Final is great when you win. And not so great when you don’t. But even when you don’t, at least there’s the consolation that the long years of fighting are finally over. That’s a big selling point of arbitration.
As a trial court judge, I knew that an aggrieved party could appeal and get a second read. I didn’t even want my decision to be reversed; I came to like writing “thorough” opinions, and my clerks sometimes would see me throw away the 20th draft and start again from scratch. But as a judge I knew that my decision was not necessarily the final word.
Humans being human, the finality of arbitration will always be subject to disagreement. No matter how airtight the agreement to arbitrate is at the outset, there will always be that disappointed party who says, “it’s not over until I say it’s over.”
Of course, like all other disputes, this can ultimately become a problem for the courts.
A court’s dilemma is to balance the goal of finality in arbitration with the sheer unjust outcome of an arbitration award that was plainly wrongly decided. A judge confronted with a plainly wrong award, and possessing the power to fix it, will find it awfully hard to let the matter go and chalk it up to the benefit of finality.
We saw this recently in the 7th U.S. Circuit Court of Appeals case of Bankers Life & Casualty Insurance Co. v. CBRE Inc., 830 F.3d 729 (7th Cir. 2016). The losing party in a dispute over office space sued to overturn the arbitration award; in its award, the arbitration panel had made a $3.1 million miscalculation.
Judge Richard A. Posner, writing for the 7th Circuit, held that the panel exceeded its authority: “The arbitrators attempted to amend the contract with a document that was not part of the contract. The district court let them get away with it.”
As an abstract proposition, Posner agreed that allowing errors to invalidate an arbitration gives arbitration awards “no greater immunity from judicial review than decisions by district judges or administrative agencies.”
His opinion acknowledges the limited grounds to challenge arbitration awards when parties “opt out of the court system.” Reflecting on the exposure to arbitrators who explain their awards, he wrote, “there was a time when commercial arbitration awards contained no reasoning in order to avoid attracting the scrutiny of judges, who were fiercely hostile to arbitration, which they viewed as a competitor of adjudication.”
Despite that well-expressed regard for finality, the 7th Circuit reversed, deciding that “[b]ecause the parties bargained for a reasoned award, reasoning should be part of the ‘face of the award.’”
Vacatur was required since the award ignored the parties’ agreement. Strongly dissenting, Judge Diane S. Sykes agreed the arbitrators had mistakenly construed key documents but advocated for limited judicial review, stating the award should have been upheld.
Having a clear agreement on an award’s finality is a two-edged sword: While you always think you are going to win, you also have to be ready to lose — and you may not want to get stuck with a bad result. (Of course, the risk of an unfortunate award can be tempered in several ways, including use of a high-low agreement.)
If you do want the award to be “final final,” the best advice is to help your arbitrator reach a legally correct decision with sound reasoning and legal authority.
Like they say about computer data, if bad stuff comes out, it’s usually because bad stuff went in.