, incorrectly awarded attorney’s fees. The governing contract did not provide for an award of attorney fees to the prevailing party. The Court refused to set aside the award. It held that an award should be vacated “only in those exceedingly rare instances where some egregious impropriety on the part of the arbitrator is apparent”. An award should only be vacated when a party shows that the panel “intentionally defied the law”. The court reaffirmed the general principle that, unless this can be shown, the award will stand, even though the panel may have misapplied the law, misunderstood the parties’ arguments, or ignored the evidence.
The Court also found that the question of whether or not the panel exceeded its authority by awarding attorney’s fees was answered by the language of the arbitration clause in the agreement which mandated arbitration for “any dispute or difference” arising thereunder. It found that this clause was broad enough to bring the application for attorney’s fees within the purview of the arbitrators and that the panel’s decision to consider and award attorney’s fees was within the purview of the arbitrators. The panel’s decision to consider and award attorney’s fees under these circumstances was perfectly appropriate.
This second prong of the court’s decision merits real consideration. In New York, and as is true throughout the United States in general, in the absence of a statutory provision mandating fee shifting, or as provided by the contract between the parties, legal fees cannot be awarded the prevailing party. This confirmation by the Court of the panel’s inherent authority to award legal fees, even in the absence of any express provision in the agreement between the parties, may, in many cases, dramatically impact the business calculation as to whether to seek a business compromise to a dispute or to litigate the matter to conclusion, where there is the potential not only of losing, but paying the opposite side’s legal fees, as well.
In these circumstances, full utilization of mediation before arbitration as a means of the parties charting their own destiny, avoiding risk and even, on occasion, preserving the business relationship, merits serious consideration.
Mr. Catania is a long-standing mediator and arbitrator through the American Arbitration Association panel.