Yet Another Case Limiting Review of an Arbitration Decision

Takeaways:

• The Fourth Circuit ruled that the arbitrator, not the court, decides the preclusive effect of a prior judgment. 

• The Federal Arbitration Act provides for four bases to attack an arbitration award, with a fifth basis that has been judicially accepted. These review rights are very narrow and courts are reluctant to disturb an arbitrator’s decision.

If it wasn’t yet clear, judicial review of an arbitration decision is extremely limited.  An arbitrator misapplying the law, misunderstanding the facts, or misconstruing a contract all fail to meet the high burden a litigant must meet to set aside a decision.  A recent case from the Fourth Circuit reiterates this and adds another basis to the list: a prior court decision on a similar issue.

Most attorneys are aware of collateral estoppel and res judicata.  For lay persons, these legal concepts basically mean that the issue was, or could have been, previously decided in another proceeding.  For example, if a jury decides that the traffic light was red, a party cannot then re-litigate that issue in a later related lawsuit involving the same parties.  That issue has been decided and that decision binds the parties in future actions. 

But when the second action is arbitration, who decides whether the prior case has preclusive effect – a court or the arbitrator?  Shouldn’t a court have the power to ensure that parties follow judicial decisions?  The answer to these questions is simple, according to the Fourth Circuit: the arbitrator, not a reviewing court, decides the preclusive effect of a prior decision.

The case is Constellium Rolled Products Ravenswood, LLC v. United Steel [], et al., published November 29, 2021, which can be found here. The facts of the case are straightforward: the employer prevailed in an earlier court proceeding concerning the interpretation of a collective bargaining agreement.  Later, the union prevailed in arbitration on a similar claim again concerning the interpretation of a collective bargaining agreement.

The employer subsequently asked the federal district court to vacate the arbitrator’s decision because it conflicted with the prior court decision, and advocated for a more expanded review when applying collateral estoppel and res judicata principles.  The district court rejected those arguments, as did the Fourth Circuit, which stated that the arbitrator, not the court, decides the preclusive effect of a prior judgment.  In doing so, the Fourth Circuit once again articulated the limited appellate rights concerning an arbitration award: “[I]t is clear that unless an arbitration agreement stipulates otherwise, a court is empowered only to decide limited questions of arbitrability and ‘res judicata [is] for the arbitrator to decide in the first instance.’”

The Fourth Circuit again pointed out that the Federal Arbitration Act provides for four bases to attack an arbitration award, with a fifth basis that has been judicially accepted:

(1) the award was procured by corruption, fraud, or undue means;

(2) evident partiality or corruption in the arbitrator;

(3) certain “misconduct” or “misbehavior” by the arbitrator in the conduct of the arbitration;  

(4) the arbitrator exceeded his or her powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made; or

(5) the arbitrator exhibited a “manifest disregard of the law.”

Outside of these limited avenues, a reviewing court cannot disturb an arbitration award. Maryland has similar standards pertaining to the Maryland Arbitration Act.

It bears noting that many litigants (especially lay persons) want to argue the “manifest disregard of law” basis. Much like a batter arguing balls and strikes, this is rarely successful.  As the Fourth Circuit noted, “[a] confusing, ambiguous, or even incorrect application of the law is not manifest disregard.” On the contrary, manifest disregard requires

(1) the applicable legal principle is clearly defined and not subject to reasonable debate; and

(2) the arbitrator refused to heed that legal principle.

In other words, manifest disregard requires that the arbitrator was aware of the law, understood it correctly, found it applicable to the case before him, and yet chose to ignore it in propounding his decision.

It is very difficult for a litigant to vacate an arbitrator’s decision. While it can be done, the bases for doing so are constrained and limited. An incorrect legal decision or a difference of opinion on the facts rarely carry the day. While arbitration has significant benefits (most always speed, usually the cost, almost always the ability to choose the arbitrator, etc.), it does have limitations, the biggest one being that the arbitrator’s decision is typically final, which may also be a good thing.