An Arbitrator’s Power to Change an Award

Rule 40 of the AAA Labor Arbitration Rules (“Labor Rules) and Rule 50 of the AAA Commercial Arbitration Rules (“Commercial Rules”) each provide a pencil-thin path for revision of an award, but forbid “redetermin[g] the merits of any claim already decided.” The Fifth Circuit recently dealt with Labor Rule 40 in Communications Workers of America, AFL-CIO (“CWA”) v. Southwestern Bell Telephone Company, No. 19-50686 (5th Cir. April 1, 2020). That decision concerned an arbitrator’s change to an award issued under a collective bargaining agreement—not a mere tweak, but a flip in the outcome. In brief summary, the Court treated AAA procedural rules adopted in the parties’ contract as equivalent to contract terms themselves.

As the Court observed, it is well settled that awards must be affirmed “as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority.” Slip Opinion at 6 (internal citations omitted). Significantly, the Court extended that principle to the AAA rules chosen in the underlying agreement. Thus, the Court afforded deference, not just to the arbitrator’s interpretation of contract terms themselves, but also to his construction of Labor Rule 40, even though he provided no explanation for that construction. Of particular significance to the Court’s decision was Labor Rule 47, which authorizes an arbitrator to “interpret and apply [the AAA] rules insofar as they relate to the arbitrator’s powers and duties.” The Court said, “This rule binds the parties to the arbitrator’s interpretation as long as it is ‘within reasonable limits.’” Slip Opinion at 7 (internal citation omitted). (Commercial Rule 8, mirroring Labor Rule 47, compels the arbitrator to “interpret and apply these rules insofar as they relate to the arbitrator’s powers and duties.”) 

Given the close similarity of Labor Rule 40 to Commercial Rule 50, CWA will likely impact the many arbitrations governed by the latter. In the experience of this writer, Commercial Rule 50 can be problematic. The meaning of the term “clerical, typographical, or computational errors”—the limited modifications allowed by the Rule—is plain enough, but “award” is undefined. Before the final award, an arbitrator may issue one or more “orders” deciding merits (distinguished from procedural) issues. For example, under Commercial Rule 33, a party may move for summary disposition on one or more issues. Suppose the arbitrator grants the motion, in an order that does not end the proceeding, based on her reading of caselaw cited in the parties’ briefs. However, a month later, the state supreme court issues a decision, squarely on point, contrary to the arbitrator’s ruling. The losing party moves for reconsideration. The other party objects, correctly noting the motion asks the arbitrator “to redetermine the merits of a claim already decided.”

Clearly, relying on a new case to reverse a merits decision cannot be reasonably characterized as correction of a “clerical, typographical, or computational error.” An arbitrator’s interpretation of the contract (or its adopted rules) must be at least “arguable.” She is not free to ignore or disregard clear or plain terms. CWA, Slip Opinion at 9-10.

But is the order granting the dispositive motion an “award,” an undefined term in the AAA Commercial Rules? Put differently, does Rule 50 apply at all to the order? Here, in light of CWA, the arbitrator should have considerable leeway, in deciding the motion to reconsider, to construe the meaning of “award” as used in Rule 50. See Commercial Rule 47(b) ("In addition to a final award, the arbitrator may make other decisions, including interim, interlocutory, or partial rulings, orders, and awards. ….”); Commercial Rule 33 (empowers an arbitrator to “make rulings upon a dispositive motion….” and does not mention "award.") (emphasis added).

Undoubtedly, AAA Rule 50 was intended to promote finality of awards by limiting their modification to very narrow, non-substantive grounds. But this goal would not be served by forbidding reconsideration of interim merits orders that do not dispose of the entire proceeding. And more importantly, the desirability and reputation of arbitration would suffer by reason of awards imbedded with clear errors of law or fact that could not be corrected before the true end of the proceeding.