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THE REASONED ARBITRATION AWARD IN THE UNITED STATES: Its Promise, Problems, Preparation and Preservation

CONTENTS

Foreword by Thomas J. Stepanowich                                                                                                                          

 Getting the Most Out of This Book                                                                   

PART ONE.   REASONED AWARDS AND THEIR VIRTUES

1.           REASONED AWARDS, PROPERLY DEFINED AND ENFORCED                            

A.           A Workable Definition of “Reasoned Award"
B.           Taking Reasons Seriously: Western Employers Ins. Co. v. Jefferies & Co.
C.           Proper Judicial Review Illustrated: Galloway Construction Co. v. Utilipath and Tully Construction Co. v. Canam Steel Corp.
               (Tully 1) (18).                          

2.           THE PATCHWORK OF DOMESTIC RULES ON AWARD FORM

A.           The Divide between the AAA and FINRA, and CPR and JAMS
B.           But the AAA Has Adopted a Reasoned-Award Default for Many Specialized Areas
C.           Treatises and Precedent Still Look Back to an Older Predominance of  Standard Awards
 

3.           THE MANY BENEFITS OF REASONED AWARDS                                             

A.           Building Legitimacy with the Parties
B.           Building Institutional Legitimacy
C.           Forcing Better Decision making
D.           Sharpening Judicial Review
E.            Satisfying Pragmatic Party Needs
F.            Screening Arbitrator Quality
G.           Promoting Arbitrators Who Do Explain
H.           Arbitration’s Comparative Advantage: The Certainty of Getting Reasons
I.             Improving the Quality of Arbitration over Time

PART TWO.    THREATS TO REASONED AWARDS

4.           THE FAILURE OF JUDICIAL REVIEW FOR REASONS

A.          The Original Sin: The Eleventh Circuit's Porous Test Upholds a Standard Award as Reasoned in Cat Charter, LLC v.
              Schurtenberger  
B.           The Fifth Circuit's Rain CII Carbon, LLC v. ConocoPhillips Upholds an Unreasoned Contentions Award
C.           Et Tu, Second Circuit? The Second Circuit Boards the Cat Charter Train
D.           Tully 2: We Barely Knew You, Tully 1
E.           State Stores, the Unfortunae Older Opinion Green v. Ameritch, and the Fruits of Cat Charter's Poisonous Tree
F.            Courts Have Not Been This Confused about Reasons in Other Settings
                                    

5.           THE PATHOLOGIES OF UNREASONED AWARDS                    

A.           Implausibly Short Announcement Awards.
B.           Attestation Awards
C.           Burden and Credibility Awards
D.           Other “More than a Simple Result” Awards: Issue-Spotting and Contention Awards
E.           Volumetric Awards
F.            Evidentiary List Awards
G.           Judicial Divination Awards
H.           Merits-Tested Awards. 
 

6.           EXCEEDED-POWERS VACATUR AND THE VULNERABILITY MYTH 

A.           The Ubiquity of the  Vulnerability Myth
B.            Holding Arbitrators to Their Powers
C.           Strong Deference: Courts Will Reject Exceeded-Powers Challenges as Long as the Arbitrators Tried to Construe 
               the Governing Standards   
D.           But Not a Blank Check: Courts Will Vacate When Arbitrators Disregard a Plain Limit on Their Powers
E.            Exceeded-Powers Challenges Fail More than 80 Percent of the Time
F.            Reasons Usually Strengthen Awards Challenged for Exceeding Powers
1.            Reasons Usually Protect Awards
2.            Reasons Rarely Are the Problem When Arbitrators Exceed Plain Powers 
3.           The Vulnerability Theory Is Even Less Plausible Whenever Awards Turn on Facts, Procedures, Evidence, Remedies,
               or Equity
4.            Giving Reasons No Longer Implies Consent to Judicial Review for Mistakes of Law
5.            Reasons Do Remove Speculative Grounds for Upholding Awards
6.            Reasons Make It Easier to Vacate Awards That Truly Exceed Powers

G.           Exceeded-Powers Vacaturs Overturn Awards for Mistakes of Law
H.           Judicial Scrutiny for Exceeding Powers Benefits Arbitration
 

7.          THE OTHER GROUNDS FOR VACATUR AND THE VULNERABILITY MYTH  

A.          The Big Picture
B.           Reasons Are the Most Powerful Antidote to Manifest-Disregard  Challenges
1.            Manifest Disregard Doctrine Is Excruciatingly Restrictive
2.           Reasons Strengthen Awards against Manifest-Disregard Attack 
3.           Courts Almost Never Overturn Awards for Manifest Disregard

C.          Public Policy, a Third Avenue for Correcting Mistakes of Law
1.            Courts Will Not Confirm Awards That Violate Clear, Well-defined, Dominant Public Policies.
2.           Public-Policy Vacatur Almost Never Turn on Award Reasoning.
3.           Here as Elsewhere, Extreme Outcomes Increase the Risk of Ghallenges and of Vacatur

D.           The Three Misconduct Violations
1.             Evident Partiality Challenges Usually Turn on  Behavior, Particularly Disclosure, Not on Award Reasoning
2.            Arbitrator Misconduct Is Rare and Almost Never Is Based upon Award Reasoning
3.            Party “Fraud, Corruption, or Undue Means” Is as Rare as Arbitrator Misconduct

E.            The Grab-Bag Standards: "Completely Irrational," "Arbitrary and Capricious," "Fails to Draw Its Essence," and  
             ​  Other Secondary Attacks
F.             The Underused Section 10(a)(f) Power to Challenge Imperfectly Executed Awards
G.            The Bottom Line: Reasons Usually Strengthen Awards
 

8.           THE INEFFICIENCY CRITIQUE                                                        

A.            Inefficiency Arguments, Like the Vulnerability Argument,  Are Overstated
B.            The Misleading Cost Objection
C.            Increasing Scrutiny of Reasoned Awards: Short-Term Costs, Yes, but Long-Term Gains
 

PART THREE.    WRITING REASONED AWARDS

9.            SETTING THE STAGE, BUILDING THE FOUNDATION 

A.            The Overview and Short History
B.             Gateway and Framework
1.              Jurisdiction: Appointment
2.             Jurisdiction: Validity of Agreement
3.             Jurisdiction: Subject Matter (“Scope”) of the Agreement to Arbitrate
4.             Jurisdiction: Parties
5.             Applicable Law, and What It Means
6.             Applicable Rules
7.              Burden of Proof
8.             Statutes of Limitations: How Could They Not Apply?
9.             The Award's Forum
10.           Class Arbitration
11.             Discovery Rulings and  Other procedural Decisions
12.            Dispositive Rulings.
 

10.           DEFINING THE QUESTIONS

A.            Framing the Submission Using the Parties' Briefs and Presentations
B.            The Minimum: Explaining Every Potentially Dispositive Claim, Counterclaim, Defense, and Remedy
C.            Narrowing the Focus: Saving Time and Money
D.            Addressing Alternative, Belt-and-Suspender Claims, Defenses, and Remedies
E.            Addressing the Losing Party's Claims, Defenses, and Remedies Too
F.             Sometimes, but Rarely, Helpful: Proposed Awards
G.            Risky Behavior: Leaving Reasons "Implicit" or Ignoring Them as Frivolous
H.            Insufficient Reasons: Just Saying Whether the Arbitrators Did Their Job, a Position Was Credible, and a 
                Party Met Its Burden
I.              No, No: Never Inject New Issues, Arguments, Claims, Counterclaims, Defenses or Remedies
 

11.           THE LONG AND THE SHORT OF REASONED AWARDS  

A.            Variations in Length
B.            Examples of Adjusting Length
C.            Length and the Inefficiency Critique
D.            Cost: No Barrier to Adequate Reasoning 
E.             Factors Driving Award Length
F.             Special Problems of Awards in Nonnegotiated Arbitrations: Consumer, Employment, and Other Awards
G.            Can an Award Be Too Reasoned: Yes
 

12.           NARRATING THE FACTS

A.            The Centrality of Facts to Almost All Arbitrations
B.            Arbitrators  Better Positioning than Judges to Explain the Facts
C.            Arbitrators Broad Discretion over the Factual Narrative’s Order, Structure, and Level of Detail
D.            Describing Factual Contentions and Then Announcing a Resolution: Not Enough
E.             Arranging the Facts with an Eye to Pertinent Law
F.             Explaining Credibility and Other Seemingly Holistic Judgments
G.            Compressing Facts, Omitting  Irrelevant Evidence  and Explaining Why
H.            The Protective Effects of Full Explanations
I.              The Prudence of Sometimes Discussing Non-Dispositive Facts


13.            LAYING DOWN THE LAW

A.             The Choice of Applicable Law
B.             Identifying and Explaining Dsiputed Elements of Claims, Defenses, and Remedies
C.             Don't Forget Defenses?
D.             Reasons Why Some Arbitrators May Slight the Law in Reasoned Awards
E.              Applying the Law to the Facts
F.              Explaining "Pure" Questions of Law, Including in Dispositive and Appellate Awards
 

14.            EXPLAINING REMEDIES AND CLOSING THE AWARD

A.             Remedies and Discretion: The Rule of Law Question
1.              Decisions on Damages and Other Remedies Actual Damages
2.             We Find Party A's Expert Most Reasonable": Not an Adequate Reason 
3.             Attorney's Fees and Costs
4.             Punitive Damages
5.             Equitable Relief
6.             Sanctions
7.              Pre- and Post-award and Post-judgment Interest

B.             Award Finality
1.              Finality and Completeness
2.             Conforming Award Labels and Contents: Interim or Final, Partial or Complete?

C.             Closing: The Swansong
D.             Whether to Dissent (and How) 
E              How to Write Reasoned Awards, Revisited​
 

PART FOUR.  REASONS IN OTHER AWARD FORMS

15.          MAKING STANDARD AWARDS MORE REASONABLE                                                                         

A.            Adding Reasonableness, but Not Reasons
1.             The One-Page Announcement Award
2.            Strengthening Standard Awards with Non-Explanatory Detail
3.            Standard-Form Dissents and Interim, Emergency and Dispositive Awards

B.            Minimizing Cost and Time
C.            Resisting Temptation: Don't Get Smart (This Means You!)
D.            What Arbitrators Should Ask the Parties
E.             Supplementing with Off-the-Record Oral Explanations
 

16.           IMPROVING FINDINGS OF FACT AND CONCLUSIONS OF LAW

A.            Reasoned Awards and Findings and Conclusions Should Be Stubstantive Equals
B.            Good Narrative Writing and Structure Often Will Improve Findings and Conclusions
C.            The Same Reasoned Requirement Applies to Findings and Conclusions as to Reasoned Awards 
 

                                                                                                             
PART FIVE.   REFORMS AND IMPROVEMENTS

17.          DESIRABLE REFORMS 

A.           A Conscious Definition of Reasoned Awards
B.           Defining Standard Awards
C.           Defining Findings and Conclusions
D.           Arbitration Statutes Should Define Major Award Form
E.           Reconsidering AAA and FINRA Default Award Forms
F.            Establishing an Exception to Functus Officio for Furninshing Reasons
G.           Standardizing Meanings for Interim Awards, Partial Awards, and Final Awards
H.           A New Weapon against Imperfect Reasoning: FAA Section 10(a)4's Imperfect-Execution Grounds
I.             Improving Arbitration in the United States 
                 

18.         IT IS THE PARTIES' ARBITRATION

Rules and Statutes

I.           Domestic Arbitration Rules, Protocols and Procedures
II.          International Arbitration Rules
III.         Miscellaneous Rules
 

Notes on the Appendix                                    

APPENDIX* 

* Purchasers of this book, whether in print or digital format, are entitled to receive a PDF of the appendices, which are a bonus feature of the book, when their order is fulfilled.
Please ensure you have received the appendix file in your ArbitrationLaw.com account when you receive your book. To keep the focus on the substance of the awards,
the arbitrators’ names were redacted in the awards in Appendices A and B.

A.          Unreasoned Awards

1.           The Western Employers’ Award      

 2.a.       The Tully Final Award of Arbitrator
 2.b.       The Tully Arbitrator’s Emailed Refusal to Provide Reasons
 2.c.       The Tully Final Enlarged, Reasoned Award of Arbitrator

3.           The Galloway Arbitration Decision and Award
4.           The Cat Charter Award of Arbitrators
5.           The Rain CII Carbon Award of Arbitrator
7.            The Stage Stores Amended Final Award
8.           The STMicroelectronics Award
9.           The Vold Award of Arbitrator

B.          Reasoned Awards

1.            The Forrest Final Award
2.           The Sarofim Final Award
3.           The Carmody Award

4.a.        The Oxford Health Plans Memorandum and Order (rejecting argument that the arbitration could not be a class arbitration)
4.b.        The Oxford Health Plans Partial Final Class Determination Award of Arbitrator
4.c.        The Oxford Health Plans Procedural Order No. 18 Determining Motion (rejecting argument that Stolt-Nielsen opinion required
              decertification)

5.           The Stolt-Nielsen Partial Final Clause Construction Award

C.           Source of Major Awards Cited in Text
D.          Summary of Exceeded-Powers Opinions Vacating 43 Awards for Seemingly Obvious Violations of Written Standards
E.           Summary of Second Circuit Manifest-Disregard Opinions
F.           Summary of Public-Policy Opinions Vacating 27 Awards
G.          Notes on Methodology for Study of 2010-2017 Westlaw Keynote Vacatur Cases
H.          Notes on Estimating the Total Number of Arbitration Awards Issued Annually

 

John Burritt McArthur has been serving as an arbitrator since 1994. He has 23 years of experience as an arbitrator, 34 years as a trial lawyer in state and federal courts around the country, and is licensed to practice in Texas, California, and Alaska as well as in a variety of federal courts. He was a Partner at Susman Godfrey LLP, worked for Hosie McArthur LLP for several years, and today has a solo practice that combines arbitration practice with complex commercial trials. He has major litigation and arbitrator experience in five main areas: Energy, Oil and Gas, Electricity; Contract and Tort Business Disputes, including UCC Disputes; Antitrust; Investment Disputes, Fiduciary and Joint Venture Claims, Securities and Insurance. Mr. McArthur's broad work experience is equally suited to business and commercial arbitrations. He has represented plaintiffs and defendants in large, often highly technical commercial cases throughout his career. He has handled federal and state court cases, arbitrations, cases in MDL proceedings and class actions. His clients have ranged from some of the world's largest corporations, including Aetna and British Petroleum, to Alaska native corporations, States, individuals and small businesses. Mr. McArthur has been acknowledged for his litigation experience by his peers. He is currently chair of the LCA's International Institute on Natural Resources, Energy and Environmental Law. He has long held an "av" rating from Martindale-Hubbell. He is a member of the Million-Dollar and Multi-Million-Dollar Advocates Forum. He has published dozens of articles on legal issues, including on energy issues, arbitration, case management, various aspects of deregulation, and antitrust. He has also served as an expert in energy cases. A statement of his arbitration philosophy can be found at http://www.johnmcarthurlaw.com/arbitration.htmz.

"The book’s treatment of the issues is at once thorough, rigorous and readable, and will be of great pragmatic assistance to parties, counsel and arbitrators working in the field of commercial arbitration.  I welcome all the hard work and good thinking that went into this project, and predict the book will be a thought-leader in our field for years to come."  (Full review)

―Thomas J. Brewer, Independent Arbitrator 

 "Why should judges be interested in this book? ...McArthur's book ... provides courts with what, in the end, is a  straightforward guide to separating the wheat from the chaff.  Judges who follow his prescriptions will be doing their job (when rules or contracts call for reasoned awards) – without having to re-try cases, or to analyze the analysis that supports their outcome...  In this way, [McArthur] helps judges preserve the attribute of arbitration that is perhaps most valued both by parties and by the judiciary..."
(Full review)

― Hon. Wayne D. Brazil, (Ret.) Arbitrator/Discovery Referee/Special Master/Mediator JAMS
 

The Reasoned Award walks through the steps that an arbitration panel needs to take to explain – in cogent, understandable, and (may I say?) well-reasoned language – why the arbitration panel reached its conclusions.  Equally important, The Reasoned Award explains what not to do and gives examples of unsatisfactory awards, why they are unsatisfactory, and why the court decisions upholding the awards were wrongly decided.  Added to that is an extraordinary level of scholarship and insight and, I should add, some of the most erudite and interesting footnotes I have ever read. [...] Highly recommended. (Full review)

―David B. Goodwin, Covington & Burling LLP

 

"This excellent book is a scholarly deep dive into the law of arbitration through the lens of what comprises a “reasoned award.”  McArthur takes you on a journey down various tributaries that flow from his critiques and analyses of reasoned award case law, including the law of award vacatur, the limits of arbitral authority, what parties are entitled to when they provide for a reasoned award and the reasons why, the importance of careful issue coverage, fitting the detail of an award to the scale of the dispute, applicable provider rules, and the like.  Many of the work’s teachings are illustrated by references to the text of some 22 awards that are included as examples. The result is a seminal work of great value as a practice guide to litigators and to transactional lawyers, as well as arbitrators and, one hopes, courts.  It should provide a handy resource for sitting judges, some of whom may still be on a learning curve regarding the unique aspects and nuances of arbitration, by educating them as to the importance of taking seriously parties’ expectations when they provide for a “reasoned” award in their arbitration agreement and of vacating “reasoned” awards that do not contain a meaningful explanation for the outcomes they order." 

―Yaroslav (Yarko) Sochynsky, Mediator/Arbitrator, Wulff, Quinby, Sochynsky
 

“'Mac' McArthur’s text The Reasoned Award in the United States: Its Promise, Problems, Preparation and Preservation is a major treatise on the subject of American domestic arbitration awards, with a thorough and detailed explanation of the present state of the law and thoughtful recommendations for change. While it will be a valuable tool for lawyers wanting to have a deeper understanding of this complex area of US domestic arbitration law, it is also written for judges, who are challenged to re-think the state of the law, and for arbitral institutions who are asked to consider revising their rules. Particularly valuable for arbitrators, the book provides a detailed and robust analysis of the components that go into making a proper reasoned award. For this reason alone, it should be considered a welcome addition to any arbitrator’s law library, whether practicing in the US or elsewhere."

―J. Brian Casey, FCIArb, Bay Street Chambers
 

John McArthur’s comprehensive treatise on the critical issue of reasoned awards in arbitration is simply “It!” – the best, most comprehensive and useful guide to this central aspect of arbitration.   Not surprising from someone with whom I once sat on an arbitration panel that handed down a 120-page reasoned award in a complex case,  McArthur defines and documents the problems with unreasoned and inadequately explained arbitral awards, offers solutions at the provider/user, judicial, and legislative levels, and addresses all the competing considerations in requiring arbitrators to explain their orders and decisions.  It achieves the rare trifecta of hitting the theoretical, policy, and practical dimensions of the problem and thus is an invaluable contribution to scholars, legislators and courts, and arbitrators and arbitration practitioners.   McArthur does more than criticize the problems with the current practice, he offers specific reforms to improve it, and then in six thoughtful chapters provides what is essentially  a “how to” check list for arbitrators faced with having to write  reasoned awards that will not be vulnerable to appellate attack.  Deep but accessible, broad yet specific, high-minded and operational, it must be read by anybody engaging in, conducting, considering, reviewing, or defining arbitration. 

―Eric D. Green, Professor of Law (ret.); Arbitrator, Mediator, Special Master, founder of two leading ADR firms; Co-author of “Dispute Resolution”

 

"John McArthur’s The Reasoned Arbitration Award in the United States will become the quintessential resource on the drafting and court review of U.S. arbitration awards. The book reads as a labor of love to arbitration packaged as a scholarly, comprehensive and practical examination of the topic. From thoroughly analyzing relevant case law, to critiquing award exemplars, to providing in-depth, step-by-step guidance on drafting best practices, the book answers every question to be asked about arbitration awards. The book thoroughly documents McArthur's core argument that current arbitrator practices, provider rules and the standards of judicial review do not ensure awards are in fact reasoned when they should be. For arbitrators drafting awards, arbitration counsel seeking confirmation, modification or vacatur of awards, and judges reviewing awards, McArthur provides a thorough, thoughtful and immensely useful exposition. The book speaks to his passion for the subject. For the rest of us, it is a work we will turn to time and time again for his wisdom, insights and guidance."

—Gary L. Benton, C.Arb, FCIArb, FCollArb; Founder and Chairman, Silicon Valley Arbitration & Mediation Center (SVAMC); Adjunct Faculty, Santa Clara Law School
 

"Many thanks to John McArthur for this superb and edifying contribution to the field of arbitration. The book should dispel the old canard that a “reasoned award,” properly written, is more vulnerable to vacatur than a so-called “standard” (i.e., unreasoned, conclusory) award. And it should serve as an informative, practical guide for every arbitrator who wants to improve his/her award writing.  I hope the book will enlighten arbitrators, parties and lawyers about the desirability and importance of properly reasoned awards and stiffen courts’ resolve to enforce such agreements where parties have contracted for them."

― Gary V. McGowan, McGowan Arbitration and Dispute Resolution
 

Arbitration is one of the least understood fields of law today, both because it happens entirely in private and because many lawyers receive no training on it.  Yet millions of consumers, employees, and businesses have their disputes resolved in arbitration each year.  John Burritt McArthur’s new treatise, The Reasoned Arbitration Award in the United States, helps address that knowledge gap in two significant ways.  First, he dismantles the myths that arbitrators often cite as bases to avoid explaining their decision making and offers some much-needed criteria for what should qualify as a “reasoned” award that withstands judicial review. But second, McArthur does the incredible work of reading seven years of court opinions regarding arbitration awards and shares illuminating statistics about which attacks on arbitration awards are most common, and which are most successful.  Throughout this book, he demonstrates that he is the kind of arbitrator that every litigant wants—one who is interested in getting the law right, digging deep into the facts, and doing justice—and in turn why arbitration remains the right choice for many sophisticated entities.

―Liz Kramer, founder of ArbitrationNation.com and current Solicitor General of Minnesota
 

It is rare to find a scholarly book that is at once easy to read and relevant to both academics and actual practitioners.  McArthur’s, The Reasoned Arbitration Award in the United States, without a doubt, meets their often-divergent criteria: it is meticulously researched, but practical, thorough, but designed for use.  As an international arbitrator and counsel, I found the detailed analysis of the various ways arbitrators avoid explaining their awards (whether intentionally or not) to be as relevant on the international stage as it is on the domestic one.  One can predict nevertheless that the book’s strong premises are unlikely to be well received by “lazy” arbitrators. Thankfully, the arbitration world of parties, arbitrators and appellate courts no longer needs to contend with the anemic effects of that laziness. It now has The Reasoned Award as a resource and remedy. By example, the scholarship behind this book opens ground for fruitful discussion on how arbitration can best meet the expectations of the parties, and through it, its own best aspirations.

---Michael S. Goldberg, Partner, Practice Group Chair - International Arbitration and Dispute Resolution,  Baker Botts
 

John Burritt McArthur’s well-reasoned and comprehensive analysis of “reasoned” arbitration awards brings a much-needed perspective to this important subject. As an arbitrator, a former CEO of a major arbitration provider, and a former General Counsel, I believe this work provides the arbitration community with both a deeper understanding of the subject along with the tools for arbitrators to be better at their craft. Importantly, it is a book not only for arbitrators, but for users and provider organizations as well.

       The author explodes the myth that it is somehow advantageous for an arbitrator to produce an award that is unreasoned, or that does not clearly articulate the reasoning behind it. He does this by analyzing the key relevant decisions and, in doing so, exposes the unreasoned nature of the underlying awards and the problematic standard established by the Eleventh Circuit, which has been largely followed by the courts. Although I suspect that not all will agree with Mr. McArthur that all of these decisions were wrong, no one can credibly question the thoughtfulness and importance of his analysis. He establishes that the oft-articulated fear of vacatur is overblown and often provides little more than a flimsy rationale for poorly written and thought-through awards.

     Both new and experienced arbitrators will find enormous value in the author’s drafting advice, which extends to virtually every aspect of what needs to be included or, at least, considered in preparing an award. There are few sources available to arbitrators that provide this type of pragmatic “how to” advice and I predict it will be on the shelves of many arbitrators who take their work seriously and are focused on continuous improvement.

---Noah Hanft, former General Counsel of MasterCard and former President and CEO of the International Institute for Conflict Prevention and Resolution (CPR). He is Co-Founder of Acumen ADR LLC.