Commercial Litigation and Arbitration

Federal Arbitration Act § 10(a)(4) — Whether Arbitrator Exceeded Authority — Standards — Arbitration Agreement Must Require Explication of Reasoning

From In re Texans-Cuso Ins. Group, LLC, 421 B.R. 769 (Bankr. N.D. Tex. 2009):

The Debtor relies on section 10(a)(4) of the FAA *** for its argument that the Accounting Arbitration Award should be vacated. The FAA provides that an arbitration award may be vacated when "the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made." 9 U.S.C. § 10(a)(4). ***

In deciding whether an arbitrator exceeded its authority as a basis for vacatur under the FAA, the court looks to "whether the award, however arrived at, is rationally inferable from the contract," and must resolve all doubts in favor of arbitration. *** The court may not vacate an award based on "mere errors on the interpretation or application of the law, nor on mistakes in fact-finding." ***

The scope of an arbitrator's authority is not boundless, however. An arbitrator cannot essentially re-write the agreement between the parties by disregarding a clear, unambiguous contract provision that does not require construction or interpretation. Collins & Aikman Floor Coverings Corp. v. Froehlich, 736 F.Supp. 480, 484 (S.D.N.Y. 1990) (arbitration agreement expressly limited recovery of commissions to sales arising before termination of salesman's contract, but award demonstrably granted commissions on sales for a reasonable time after termination); see also Clarendon Nat. Ins. Co. v. TIG Reinsurance Co., 990 F.Supp. 304, 311 (S.D.N.Y. 1998) (award granted interest on damages component that agreement specified was not to accrue interest) and Inter-City Gas Corp. v. Boise Cascade Corp., 845 F.2d 184, 187-88 (8th Cir. 1987) (arbitrator exceeded authority by applying different price for gas than statutory rate set forth in contract).

***[T]he Debtor's assertion that the Accounting Arbitration Award must be set aside as imperfect and incomplete because the Neutral Accountant did not specifically address section 3.1(c) in her explanations has no merit. First, the Debtor has presented no evidence to show that the Neutral Accountant ignored or overlooked section 3.1(c) in her analysis. In fact, the record submitted by the parties shows that the Debtor fully developed its arguments related to section 3.1(c) of the ARAPA to the Neutral Accountant, and that the Neutral Accountant posed specific inquiries to both parties concerning the Contingent Commissions and the computation of revenues as defined by section 3.1(c). *** Second, arbitrators are not generally required to provide any rationale for their determinations, except to the extent required by agreement, which the Neutral Accountant did. See Anderman/Smith Operating Co., 918 F.2d at 1220 n.4. Lastly, under the FAA, vacatur is only appropriate when the arbitrator "so imperfectly executed [its powers] that a mutual, final, and definite award upon the subject matter submitted was not made." In this context, the terms "mutual" and "final" require that the arbitrator must have resolved the entire dispute (to the extent possible) submitted for resolution, while "definite" requires that the award be sufficiently clear and specific to be enforced. IDS Life Ins. Co., 266 F.3d at 650. Here, the Debtor has asserted no facts that show that the Neutral Accountant failed to arbitrate the entire controversy, nor that the terms of the Accounting Arbitration Award are so ill-defined that it cannot be enforced.

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