The Reasoned Arbitration Award in the United States: Its Promise, Problems, Preparation, and Preservation

Author(s):

John Burritt McArthur

ISBN:

978-1-944825-40-9

Page Count:

900 pages

Practice Areas:

Jurisdictions:

EXPECTED THIS March---Pre-order Now!

PDF OF TITLE PAGE AND T.O.C.

The Reasoned Arbitration Award in the United States examines the increasing prevalence in US arbitrations of "standard" awards. which contain no reasons or explanations for their outcome. John Burritt McArthur explains that this phenomenon stems from the misconception that “silent” awards – awards that provide no reasons for their decisions – are less prone to challenge, are less time-consuming, more practical than reasoned awards, and are not sought out by the parties. This belief is not only wrong but is the result of a decision taken in 2011 by the Eleventh Circuit, Cat Charter LLC v. Schurtenberger, which subsequently became the precedent by which later courts confirmed awards in which the arbitrators explained nothing. Since the Cat Charter decision, challenges to the form of awards have begun to appear in many places, but the lack of an accepted, industry-wide definition of what a reasoned award really is and the dearth of guidance among the rules of major providers, case law and the literature, have only exacerbated the situation: Challenges to the form of awards – unknown in the 19^th and 20^th centuries – are being decided incorrectly by courts with confirmations of unreasoned awards that, perhaps through deference to the jurisdiction of arbitration, interpret the awards as reasoned. Further still, the frequent reference to the Cat Charter decision fosters the illusion that all courts agree on the basic standard of review which masks the actual conflict over what a reasoned award means and the need for a standard.

The Reasoned Arbitration Award in the United States seeks to address this serious problem, which, as the author demonstrates, undermines the legitimacy of U.S. arbitration decisions. The treatise proposes a definition that would clear up the confusion and shed light on how damaging the Cat-driven standard for reasoned awards really is. Toward that end, the book

---Examines sample awards that lack reasons;

---Addresses in detail the challenges of reasoned awards;

---Provides a clear viable definition for a reasoned award;

---Provides examples of how to make different sections of an award reasoned without succumbing to the formality of findings and conclusions;

---Shows how to provide enough substance to explain meaningfully why the arbitrators ruled as they did;

---Offers a redrafting of the critical Cat Charter award;

---Discusses the sweep of cases that treat "reasoned awards" as a toothless standard; and

---Examines the cases that in contrast do require real reasons.

This thought-provoking work explains that the very effectiveness and desirability of arbitration is at stake because it is only through the truly reasoned award that the parties are provided with proof that they have been heard.

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

CONTENTS

Foreword

I. Getting the Most Out of This Book

PART ONE. REASONED AWARDS AND THEIR VIRTUES

II. 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).

III. 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

IV. The 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

V. The Failure of Today’s 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

VI. The Pathologies of Unreasoned Award Forms

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.

VII. The Vulnerability Myth Part I: Exceeded-Powers Appeals and Vacaturs

A.    Many Still Believe That Reasons Make Awards Vulnerable
B.    Arbitrators Must Stay Within their Powers
C.    Strong Deference: Courts Reject Exceeded-Powers Challenges as Long as Arbitrators Are Trying to Construe the Governing Documents
D.    But Not a Blank Check: Courts Do Vacate When Arbitrators Disregard a Plain Limit on Their Powers
E. Even Appealed Awards Survive Exceeded-Powers Challenges More than 80 Percent of the Time
F. Reasons Usually Strengthen Awards Challenged for Exceeding Powers

1. Reasons usually protect awards

2. Words alone rarely can cure a material gap between the powers the parties delegated and broader powers actually exercised

3. The vulnerability theory is even less likely for decisions involving facts, procedures, evidence, remedies, or equity

4. One old reason for claiming vulnerability no longer is valid

5. Reasons do remove hypothetical grounds to uphold awards

6. Reasons should make it easier to vacate awards the exceed powers

G. Vacatur for Plain Exceeding Powers Is an Overlooked Exception to the General Rule against Vacating for Legal Errors

H. Active Review of Exceeded-Powers Appeals Is Healthy for any Well-Functioning System of Arbitration

VIII. The Vulnerability Myth and the Lesser Grounds of Appeal

A. The Big Picture
B. Reasons Are the Most Powerful Antidote to Manifest-Disregard Appeals

1. Today’s excruciatingly stringent definition of manifest disregard and the Supreme Court’s hesitancy about the doctrine
2. Usually, reasons will bolster awards against manifest-disregard attack or will have no effect on vacatur
3. Reasons cannot expose awards to significant risk of manifest disregard vacatur because of the doctrine’s almost nonexistent chance of success.

C. Public Policy, a Third Avenue for Correcting Legal Mistakes and Errors

1. Courts will not confirm awards that violate clear, well-defined, dominant public policies.
2. Public-policy vacatur focuses on the award’s outcome versus the policy, not the award’s reasoning.

D. The Three Misconduct Violations

1. Evident partiality turns on arbitrator behavior, not reasons for the award
2. Arbitrator misconduct is rare and almost never is based upon award reasoning
3. Party “fraud, corruption, or undue means” rarely occurs and when it does, it is conduct, not arbitrator reasons, that causes vacatur.

E. The Grab-Bag Standards: “Totally Irrational,” “Arbitrary and Capricious”

IX. The Inefficiency Critique

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

PART THREE. WRITING REASONED AWARDS

X. Setting the Stage, Opening the Gate

A. The Award’s Introduction and Short History
B. Gateway and Framework

1. Jurisdiction: appointment
2.    Jurisdiction: validity of agreement
3.    Jurisdiction: subject matter (“scope” of agreement)
4.    Jurisdiction: parties
5.    Applicable law, and what it means
6.    Applicable rules
7.    Burden of proof
8.    Limitations
9.    The “form” of the award
10.        The special needs of class action certification
11.    Discovery disputes and other procedural matters
12. Dispositive rulings.

XI. Defining the Questions That Need Answers

A. Arbitrators Must Use the Parties’ Briefs and Presentations to Give the Award Its Focus
B. An Adequate Reasoned Award Explains Every Potentially Dispositive Claim, Counterclaim, Defense, and Request for Remedy
C. Wise Arbitrators Often Address Alternative Claims and Defenses
D. Reasoned Awards Must Address the Losing Party’s Claims, Defenses, and Arguments
E. Pre- and Post-Hearing Briefs and, on Rare Occasions, Proposed Awards Should Narrow Questions
F. Do Not Leave Reasons “Implicit,” Ignored as Frivolous, or Otherwise Neglected
G. Whether the Arbitrators Did Their Job, a Position Was Credible, and a Party Met Its Burden Are Not Sufficient Questions
H. Arbitrators Never Should Inject Issues, Arguments, Claims, Counterclaims, or Defenses

XII. The Long and the Short of Reasoned Awards

A. Well-Reasoned Awards Can Vary Widely in Length
B. Examples of Adjusting Award Length
C. Length and the Inefficiency Critique
D. The Factors That Drive the Length of Reasoned Awards
E. Can an Award Be Too Reasoned? Yes

XIII. Narrating the Facts

A.    Facts Are Central to Almost All Arbitrations
B.    Arbitrators Are Better Equipped than Judges to Explain the Facts
C.    Arbitrators Have Wide Discretion over the Factual Narrative’s Order, Structure, and Level of Detail
D. Describing Factual Contentions and Then Announcing a Resolution Is Not Enough
E.    Arrange the Facts with an Eye to Pertinent Law
F.    Awards Must Explain Credibility and Other Seemingly Holistic Judgments
G. The Facts Can Be Compressed and Irrelevant Evidence Omitted as Long as Arbitrators Do So Conscientiously and Explain What They Are Doing
H. The More Fully Awards Explain the Facts, the Likelier They Will Avoid Challenge and Survive Any Appeal
I. Nondispositive Facts Need Not Be Discussed, but Sometimes It Is Prudent to Discuss Them
J. The Factual Presentation Should Be Neutral Yet Lead to the Outcome
K. Avoid Personalization, Hyperbole, and Philosophy
L.    Don’t Let the Story Carry You Away

XIV. Laying Down the Law

A. The Choice of Applicable Law
B. Careful Arbitrators List the Legal Elements of Claims and Defenses
C. Applying the Law to the Facts
D. Explaining “Pure” Questions of Law, Including in Dispositive and Appellate Awards
E. Arbitrator Have Discretion over How Detailed Their Legal Analysis Should Be
F. Reasoned Awards Must Describe the Law Applicable to Defenses

XV. Determining Appropriate Remedies and Closing the Arbitration

A. Disputed Damage Computations or Remedies Need Explanation

1. Actual damages
2.    Punitive damages
3.    Equitable relief
4.    Attorneys’ fees and costs
5.    Interest

B. Remedies and Discretion: The Rule of Law Question
C. Award Finality
D. Closing: The Last Act

PART FOUR. REASONS IN OTHER AWARD FORMS

XVI. Making Standard Awards More Reasonable

A. The Right to Silence
B. Different Kinds of Arbitration and Silence
C. Standard Awards Should Give Evidence of Deliberation though They Cannot Include Reasoning

1. The simple one-page announcement award
2. Adding some nonexplanatory detail
3. Standard dissents and interim, emergency, and dispositive awards

D. What Arbitrators Should Ask at the Outset
E. Minimizing Cost and Time
F. Resisting Temptation: Don’t Get Smart (This Means You)
G. Supplementation with Oral Explanation

XVII. Life Left in the Old Dog: Sprucing Up Findings of Fact and Conclusions of Law

A.    Finding and Conclusions Need Be No More Substantively Reasoned than Reasoned Awards
B.    "The Facts" and "The Law" Can Be Subdivided and Rearranged Many Ways
C.    Good Narrative Writing Often Improves Findings and Conclusions
D. Findings and Conclusions Need Not Always Be Longer than Reasoned Awards

PART FIVE. REFORMS AND IMPROVEMENTS

XVIII. Reforms Needed to Ensure Meaningful Reasoned Awards

A. Arbitral Rules Must Define Reasoned Awards
B. Rules Ought to Define Standard Awards
C. Rules Ought to Explain the Difference between Findings and Conclusions and Reasoned Awards
D. The AAA and FINRA Should Reconsider Certain Positions That Discourage Reasoned Awards
E. Providers Should Develop a Shared Set of Conventions on Finality

XIX. A Second Route for Attacking Unreasoned Awards: Section 10(a)(4)’s Requirement That Awards Be Mutual and Final on All Issues

XXI. Remember, Arbitrators, It Is the Parties’ Arbitration

APPENDIX

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.

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