Your (Arbitration) Case Has No Appeal

The case law in Louisiana state courts (indeed, this is also true in federal courts nationwide) is strong on the sustainability of arbitration awards notwithstanding arguments concerning arbitrator error in the ascertaining of the facts or application of the law.

In the last 10 years or so, one reported case after another has cemented the rule that the voluntary submission of parties to the arbitration process includes acquiescence in the general lack of appealability of arbitration awards. Applicable statutes governing arbitrations, including, for example, the Louisiana Arbitration Law, Louisiana Revised Statute 9:4201 et seq. (which is patterned after the Federal Arbitration Act), simply do not provide many avenues for courts to overturn arbitration awards, even in the face of what might otherwise seem to be an egregious error by an arbitrator or an arbitration panel.

The Louisiana Arbitration Law provides these limited bases to attempt to vacate an arbitration award:

In any of the following cases the court in and for the parish wherein the award was made shall issue an order vacating the award upon the application of any party to the arbitration.

A.   Where the award was procured by corruption, fraud, or undue means.

B.   Where there was evident partiality or corruption on the part of the arbitrators or any of them.

C.   Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior by which the rights of any party have been prejudiced.

D.   Where the arbitrators exceeded their powers or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

Where an award is vacated and the time within which the agreement required the award to be made has not expired, the court may, in its discretion, direct a rehearing by the arbitrators.

Relegated to the limited bases in the arbitration statutes, parties seeking to attack arbitration awards – noting that subparts A-C of the statute cited above are notoriously difficult to prove (including on the point of an arbitrator refusing to hear evidence, as most arbitrators have been trained to officially exclude very little from evidence) – have urged that perceived errors in an arbitration award arise from the arbitrators having “exceeded their powers or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.”

In connection therewith, or in the alternative, parties aggrieved by an arbitration award also attempt to assert that an arbitration award simply should be modified (as opposed to vacated) by a court, utilizing La. R.S. 9:4211A – which provides that a court may adjust an arbitration award where “…there was an evident material miscalculation of figures …in the award.” Note, however, that the case law is consistent in holding that miscalculation – such as a mathematical error – does not allow courts to overturn or adjust substantive holdings of arbitrators.

In Inland Marine Servs., L.L.C. v. Hamp’s Constr., LLC, a subcontractor instituted arbitration seeking the balance due on its subcontract and delay damages on a beach rehabilitation project in Lafourche Parish. The subcontractor prevailed in the arbitration, and an award was rendered in its favor in the amount of $497,639.57, with roughly 4 years of legal interest calculated by the arbitrator to be the amount of $75,859.36.

After the award was issued, the subcontractor filed a perfunctory (albeit absolutely required) lawsuit in a Louisiana state district court seeking to confirm the award, in order to make the award enforceable as though a judgment of the court. The district court granted the relief sought, although (for reasons not fully explained in the appellate decision) the court modified one paragraph of the arbitration award concerning future legal interest.

The general contractor (which had filed a competing motion to vacate in the district court) appealed the decision of the district court to the Louisiana First Circuit Court of Appeal, asserting that the arbitrator had exceeded his powers, executed his powers so imperfectly as to preclude a final award, committed acts which demonstrated prejudice and partiality, and “ignored a known, controlling principle of law and failed to apply it” – along with an argument concerning material miscalculations in the award. The general contractor sought an overturning of the delay damage component of the award in the amount of approximately $190,000, and a credit for approximately $16,000 in regard to equipment rental. The general contractor argued that the arbitrator’s decision “grossly depart[ed]” from the facts and evidence, including evidence presented by the subcontractor’s own expert.

For its part, the Louisiana First Circuit Court of Appeal went right down the line on the strict limitations (discussed above) on vacating or adjusting arbitration awards. At the disposal of the Court of Appeal was what appears to be a “reasoned award” by the arbitrator – an award which sets forth significant discussion by the arbitrator of the arbitrator’s bases for the award. (It should be noted that reasoned awards as such are not required under most arbitration tribunal arbitration rules – for example, the American Arbitration Association – and, empirically, most parties do not request reasoned awards.)

In refusing the appeal by the general contractor, the court noted:

Even if we were to disagree with the arbitrator’s decision on the merits, there is no evidence that the arbitrator exceeded or imperfectly executed his powers in this matter. Thus, there were no grounds for the district court to vacate or modify the arbitration and this Court is prohibited from reviewing the merits of the arbitrator’s decision.

The appellate court also noted that it adheres to the “exclusivity” of the cited Louisiana arbitration statutes for vacating or modifying awards, and does not embrace “manifest disregard for the law” by an arbitrator as a basis for overturning an arbitration award (although there are apparently-conflicting recent court decisions nationwide on the topic; see, for example, Weiss v. Sallie Mae, Inc., No. 18-2362, 2019 U.S. App. LEXIS 27476 (2d Cir. Sept. 12, 2019)). Similarly, the court held that an arbitrator’s conclusions drawn from “conflicting evidence” do not constitute misconduct or use of undue means in resolving disputed facts, and do not constitute a basis for vacating arbitration board.

The court concluded its ruling by noting that the various complaints regarding the arbitrator’s findings “do not involve a mathematical error,” but, rather, tread upon arguments concerning alleged factual error, and, therefore, the award would not be modified as to its amount. (As there was no discussion in the appellate decision concerning the assertion by the general contractor regarding “prejudice and partiality” of the arbitrator, we assume that the matter was not actually addressed by the general contractor in its briefing to the appellate court.)    

Inland Marine Servs., L.L.C. v. Hamp’s Constr., LLC, 2018-1152 (La. App. 1 Cir. 04/12/19); 2019 La. App. Unpub. LEXIS 117 (the full written decision of the court can be found here: https://law.justia.com/cases/louisiana/first-circuit-court-of-appeal/2019/2018ca1152.html; the opinion of the United States Second Circuit Court of Appeals in Weiss can be found here: https://law.justia.com/cases/federal/appellate-courts/ca2/18-2362/18-2362-2019-09-12.html).