Originally from Dispute Resolution Journal

This article explores the advantages of allowing the parties to a commercial contract to agree to appellate arbitrator review in the case of an alleged error of law in order to address concerns about the finality of arbitration. The appellate process the author advocates would take place under the auspices of the American Arbitration Association under appellate procedures crafted by the parties, or under appellate procedures promulgated by other ADR providers.

In this article I discuss an option suggested by Judge Richard Posner in Chicago Typographical Union v. Chicago Sun-Times,1 that appellate review of arbitral awards be handled as part of the arbitration process itself, without the involvement of the judiciary. This suggestion has received little attention in the literature. Here I explore the implications of implementing appellate arbitral review, including the practical considerations that would have to be taken into account by an attorney who wishes to implement the suggestion.

I do not advocate providing for arbitral appellate review for every dispute.2 I believe that review would be appropriate only when the nature of the claim requires the arbitrator to resolve legal issues. For example, many standard-form service agreements contain a provision requiring the consumer to agree to a liquidated damage clause. These provisions have been subject to myriad legal challenges, such as unconscionability3 and “unenforceable exculpation.”4 Many courts enforce these clauses as a matter of law, but some do not. The failure of an arbitrator to follow judicial mandates concerning these issues when interpreting service agreements could lead to an appearance of “lawlessness.”5 It is precisely for this reason that some attorneys decide against incorporating an arbitration clause in an agreement. They are no doubt concerned that an arbitrator may misunderstand the applicable law (which, unlike the doctrine of manifest disregard of the law, is not a recognized ground to vacate an award)6 and therefore misapply it.

While the finality of arbitration awards is a clear benefit of arbitration, the risk that the law might not be applied correctly is of sufficient concern to some attorneys that they do not recommend that their clients assume that risk. Providing for an arbitral appeals process would help alleviate this concern.