The Other Grounds for Vacatur and the Vulnerability Myth - Chapter 7 - 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.
Chapter Seven addresses the vulnerability criticism in relation to the other grounds of appeal. Together, Chapters 6 and 7 provide a full, detailed description of how each ground of vacatur works in practice. That discussion will help arbitrators determined to write adequate awards, courts judging whether an award is adequate, and parties deciding whether to challenge an award. Chapter Seven also reports the results of a detailed study of vacatur rates in the eight-year period 2010-2017, based on vacatur opinions listed in the West keynote system. The study demonstrates that awards are very rarely vacated because of something in their rationale. The two chapters use the mechanics of each vacatur ground to explain why reasons usually protect awards, rather than facilitate their demise, which is what advocates of the vulnerability theory assert.
from Chapter 7. The Other Grounds for Vacatur and the Vulnerability Myth
The basic relationship between vacatur and reasons that exists for exceeded-powers challenges exists for other grounds of vacatur as well. Reasons usually strengthen, rather than weaken, awards against these challenges, too. True, here too, if the arbitrators’ reasons are so obviously wrong that they are even worse than a serious mistake, then the awards’ articulation makes vacatur easier. But few awards are so obviously, unusually wrong. And when an award is so severely contrary to the contract or applicable law that it exceeds powers, violates public policy, deserves vacatur for manifest disregard, or displays bias from evident partiality or misconduct, these violations usually will be manifest with or without reasons. Reasons rarely are the true cause of vacatur in any of these situations.
When an award rests on a badly incorrect rationale, including reasoning will encourage a challenge to the award and facilitate vacatur because explaining the rationale exposes its flaws. The vulnerability myth portrays reasons as being always a weakness, a vice. Yet even with a truly flawed award reasons are beneficial. They help weed out defective awards. Arbitration benefits when plainly wrong awards are overturned.
Ordinarily, though, when dealing with well-crafted or even just average awards, reasons strengthen the arbitrators’ decision against express-powers, manifest disregard, and fact-based public policy challenges and those misconduct challenges that rest on managerial decisions left to the arbitrators’ discretion. Moreover, when a challenge rests on disputes over the legal nature of public policy, nondisclosure, party misconduct, or arbitrator misconduct other than process management decisions, courts generally decide the challenge without giving weight to the arbitrators’ reasoning. In those instances, reasons neither help nor hurt the award, so they cannot be a source of weakness.
In general, a well-reasoned award, like a well-reasoned opinion, usually is strongly insulated against attack and vacatur.
A. The Big Picture
The three most frequent grounds for attacks on awards identified in the McArthur West keynote 2010-2017 study are exceeded powers, manifest disregard of the law or of contract terms, and violations of public policy. Particularly notable is the much greater frequency and success of exceeded-powers challenges (indicating that when parties complain about the arbitrators’ powers, wise arbitrators will be very careful to justify the powers they wield), compared to the high frequency but almost entire failure of manifest disregard challenges.