Exceeded-Powers Vacatur and the Vulnerability Myth - Chapter 6 - The Reasoned Arbitration Award in the United States: Its Promise, Problems, Preparation and Preservation
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.
Our domestic arbitration industry and the domestic culture embedded in case law, treatises, practice guides, and articles make two main arguments for avoiding reasons: (1) That reasons allegedly make awards vulnerable to challenge and vacatur, an argument the book explores in Chapters Six and Seven, and (2) that giving reasons is inefficient – makes awards too slow to write and too costly, a claim treated in Chapter Eight. The chapters analyze both criticisms and conclude that both are wrong.
Chapter Six discusses the single most common objection, the vulnerability argument that reasons give losing parties a target for vacatur and thus worsen an award’s prospects. It analyzes that common belief in the context of the most frequent and successful ground for seeking vacatur, the claim that the arbitrators exceeded their powers. The argument loses its plausibility the more one looks into how exceeded-powers vacatur works. Chapter Seven addresses the vulnerability criticism in relation to the other grounds of appeal. Together, the two chapters provide a full, detailed description of how each ground of vacatur works in practice
from Chapter 6. Exceeded-Powers Vacatur and the Vulnerability Myth
The strongest argument against reasoned awards is that the act of giving reasons supposedly increases the odds of challenges and makes vacatur more likely when awards are contested. This chapter is the first of two chapters urging that the opposite usually is true. Reasons usually form a bulwark against motions to vacate and vacatur itself. Most often it is the absence of reasons, not their presence, that weakens awards and makes challenges and even vacatur likely. Moreover, most awards sufficiently extreme to attract an effort to vacate look extreme enough to the losing party that they would be challenged even were the award silent. Awards that plainly violate a limit on arbitral power will be overturned whether they include reasons or not.
The vulnerability argument is odd because it is so contrary to dominant assumptions in our culture. Consider the way we usually think about judicial opinions. A forceful, well-reasoned opinion is a strong opinion. It is less likely to be attacked and much less likely to be reversed than a curt, unexplained opinion. A poorly reasoned opinion, in contrast, a category that certainly includes those that provide no explanation at all, invites trouble. In arbitration, just as with judicial opinions, one would expect that basic orientation of a rational, post-Enlightenment universe that respects reasons to apply.
Reasons are instruments of persuasion. They protect awards, particularly those likeliest to be challenged – awards whose outcomes are not obvious or not immediately plausible; awards whose results do not flow naturally from the evidence; awards contrary to expected outcomes (like arbitrators coming up with a reason why a contract clause is unenforceable, or concluding that an overarching purpose derived from the agreement as a whole overrides a specific term, or awarding much more in fees than in actual damages, or a massive award of punitive damages); or awards in which the arbitrators do not explain themselves at all. In each situation, what better way to show that the arbitrators’ work, their final product, the award, deserves deference, than to write out how they did their job and reached their decisions?
One of the most common beliefs about awards in domestic arbitration is directly contrary to this sensible, rational view. It posits that the very act of explanation designed to show the parties they have been treated fairly jeopardizes the award, poses unnecessary costs, and risks damaging the larger arbitration process.
This paradoxical “vulnerability myth” is the first of two main arguments against giving reasons. The second is that explaining awards damages arbitration’s efficiency virtues. This chapter analyzes the vulnerability myth in the context of the most frequent challenge to awards, the argument that the arbitrators exceeded their powers. Chapter Seven tests the vulnerability theory’s plausibility against the other main grounds for vacatur, while Chapter Eight addresses the inefficiency critique.