beyond no-appeal gov

8/3/2019 Beyond No-Appeal Gov

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American Arbitration Association

Forum on the Construction Industry

BEYOND NO: APPEALING THE ARBITRATION AWARD

Stanley P. Sklar, Esq.

Melissa L. Levy, Esq.

Bell, Boyd & Lloyd LLC

Chicago, Illinois

May 18-19, 2006

Paradise Point Resort & Spa - San Diego, California

ABA FORUM ON THE CONSTRUCTION INDUSTRY ANNUAL MEETING

2006 American Bar Association


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TABLE OF CONTENTS

Page

I. LIMITATIONS ON JUDICIAL REVIEW...................................................................... 1

A. Federal Arbitration Act, 9 USC Section 10.......................................................... 3

1. Vacatur of Arbitration Awards by the Court............................................. 3

2. Corruption, Fraud, or Undue Means......................................................... 6

3. Evident Partiality or Corruption............................................................... 7

4. Misconduct in Refusing to Postpone the Hearing or to Hear

Evidence Pertinent to the Controversy or MisbehaviorPrejudicing Rights of Parties.................................................................... 8

5. Arbitrators Exceeded Their Powers.......................................................... 9

B. Overview of Judicial Standards for Vacatur of Arbitration Awards.....................11

1. De Novo Review for Errors of Law ........................................................12

2. Clearly Erroneous Standard ....................................................................13

3. Substantial Evidence Standard................................................................14

4. Abuse of Discretion Standard .................................................................15

5. Arbitrary and Capricious Standard..........................................................16

6. Complete Irrationality Standard..............................................................17

7. Manifest Disregard .................................................................................18

8. Public Policy Exception..........................................................................20

II. APPELLATE REVIEW PROCEDURES BY CONTRACT...........................................22

A. To Review or Not to Review, That is the Question.............................................23

B. Contract Issues and Appellate Review of Arbitration Awards.............................25

C. Existing Procedures for Appellate Review by Agreement...................................26

1. American Arbitration Association...........................................................26

2. JAMS Arbitration Appeal Procedure.......................................................27


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3. CPR Institute for Dispute Resolution Rules for ArbitrationAppeal....................................................................................................28

III. CONCLUSION .............................................................................................................30

APPENDIX 1............................................................................................................................31

APPENDIX 2............................................................................................................................34

IV. FAILURE TO DISCLOSE AS A BASIS FOR VACATING AN AWARD....................40

AMERICAN ARBITRATION ASSOCIATION Construction IndustryArbitration Rules and Mediation Procedures ......................................................41

AAA CODE OF ETHICS IN COMMERCIAL DISPUTES 2003REGARDING DISCLOSURE ...........................................................................42

FAILURE TO DISCLOSE MAY LEAD TO REMOVAL FROM THENATIONAL ROSTER OF NEUTRALS ............................................................44

A BRIEF REVIEW OF SOME RELEVANT CASES....................................................45

V. BIOGRAPHIES.............................................................................................................47


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I. LIMITATIONS ON JUDICIAL REVIEW

An arbitration agreement is a contractual commitment by the parties to resolve

issues of fact, law and contract through an alternative adjudicative forum, and accept the

decision of a neutral arbitrator. Stephen L. Hayford,Law in Disarray: Judicial Standards

for Vacatur of Commercial Arbitration Awards, 30 Ga.L.Rev. 731, 741-45 (1996)

(discussing the nature of arbitration agreements and public policy indicated by the

Federal Arbitration Act). The key objective of arbitration is to resolve disputes quickly,

inexpensively, and without the complexity of traditional litigation. Id. See also PHILLIP

L. BRUNNER & PATRICK J. OCONNOR., CONSTRUCTION LAW, 12 (2002); 9 U.S.C. 10

(2003). The longstanding common law rule, as enunciated in the landmark case of

Burchell v. Marsh was that a court will not set aside an arbitration award for error in law

or fact. 58 U.S. 344 (MB) (1855). In describing the narrow limit of allowable judicial

review of final arbitration awards, the Burchell court stated that if the arbitrators have

given their honest, incorrupt judgment on the subject-matters submitted to them, after a

full and fair hearing of the parties, they are bound by it; and a court of chancery have no

right to annul their award because it thinks it could have made a better. Id. at 352.Stanley P. Sklar, Matthew Bender Construction (2003). Under the common law rule, if

the decision was honest and the hearings were fair, an award could not be set aside. Id.

at 12.18[3][b]. Modern arbitration statutes, both federal and state, have codified

arbitration laws in keeping with the common law rule regarding judicial review of an

arbitration award. Id. (citing 9 U.S.C. 10 ; U.A.A. 12; In reTime Constr., Inc., 43

F.3d 1041 (6th Cir. 1995) (citing Michigan's statutory bases for vacating arbitrator

awards in Mich. Ct. Rule 3.602(J)(1)(d)); O&K Glass Co. v. Innes Constr. Co., Inc. , 608

N.W.2d 236 (N.D. 2000); Anzillotti v. Gene D. Liggin, Inc., 899 S.W.2d 264


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(Tex.Ct.App. 1995) (citing Texas' statutory bases in Tex.Rev.Civ.Stat.Ann. art. 237(A)

(Vernon 1973)); Hooten Constr. Co. v. Borsberry Constr. Co., 108 N.M. 192, 769 P.2d

726 (1989);Hazeltown Area School Dist. v. Krasnoff, 156 Pa.Commw. 76, 626 A.2d 675

(1993), reh'g denied, 1993 Pa.Commw. LEXIS 431 (Pa.Commw.Ct. July 13, 1993)

(under a contract that provided for statutory arbitration, the court should have applied the

judgment N.O.V. standard of review and not the standard of judicial review reserved for

awards governed by common law arbitration)).

The Federal Arbitration Act (FAA) has become increasingly applicable as a

limitation on judicial review of arbitration awards. For example, in deciding whether the

FAA governed an award, the Supreme Court of Alabama interpreted the term involving

commerce in the FAA as the functional equivalent of the affecting commerce words

of art used regarding Congress commerce clause power. Serra Toyota, Inc., v. Johnson,

876 So. 2d 1125, 1129 (Ala S. Ct. 2003). The Court went on to say that this power may

be exercised in individual cases without showing any specific effect on interstate

commerce if in the aggregate the economic activity in question would represent a

general practice subject to federal control. Id. (quotingMandville Island Farms, Inc.,

v. American Crystal Sugar Co., 334 U.S. 219, 236 (1948). Likewise, In Roadway

Package Systems, Inc., v. Kayser the Third Circuit considered whether an arbitration

agreement was governed by the FAA where citizens of different states contracted for the

delivery of packages interstate. 257 F.3d 287, 292 (3d Cir. 2001). InRoadway, the Third

Circuit held that, if parties agree to arbitrate a matter that is within Congress reach under

the commerce clause, it is unquestioningly governed by the FAA. Idat 292. Essentially,

if a transaction involved interstate commerce and there is a contract requiring arbitration,


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the Federal Arbitration Act applies. In view of the FAAs broad reach, a discussion of 9

USC 10 (a)-(d) follows.

A. Federal Arbitration Act, 9 USC Section 10

1. Vacatur of Arbitration Awards by the Court

The Federal Arbitration Act places strong limits on judicial review of arbitration

awards. Under section 10(a) of the FAA, the grounds for vacating an award upon the

application of any party to the award are limited to four areas. See 9 U.S.C. 10 (2003).

First, under section (a)(1), is where the award was procured by corruption, fraud, or

undue means. Second, an award may be vacated under section (a)(2) where there was

evident partiality or corruption in any arbitrator. The third case arises under section

(a)(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing

despite a partys showing of sufficient cause to postpone or refusal to hear evidence

pertinent and material to the controversy; or of any other misbehavior by which the rights

of any party have been prejudiced. Lastly, vacatur is available, under section (a)(4)

where the arbitrators exceeded their powers, or so imperfectly executed them that a

mutual, final, and definite award upon the submitted subject matter was not made.

Federal policy favors arbitration and the preservation of the integrity of the

arbitration process. This policy is motivated by the desire to maintain an alternative

adjudicative procedure with increased efficiency, less complexity, shorter proceedings,

and reduced costs compared to the traditional litigation process. One comment notes

the goal of an arbitral proceeding should be a just award rendered in a fair, efficient and

final proceeding. Vacatur litigation inevitably compromises at least some of these goals,

by adding an expensive and potentially protracted second round to the process whether

the motion to vacate ultimately succeeds or not. R. Mills, J. Lani Bader, Thomas J.


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Brewer, and Peggy J. Williams, Vacating Arbitration Awards Study Reveals Real-World

Odds of Success by Grounds, Subject Matter, and Jurisdiction, DISPUTE RESOLUTION

MAGAZINE, Summer 2005, at 26-27. This policy is evident in the limits placed on

judicial review of arbitration awards. For example, the Supreme Court has stated that

courtshave no business weighing the merits of a grievance [or] considering whether

there is equity in a particular claim. if the judiciary does so, it usurps a function which is

entrusted to the arbitration tribunal Major League Baseball Players Assn v. Garvey,

532 U.S. 504, 509-10 (2001) (quoting Steelworkers v. Am. Mfg. co., 363 U.S. 564, 568-

69 4 L. Ed. 2d 1403, 80 S. Ct. 1343 (1960). The Supreme Court has also expressed that

by choosing arbitration, the parties have bargained for the arbitrators construction of the

agreement. Enter. Wheel & Car Corp., 363 U.S. 593, 597 (1960).

Likewise, the FAA reflects federal policy in favor of arbitration and the

preservation of the arbitration process. Although there is little legislative history for the

Act, Congress pro-arbitration policy is illuminated by the plain language of the statutes

extremely narrow categories of review and the high level of deference afforded

arbitrators opinions. Additionally, courts have interpreted the language of the FAA

consistent with this federal policy by limiting judicial review and interpreting the statute

narrowly. See Hayford, Supra, at 744-46. A decision by the Southern District of New

York held that to effectuate the federal policy in favor of arbitration, this section is to

be accorded the narrowest of readings. Milcom International V N. V., v. Motorola, Inc.

and Proempres Panama, S.A., 2002 U.S. Dist. LEXIS 5131 (S.D.N.Y. March 28, 2002)

(quotingBlue Tee Corp v. Koehring Co., 999 F.2d 633, 636 (2d Cir. 1993)).


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In addition to providing a slim category of review, the FAA also lacks procedural

requirements that would facilitate judicial review. As the District Court for the District

of Columbia noted an arbitration panel is not subject to the more rigid mechanisms that

courts are. Arbitration panels have great discretion and courts have narrow review of

their actions and decisions. Flight Systems v. Paul Lawrence Co., 715 F. Supp. 1125,

1128 (D. D. C. 1989) (referencing Washington-Baltimore Newspaper Guild v.

Washington Post Co., 442 F.2d 1234 (D.C. Cir. 1971). The FAA does not require

arbitrators to explain their decisions nor does it require the creation of a detailed record of

arbitration proceedings. As a result, records are typically sparse. A high showing is

required to avoid summary confirmation of an arbitration award, and a party petitioning

for review bears the burden of proof. Folkways Music Publishers v. Weiss, 989 F.2d 108,

111 (2d Cir 1993). Considering the high level of deference afforded arbitration awards,

then, overcoming this burden of proof is a particularly challenging task without the

benefit of a complete record of the proceedings. To set aside an arbitration award, the

petitioner must overcome a presumption of validity, and must show an objective basis

supporting his allegation. Stanley P. Sklar, Matthew Bender Treatise on Construction

Law (2003) Chapter 12.18[3][b]. Oftentimes the petitioner cannot make this showing

simply for lack of record. In addition, if a petitioner attempts to rely on newly discovered

evidence, the petitioner must show that the evidence could not have been discovered prior

to the arbitration proceeding. Stone, Inc. v. Liang, 493 F. Supp. 104, 109 (N.D. Ill 1980)

(holding that newly discovered evidence could not be used to vacate under the ground of

fraud under section 10(a) of the Federal Arbitration Act because the evidence was a

matter of public record and therefore discoverable prior to the arbitration proceedings).


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However, while these procedural obstacles and the limited review categories available

may complicate a partys challenge of an award, this procedural structure facilitates the

goals for which the arbitration process is designed: efficiency, speed, and reduced costs.

2. Corruption, Fraud, or Undue Means

The first of the review categories enumerated under the FAA is where the award

was procured by corruption, fraud or undue means. The party raising such allegations

bears a substantial burden of proof. The size of an arbitration award or disparity between

the award amount and the amount claimed, standing alone, is insufficient to show fraud

or bias. Stanley Sklar, Matthew Bender (citingMSP Collaborative Developers v. Fidelity

& Deposit Co. of Md., 596 F.2d 247 (7th Cir. 1979)). Additionally, undue means is not

proven by showing the offering of prejudicial evidence. Matthew Bender Construction

Law (2003) (citing Shearson Hayden Stone, Inc., v. Liang, 493 F. Supp. 104 (N.D. Ill.

1980). affd, 653 F2d 310 (7th Cir. 1981). Vacating an award for undue means

requires a showing of bad faith in procuring the award is required. Shearson Hayden

Stone at 108. Additionally, the petitioner must make specific allegations of bad faith,

fraud, or corruption, as to evidence, not merely allege undue means as to the evidence.

Id. at 109.

An interesting study, analyzing both state and Federal cases in which the

petitioner sought vacatur of an arbitration award, found that corruption, fraud or undue

means was the least frequently asserted allegation, and also the least successful at a 7.6%

success rate. R. Mills, J. Lani Bader, Thomas J. Brewer, and Peggy J. Williams,

Vacating Arbitration Awards Study Reveals Real-World Odds of Success by Grounds,

Subject Matter, and Jurisdiction, DISPUTE RESOLUTION MAGAZINE, Summer 2005, at 26

(limiting review to cases in which vacatur was sought following an arbitration proceeding


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involving an enforceable arbitration clause, not including cases involving labor or

collective bargaining agreements nor decisions involving statutorily mandated

arbitrations involving a less deferential standard of review than the FAA) (hereinafter

referred to as the Mills study).

3. Evident Partiality or Corruption

The second category warranting judicial review under the FAA occurs where

there is evident partiality or corruption in any of the arbitrators. Again, the petitioner

bears burden of proof. To meet this burden, the party challenging the award must

establish facts which indicate improper motives on the part of the Board. The appearance

of impropriety, standing alone, is insufficient. Sheet Metal Workers Intl Assn Local

Union #420 v. Kinney Air Conditioning Co., 756 F.2d 742, 748 (9th Cir. 1985) (quoting

Intl Produce, Inc. v. Rosshavet, 638 F.2d 548, 551 (2d Cir.), cert. denied, 451 U.S. 1017

(1981)). Even repeated rulings by an arbitrator against a particular party to the arbitration

do not meet the burden of proof of evident partiality without the additional demonstration

of some improper motivation. Bell Aerospace Co. v. Local 516, UAW, 500 F.2d 921, 923

(2d Cir. 1974). Courts have found, however, that undisclosed business dealings between

an arbitrator and a party to arbitration meet the showing required to vacate on grounds of

evident partiality. Amerada Hess Corp. v. Local 22026 Fed. Labor Union, A.F.L.-C.I.O.,

385 F. Supp. 279, 281 (N.J. 1974) (citing Commonwealth Coatings Corp. v. Continental

Casualty Co., 393 U.S. 145 (1968), reh. den. 393 U.S. 1112.) Other examples of

determinations of evident partiality or corruption occur where the arbitrator had a non-

business relationship with a party to the arbitration and where the arbitrator had a

personal or business interest in the outcome of the arbitration. Ameralda, 385 F.Supp at

281 (citingHyman v. Pottsbergs Exrs., 101 F.2d 262 (2d Cir. 1939).


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According to theMills et al. study, attempts at vacatur based on an allegation of

evident partiality or corruption in the arbitrators was only sought in 33 of the 182 total

cases examined. The article authors found the number of assertions of this ground for

vacatur to be surprisingly low in light of the fact that this category includes those

assertions pertaining to an arbitrators disclosures of conflicts or potential conflicts.

Additionally, this claim was only successful about 12.1 percent of the time. Mills et al. at

25.

4. Misconduct in Refusing to Postpone the Hearing or to Hear

Evidence Pertinent to the Controversy or Misbehavior

Prejudicing Rights of Parties

The third category under 10(a) is where arbitrators are guilty of misconduct in

refusing to postpone the hearing, upon sufficient case 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. In Ceco Concrete Construction v.

Schrimsher Construction Co., Inc., the parties submitted to arbitration; subsequently

Ceco sought to confirm the award and Schrimsher sought to have it vacated based on

section 10(a)(3) of the FAA. The District Court for the Northern District of Georgia

determined that [by] its motion to vacate Schrimsher effectively was seeking a stay of

proceedings pending determination of a related proceeding. Such right to a stay does not

exist under the Federal Arbitration Act. 792 F. Supp. 109, 110 (1992) (citing Volt Info

Sciences v. Leland Stanford Jr. University, 489 U.S. 468, 470 (1988). The Court held

that the arbitrators were correct in their decision not to postpone the proceedings pending

determination of the related administrative proceedings, and went on to explain that

[t]he granting or denying of an adjournment or postponement falls within the broad

discretion of appointed arbitrators. Id. (citing Nyall Storey v. Searle Blatt Ltd., 685


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Supp. 80, 82 (S.D.N.Y. 1988). The court further stated assuming a reasonable basis for

the arbitrators decision not to grant a postponement, the Court will be reluctant to

interfere with the award on these grounds. Creco, Supra, 110 (citing Fairchild and Co.

v. City of Richmond et al., 516 F.Supp. 1305, 1313-1314). Another example of an

allegation which was also insufficient to meet the burden of proof for this ground was

that arbitrators did not set a discovery schedule, hold a preliminary hearing, or require the

parties to submit discovery and documents prior to the arbitration. Flight Systems v. Paul

A. Laurence Co., 715 F.Supp. 1125 (D.D.C. 1989). In addition, a partys argument that

an award represents and evident mistake because the arbitrators did not hear after-

acquired evidence is also insufficient because cases decided under the FAA . . . have not

allowed an arbitration decision to be vacated on a claim of new evidence. Id. at 1128-29.

According to the Mills et al. study, this is the third most frequently advanced

ground for challenging an award, and it is successful in approximately 17 percent of

cases. These cases include those where the petitioner advanced allegations that the rights

of the party were prejudiced because the award was irrational, against public policy, or

arbitrary and capricious. Article at 25.

5. Arbitrators Exceeded Their Powers

Lastly, courts may vacate arbitration awards under 10(a)(4) 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. This is the one ground for

vacatur under 9 USC 10 that does not require a showing of wrongdoing by the arbitrator

or the arbitration process. Typically, in these cases courts apply the objection to the

award by comparing the arbitration agreement or other documents through which the

parties agreed to arbitrate with the decision rendered by the arbitrator. Amerada, 385


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F.Supp. at 282. TheAmerada court expressly stated ordinarily the complaining party

must show that the arbitrators award is contrary to the express language of the collective

bargaining agreement.Id. at 282. An ambiguity in an arbitrators written opinion is not

sufficient to establish that the arbitrator exceeded his powers. In Kayser v. Roadway

Package System, Inc., the plaintiff, a small package shipper, alleged that the defendant

failed to fulfill his contractual obligations under the Linehaul Contractor Operating

Agreement and terminated the defendants employment. The defendant demanded

arbitration pursuant to his contractual right, and was subsequently awarded significant

damages by the arbitrator. The plaintiff filed suit in the Eastern District of Pennsylvania

to vacate the award on grounds that the arbitrator exceeded his powers by considering the

fairness of the procedures the plaintiff used to notify the defendant of its dissatisfaction

with the defendants performance rather than limiting his decision to the submitted

grounds of whether the termination violated the Linehaul Contractor Operating

Agreement. In affirming the lower courts decision, the United States Supreme Court

stated that, although judicial review is narrowly bounded by the FAA, the scope of an

arbitrators authority is defined and confined by the agreement to arbitrate. Kayser v.

Roadway Package Sys., Inc., 534 U.S. 1020, 1036 (2001). The Court went on to explain

We distill the following principals from our precedents: (1) a reviewing court should

presume that an arbitrator acted within the scope of his or her authority; (2) this

presumption may not be rebutted by an ambiguity in a written opinion; but (3) a court

may conclude that an arbitrator exceeded his or her authority when it is obvious from the

written opinion. Id. at 1039-40.


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TheMills study, in examining cases where arbitrators exceeded their powers, or

so imperfectly executed them that a final and definitive award on the merits was not

made, found this ground for vacatur to be the most frequently successful, succeeding in

20.8% of cases in which it was asserted. Lawrence R. Mills, J. Lani Bader, Thomas J.

Brewer, and Peggy J. Williams, Vacating Arbitration Awards Study Reveals Real-World

Odds of Success by Grounds, Subject Matter, and Jurisdiction, DISPUTE RESOLUTION

MAGAZINE, Summer 2005, at 24. However, this is still a difficult showing to make. For

instance, the Ninth Circuit stated that section 10(a)(4) of the FAA is designed to allow

district courts to vacate an arbitration award that clearly goes beyond the substantive

issues submitted by the parties. Sheet Metal Workers, 756 F.2d at 764.

B. Overview of Judicial Standards for Vacatur of Arbitration Awards

In addition to the applying the grounds for challenging an award as established in

Section 10 of the FAA, courts must also apply the appropriate standard of review in

determining whether to confirm or vacate an arbitration award. Recently, there has been

a trend that contracting parties will contract for expanded or enhanced judicial review of

their arbitration awards. As a result, courts are challenged even more frequently to apply

the appropriate standard of review to such agreements. The parties may, and often do,

choose and designate a level of review to be applied should their award be appealed.

There are several potential standards of review that parties may elect to include in their

arbitration agreements including de novo, clearly erroneous, and substantial evidence. In

addition, there are judicially created standards of review to determine the sufficiency of

an award. These standards include arbitrary and capricious, manifest disregard of the

law, completely irrational, and violation of public policy. These judicially fashioned

standards, though widely recognized, lack uniformity in their application and meaning.


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In fact, in discussing the arbitrary and capricious, manifest disregard of the law,

completely irrational, and drawing its essence from the underlying agreement, the First

Circuit stated This standard of judicial review has taken on various hues and colorations

in its formulations in this and other circuits. The Court went further to say although

these differences in phraseology have caused a modicum of confusion, we deem them

insignificant. We regard the standard of review undergirding these various formulations

as identical, no matter what terms of art have been employed to ensure that the

arbitrators decision relies on his interpretation of the contract contrasted with his own

beliefs of fairness and justice. Advest, Inc. v. McCarthy 914 F.2d 6, 8 (1st Cir. 1990)

(quoting Jenkins v. Prudential-Bache Securities, Inc., 847 F.2d 631, 634 (10th Cir.

1988)). An overview of judicial standards for vacatur of awards follows.

1. De Novo Review for Errors of Law

The first standard of review that a court could potentially apply during the appeal

of an arbitration award is de novo review. Parties electing to incorporate appellate

review into their arbitration agreement may choose this standard of review. Typically,

this standard is reserved for reviewing errors of law. In applying de novo review, an

appellate court is arguably in just as good a position as the trial court to consider

questions of law, but conducts a less thorough review regarding questions of fact.

COMMERCIAL ARBITRATION AT ITS BEST: SUCCESSFUL STRATEGIES FOR BUSINESS USERS

292 Thomas J. Stipanowich & Peter H. Kaskell eds., 2001). The Seventh Circuit once

stated that limiting review to legal errors would be clearly far less searching and time

consuming than a full trial. Chapter Id at 292 (citing Flexible Manuf. Sys. V. Super

Products Corp., 86 F.3d 96, 100 (7th Cir. 1996)). Likewise, in the arbitration context this

standard would allow parties to have a court review errors of law, but largely defer to the


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arbitrators interpretation of the facts. Adding an appellate level review to an arbitration

award inevitably adds costs, but this standard of review reduces the monetary and time

costs somewhat by limiting review to errors of law. This standard may not, however, be

an ideal choice for parties who are electing to use arbitration to avoid strict application of

the law in circumstances where commercial circumstances warrant otherwise or those

parties wishing to avoid the costs. One observer notes As in the public justice arena,

distinguishing mixed question of law and fact, which are subject to the de novo standard,

from purely factual questions, which are not, may produce complex analyses since factual

and legal issues are often closely intertwined. COMMERCIAL ARBITRATION AT ITS BEST:

SUCCESSFUL STRATEGIES FOR BUSINESS USERS 292 Thomas J. Stipanowich & Peter H.

Kaskell eds., 2001). Therefore, this standard of review is most appropriately elected by

parties seeking review for errors of law only, and looking for a strict application of the

law regardless of commercial circumstances.

2. Clearly Erroneous Standard

Another standard, the clearly erroneous standard, is typically applied to factual

determinations reached by trial courts. This standard allows the court to apply its own

interpretation of the fact when, based on the evidence as a whole, the appellate court

positively determines that the trial courts finding was mistaken or unreasonable.


293 (Thomas J. Stipanowich & Peter H. Kaskell eds., 2001). The clearly erroneous

standard significantly enlarges the power of courts in reviewing arbitration awards.

Specifically, whereas de novo review allows courts to review and newly address errors of

law, under the clearly erroneous review a court may substitute its judgment for that of

a trial court and upset findings which are unreasonable. COMMERCIAL ARBITRATION AT


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ITS BEST: SUCCESSFUL STRATEGIES FOR BUSINESS USERS 7.7 (Thomas J. Stipanowich

& Peter H. Kaskell eds., 2001). (quotingEthyl Corp. v. EPA, 541 F.2d 1, 35 n.74 (D.C.

Cir 1976)). Critics strongly object to the application of this standard to review because

they believe it would make the court the ultimate decision-making authority rather than

the arbitrators. This level of review, including the searching consideration of factual

issues, is arguably too broad for application to arbitration awards because it undermines

both the finality of the decision and the efficiency for which the process is oftentimes

selected. Id. Additionally, this level of review may require a more extensive record.

However, parties who desire more than minimal review with the court as the ultimate

decision-maker may contract for this standard of review.

3. Substantial Evidence Standard

The substantial evidence standard is another standard that may be applied to the

review of an award and, again, parties may choose this standard in drafting arbitration

agreements inclusive of enhanced or additional review. The term substantial evidence

has been defined by the United States Supreme Court as such relevant evidence as a

reasonable mind might accept as adequate to support a conclusion. Consolo v. Fed.

Mar. Commn et al., 383 U.S. 607, 619-20 (1966) (quoting Consol. Edison Co. v. Labor

Bd., 305 U.S. 197, 229). The substantial evidence standard is distinguished from the

clearly erroneous standard by its application to jury verdicts rather than decisions of trial

courts sitting without juries. The Supreme Court has also stated of this standard that [i]t

must be enough to justify, if the trial were to a jury, a refusal to direct a verdict when the

conclusion sought to be drawn from it is one of fact for the jury. Id. at 620 (quoting

Labor Bd. V. Columbian Enameling & Stamping Co., 306 U.S. 292, 300). This

evidentiary standard questions whether a particular conclusion could have been drawn by


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a reasonable person. Kenneth Culp Davis and Richard J. Pierce, Jr., ADMINISTRATIVE

LAW TREATISE 11.2, 174 (1994). Application of this standard has similar advantages

and disadvantages to the application of the clearly erroneous standard in that it affords

more than minimal review to those who seek it, yet it makes the court the ultimate

decision-maker, and a more extensive record is required so that the court may effectively

examine the arbitrators decision.

4. Abuse of Discretion Standard

The abuse of discretion standard is another available standard of review. This

standard highly deferential to the arbitrators award, and would provide only a very

limited opportunity for judicial review. In fact, this standard is arguably no more

meaningful to a party petitioning for review than the standards of review already

provided by section 10 of the FAA.

Moreover, following the Supreme Courts decision in First Options of Chicago v.

Kaplan, some Circuit courts will no longer apply the abuse of discretion standard in

reviewing a district courts confirmation of an arbitration award. First Options argued

that the Eleventh Circuit was correct in its application of the arbitrary and capricious

standard to the review of arbitration awards that district courts have confirmed, even as

to questions of law, but not to those that set aside awards. The Supreme Court ruled

against First Options stating, we believe, however, that the majority of Circuits is right

in saying that courts of appeals should apply ordinary , not special, standards when

reviewing district court decisions upholding arbitration awards. 514 U.S. 938, 946

(1995).


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5. Arbitrary and Capricious Standard

Some but not all courts have recognized another non-statutory standard arbitrary

and capricious of review in vacating arbitration awards. Generally, this standard carries

a strong presumption that the arbitration award is correct, and permits only narrow

grounds for vacatur where there are no grounds for the arbitrators decision. The

Eleventh Circuit has held that an award is arbitrary and capricious only if a ground for

the arbitrators decision can[not] be inferred from the facts of the case. Raiford v.

Merril Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 1410, 1412 (11th Cir. 1990) (citing

Siegel v. Titan Indus. Corp., 779 F.2d 891, 894 (2d. Cir 1985) (quoting Sobel v. Hertz,

Warner & Co., 469 F.2d 1211, 1216 (2d Cir. 1972)).

However, the application of this standard varies by the court. The lack of clarity

given to the application of this standard can be problematic. For instance, inBrabham v.

A.G. Edwards & Sons, the court stated outside of the collective bargaining context,

the Fifth Circuit has provided little guidance on the mechanics of the arbitrary and

capricious standard for reviewing arbitration awards. Brabham v. A.G. Edwards &

Sons, Inc., 265 F.Supp. 2d 720, 725 (S.D. Miss. 2003). The Brabham court further

explains that the Fifth Circuit has developed two lines of casesone discussing a

manifest disregard of the law and the other discussing an arbitrary and capricious

standard of review. Apparently, the Fifth Circuit uses the term manifest disregard in

situations where the arbitrators failed to apply controlling legal principles, while the Fifth

Circuit describes an award as arbitrary and capricious when the conclusions are not

inferable from the facts. Id. TheBrabham court went on to disavow the arbitrary and

capricious non-statutory standard, and go on to explain that the test to determine whether

an arbitration award comes from the essence of the agreement is not a separate, non-


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statutory test, but rather part and parcel of the test of whether an arbitrator exceeded his

powers under Section 10(a)(4) of the FAA. Kergosien v. Ocean Energy, Inc., 390 F.3d

346, 353-54 (5th Cir. 2004).

6. Complete Irrationality Standard

The completely irrational standard allows vacatur when an arbitrators award is

completely irrational. See Swift Indus. v. Botany Indus., 466 F.2d 1125 (3rd Cir. 1972).

Again, this standard is highly deferential to arbitration awards, providing only an

opportunity for parties to vacate an award which severely frustrates their expectations.


7.7 (Thomas J. Stipanowich & Peter H. Kaskell eds., 2001) pg. 296. The completely

irrational standard first appeared in Swift Industries v. Botany Industries, a 1972

commercial arbitration case. In Swift, the Botany Industries claimed on appeal that the

arbitration award went beyond the scope of the submission and was completely irrational.

The award required a Botany Industries to immediately post a six-million dollar bond as

security for tax deficiencies for which liability was yet to be determined by the tax court.

At the trial level, the district court determined that this bond requirement was not part of

the agreement the arbitrator was construing, which required cash payments for final

determinations of liability. This bond requirement also was beyond the scope of the

parties submissions. The Court held, therefore, that the arbitrator had exceeded his

powers and that portion of the award was invalid. When Swift Industries appealed this

determination, the The Southern District of New York, in the more recentMilcom case,

cites Swiftin stating, An arbitration award will be enforced if its form can be rationally

derived from either the agreement between the parties or the parties submissions to the

arbitrators and the terms of the arbitral award are not completely irrational. Milcom Intl


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V N. V., v. Motorola, Inc. and Proempres Panama, S.A ., 2002 U.S. Dist. LEXIS 5131

(S.D.N.Y. March 28, 2002).

After Swift, other courts have held that an arbitrators award can be vacated if it is

completely irrational. Completely irrational has been defined as an award that fails to

draw its essence from the agreement. Van Horn v. Van Horn 393 F. Supp. 2d 730, N.D.

Ia. 2005) (citing Schoch v. InfoUSA, Inc., 341 F.3d 785,788 (8th Cir. 2003). One

showing sufficient to establish that an award was not derived from the essence of the

agreement was illustrated in the case of Bureau of Engraving Inc. v. Graphic

Communications Intl Union, Local 1B, in which the Eighth Circuit held that if an

arbitrator attempts to interpret an agreement that is silent or ambiguous and does not

consider the parties intent, the arbitrators award fails to draw it essence from the

agreement. 284 F.3d 821, 824 (8th Cir. 2002).

7. Manifest Disregard

The manifest disregard standard is another standard recognized by some courts

as a non-statutory basis for modification or vacatur of an arbitration award. ACandS,

Inc. v. Travelers Cas. and Sur. Co., 2006 U.S. App. LEXIS 1177 (3d Cir. Jan. 19, 2006).

The manifest disregard standard first appeared as dicta in Wilko v. Swan. 346 U.S. 427,

74 S. Ct. 182 (1953) (dictum), overruled in part on other grounds,Rodriguez de Quijas v.

Shearson/Am. Express, Inc., 490 U.S. 477, 109 S. Ct. 1917, (1989). In Wilco, the

Supreme Court stated In unrestricted submissions . . . the interpretations of the law by

arbitrators in contrast to manifest disregard are not subject, in the federal courts, to

judicial review for error in interpretation. 346 U.S. 427, 437. In a later case, the

Supreme Court confirms that it recognizes nonstatutory bases upon which a reviewing

court may vacate an arbitrators award under the FAA, including the manifest disregard


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standard. Roadway Package Sys. V. Kayser, 534 U.S. 1020 (2001). The Supreme Court

reaffirmed this nonstatutory judicial review power in First Options, Inc. v. Kaplan, but

again did not clearly define the manifest disregard standard. 524 U.S. 938, 942 (1995).

Subsequent to its appearance, the manifest disregard standard took on a multiplicity of

different applications, varying by the presiding court. The judicially created standard is

applied in most circuit courts, providing differing degrees of review. One commentator

noted this is the concept that allows varying degrees of judicial review in virtually every

circuit court, even though all but one disclaim the power to set aside arbitral awards that

are otherwise arbitrary and capricious. Phillip Allen Lacovera, The Varying Standards

of Review of Arbitration Awards, New York Law Journal, Aug. 2, 2004. For example,

the Second Circuit held that, to qualify as manifest disregard, the error must have been

obvious and capable of being readily and instantly perceived by the average person

qualified to serve as an arbitrator. Moreover, the term disregard implies that the

arbitrator appreciates the existence of a clearly governing principle but decides to ignore

it or pay no attention to it. Alghanim & Sons, W.L.L., v. Toys R Us, Inc. 126 F.3d 15,

24 (2d Cir. 1997) (citingMerrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d

930, 933 (2d Cir. 1986). The Fifth Circuit has stated that manifest disregard of the law

goes beyond a mere error or misapplication; it must have been an obvious error and the

arbitrator, understanding the law, chose to ignore it. Hon. Pamela Tynes, The Art of

Drafting Arbitration Agreements; Lawyers Can Make Expanded Review of an Award

Part of the Deal, Texas Lawyer, May 2, 2005. The First Circuit enumerates a three part

test, allowing a court to vacate an award as manifest disregard of the law if it was (1)

unfounded in reason and fact; (2) based on reasoning so palpably faulty that no judge or


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group of judges ever could conceivably have made such a ruling; or (3) mistaken based

on a crucial assumption that is concededly a non-fact. Prudential-Bache Sec. Inc. v.

Tanner, 72 F.3d 234,238 (1st

Cir. 1995). As is evident by these cases, although the

manifest disregard standard is widely recognized, it lacks a clear, universal definition,

and the standard may vary somewhat from court to court.

Further complicating the application of this standard is a split among courts

regarding a link between the manifest disregard for the law standard and the FAA.

Similar to the Fifth Circuits take on the arbitrary and capricious standard in which it

determined that test was part and parcel of FAA 10(a)(4), some courts, in interpreting or

applying the manifest standard have discussed it as a variation of or having a nexus to

FAA section 10(a)(4) as well. In his article, Stephen L. Hayford states that the full

range of the link/no link debate is captured by the observation of the Tenth Circuit in

Jenkins v. Prudential-Bache Securities, Inc. that the nonstatutory grounds for vacating

commercial arbitration awards can be viewed either an inherent appurtenance to the right

of judicial review or as a broad interpretation of [section 10(a)(4), which prohibits]

arbitrators from exceeding their powers. 762. Stephen L. Hayford, Law in Disarray:

Judicial Standards for Vacatur of Commercial Arbitration Awards, 30 Ga.L.Rev. 731,

741-45 (1996) (quoting Jenkins v. Prudential-Bache Securities, Inc., 847 F.2d 631 (10th

Cir. 1988)).

8. Public Policy Exception

The public policy exception is analogous to the common law rule allowing courts

to refuse to enforce awards that are contrary to public policy. The United States Supreme

Court has recognized this exception, under which a court may decline to enforce an

arbitration award if it violates public policy or could harm the public interest. United


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Paperworkers Intl Union v. Misco, Inc., 484 U.S. 29, 42 (1987) (determining

enforceability of a labor arbitration award). The First Circuit followed theMisco case in

deciding Boston Medical Center v. Service Employees Intl Union, Local 285, 260 F.3d

16 (1st Cir. 2001). InBoston Medical, a hospital terminated the employment of a union

member nurse following an investigation into the death of an infant that died of septic

shock. The court determined stated . . . the public policy exception is limited to

instances where the contract as interpreted [by the arbitrator] would violate some explicit

public policy that is well defined and dominant, and is to be ascertained by reference to

the laws and legal precedents and not from general considerations of supposed public

interests. Boston Medical 260 F.3d at 16(citing Misco, 484 U.S. at 43). In Boston

Medical, the court instructs that the inquiry is not whether the conduct causing the

dispute was against public policy, but instead whether the enforcement of the award

would violate public policy. Misco at 17-18. The court need not evaluate the merits of

the award, but rather whether enforcement of the award will put one or more of the

parties in violation of a well defined public policy. Haydon at 783 (referencing Stephen

L. Hayford & Anthony V. Sinicropi, The Labor Contract and External Law: Revisiting

the Arbitrators Scope of Authority, J. Disp. Resol. 249 (1993)). In a more recent case

applying the public policy exception, the Third Circuit stated that courts may decline to

enforce arbitration awards that violate well-defined public policy identified by federal

law. ACandS, Inc. v. Travelers Cas. and Sur. Co., US App LEXIS 1177 (January 19,

2006) (holding that the automatic stay provision of the Bankruptcy Act promotes public

policy sufficient to preclude enforcement of an award that violates its terms or interferes

with its purposes) (citing Exxon Shipping Co. v. Exxon Seamans Union, 11 F.3d 1189


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(3d Cir. 1994)). It is important to note, though, that some courts have not followed the

decision of the Misco court, such as the United States District Court for the District of

Hawaii that held inBig Three Industries, Inc. v. ILWU Local 142 that the public policy

exception should be read narrowly, for example refusing to enforce an arbitrators award

where it called for the reinstatement of an employee to a highly regulated industry.

LEXIS 13768, 9 (1987). Where applicable, this exception allows the court the option to

refuse to enforce an otherwise enforceable award if its enforcement would violate a clear

and defined public policy.

II. APPELLATE REVIEW PROCEDURES BY CONTRACT

Before dealing with appeals based upon contract terms, one is faced with two

conflicting thoughts: the first was that the appeal process was contrary to the concept of

finality that one customarily associates with arbitration and the second was the old story

about the client upon being informed by counsel that the judges verdict was announced

and that justice prevailed, told his counsel, appeal immediately. However, when

lecturing before lawyer groups invariably one of the objections raised to the arbitration

process is the lack of the appeal process.

Interestingly enough, the problem of lack of appealability lies not with the process

but with the drafters of the dispute resolution clause who are so focused on making the

deal that they fail to take into account that the arbitration is a matter of contract and being

consensual in nature, the drafters could easily include such a process in the dispute

resolution clause. When they fail to do so, the blame is laid not upon the drafters of the

dispute resolution clause but upon the process itself.


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A. To Review or Not to Review, That is the Question

In a point/counterpoint article published in the ABA Dispute Resolution

Magazine in 1998, Contracting for Judicial Review, AAA Dispute Resolution Magazine,

Fall, 1998), Carroll E. Neesemann took the position that party chosen arbitral review

standards can inspire confidence in the process, and is good for arbitration. Stanley

McDermott took the position that expanded review of arbitration awards is a mixed

blessing that raises serious questions.

Neesemann cited the case ofLapine Technology Corp. v Kyocera Corp. 130 F.3d

884 (9th

Cir. 1997) which upheld a pre-dispute arbitration agreement that specified a

standard for judicial review for an award. The terms of the agreement provided, The

court shall vacate, modify or correct any award: (i) based upon any of the grounds

referred to in the Federal Arbitration Act, (ii) where the arbitrators findings of fact are

not supported by substantial evidence, or (iii) where the arbitrators conclusions of law

are erroneous. It should be noted that the case produced over 15,000 pages of transcript

and 72 boxes of documents and an award containing hundreds of findings of fact and

conclusions. Thus the parties contracted for a judicial review of their nonjudicial

process. Contrast this with Chicago Typographical Union v. Chicago Sun Times, 935

F.2d 1501 (7th

Cir. 1991) denied the parties the right to seek judicial review of the

arbitrators award since federal jurisdiction cannot be created by contract but did

approve the right of the parties for ..an appellate arbitration panel to review the

arbitrators award. Neesemann concludes that despite the split of authority the weight

of authority seems to clearly support the Kyocera approach and cites several cases in

support of his conclusion. As for the basis of his conclusion, that parties can be more

confident that their agreements about the scope of judicial review of arbitral awards will


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be enforced by the courts since the parties can create their own mechanism to

maximize the benefits of arbitration is a conclusion that I suggest is antithetical to

concept that arbitration is to be efficient, economical and most importantly final.

Needless to say, McDermott points out the very issues that give rise to making the

inefficient, more expensive and lacking finality. Some of the practical issues raised by

the appeal process such as the expense associated with a thorough record of the

proceedings, the expense associated with the preparation by the arbitrators of a written

opinion to meet expected judicial scrutiny. Thus it would lead the very virus which is

currently infecting the arbitration process which is over-lawyering the process and

turning from an alternate method of dispute resolution to an alternate method of

litigation, not to mention resolution in a court system already overloaded with cases and

understaffed judicial personnel. Thus the parties find themselves thrust back into the

very forum they sought to avoid by considering arbitration.

In a more recent article published in the ABA Section on Litigation magazine,

Construct! Edward Hennessey reviews the current state of cases relating to judicial

review of arbitration awards (Contractual Standards for Judicial Review of Arbitration

Awards, Edward Hennessey, Construct! Summer 2004), pointing out that there is a

significant difference in the approach of the courts depending upon which circuit may

have jurisdiction over the matter. Thus the issue of finality is based not upon the process

but upon the geographic location of which court will hear the appeal.

In her article, Stepping on the Judiciarys Toes: Can Arbitration Agreements

modify the Standard of Review that the Judiciary Must Apply to Arbitration Decisions

Elizabeth J. Anderson, The Construction Lawyer, Summer 2004, Ms. Anderson reviews


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the current state of the law and concludes that the Third, Fourth and Fifth Circuits permit

parties to expand judicial review under the Federal Arbitration Act, while the Second,

Seventh, Eighth, Ninth and Tenth Circuits refuse to permit the parties to modify the

Federal Arbitration Acts standards for judicial review. Who said forum shopping was

dead?

If one searches for a more even handed approach to the issues, one is drawn to the

Commercial Arbitration at its Best published by the American Bar Association Section

of Dispute Resolution and the CPR Institute for Dispute Resolution. In particular,

Chapter 7 contains several sections entitled, The Arbitration Award: Finality versus

Reviewability. Listing the issues to be considered when considering whether or not to

permit enhanced judicial review by contract are (1) the requirement that there be a full

record of the proceedings which is an additional cost consideration and (2) a reasoned

award stating the basis of the award. Reasoned awards are by their nature an additional

expense to the parties.

B. Contract Issues and Appellate Review of Arbitration Awards

Assuming that the decision for appellate review is made at the contracting stage, it

the responsibility of the drafter of the ADR clause to focus on those issues which have to

incorporated into the dispute resolution clause. Commercial Arbitration at its Best lists

several issues to be considered when drafting such a provision.

1. Should scope of review be limited in terms of issues to be

considered or cost thresholds?

2. What costs are associated with the appellate process and who will

bear those costs such as special filing fees.

3. If the original award provides for the payment of money, how is

that to be secured pending the outcome of the appellate reviewprocess?


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4. What time limitations should be imposed to commence the appealprocess? The length of time of the appeal process?

5. What are the qualifications for the appellate arbitrator?

6. Should their be a standard of review.

7. What and how is the record of the proceedings preserved for thereview process and how is cost allocated?

8. What is standard for the written award from the originalarbitrators should it include statements of reasons, findings of

fact and conclusions of law?

9. Is oral argument part of the appellate review process?

10. On remand, should it go back to the original panel or should a new

panel be constituted to hear the matter de novo?

C. Existing Procedures for Appellate Review by Agreement

1. American Arbitration Association

Currently the American Arbitration Associations excellent publication, Drafting

Dispute Resolution Clauses, A Practical Guide has contractual language for an appeal

process which provides for an appellate panel of arbitrators rather than the judicial

systems which avoids the problem of trying to contractually create jurisdiction in the

court system.

Within 30 days of receipt of any award (which shall not be binding if an appeal

is taken), any party may notify the AAA of an intention to appeal to a second

arbitral tribunal, constituted in the same manner as the initial tribunal. The appeal

tribunal shall be entitled to adopt the initial award as its own, modify the initial

award or substitute its own award for the initial award. The appeal tribunal shall

not modify or replace the initial award except [for manifest disregard of the law or

the facts} {for clear errors of law or because of clear and convincing factual


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errors]. The award of the appeal tribunal shall be final and binding, and judgment

may be entered by a court of competent jurisdiction.

2. JAMS Arbitration Appeal Procedure

As for rules for guidance, there is the JAMS optional Arbitration Appeal

Procedure and the International Institute for Conflict Prevention & Resolution (CPR).

The JAMS Optional Arbitration Appeal Procedure is included in the appendix to

this paper. Under the JAMS procedure, the Appeal Panel consists of three neutral

members unless the parties agree to a single appellate arbitrator. Disclosure requirements

are similar to those disclosure requirements for any arbitration. In the absence of

agreement the Case Manager is authorized to appoint the Appeal Panel.

The party wishing to appeal must do so within 14 days from the date the award

has become final specifying in writing those elements of the award that are being

appealed and a brief statement of the basis for the appeal. A cross appeal meeting the

same requirements must be filed within 7 days thereafter.

The record on appeal consists of the stenographic or other record of the hearings

and all exhibits, deposition transcripts, and affidavits entered into the record, or the

parties may elect to rely on the memoranda or briefs previously submitted in an effort to

deal with those cases where there is no formal stenographic record. Oral argument is an

option provided, and, of course, all fees must be paid in full before the appeal is

scheduled and once the appeal has been filed, the award is no longer considered final for

purposes of seeking judicial enforcement.

The standard of review is established as the same standard of review that the first

level appellate court in the jurisdiction would apply to an appeal from the trial court


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decision and will usually issue its opinion within 21 days from the date or oral argument

with a concise written explanation unless the parties agree otherwise.

The rules can be downloaded from the following site: http://jamsadr.com/rules

3. CPR Institute for Dispute Resolution Rules

for Arbitration Appeal

CPR also provides suggested language for an appeal clause which states:

An appeal may be taken under the CPR Arbitration Appeal Procedure

from any final award of an arbitral panel in any arbitration arising out of

or related to this agreement that is conducted in accordance with the

requirements of such Procedure. Unless otherwise agreed by the parties

and the appeal tribunal, the appeal shall be conducted at the place of the

original arbitration.

Commercial Arbitration at its Best lists the highlights of the appeal procedure.

1. The appeal panel consists exclusively of formal federal judges with

experience in arbitration.

2. The procedure may be invoked whether or not the original arbitration was

conducted under CPR rules.

3. Unless the parties agree to a single appellate arbitrator, the panels will

consist of three appellate arbitrators.

4. The arbitrators in the original proceeding are required to apply the law, a

record of the original proceedings and a written award stating findings of

fact and conclusions of law.

5. Cross appeals are permitted.

6. Unless requested by a party, there will be no oral hearings.


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7. The appellate panel must either affirm, modify or set aside the original

award but it may not remand the case.

8. The grounds for modification or setting aside the award are that the

original award (i) contains one or more material and prejudicial errors of

law of such a nature that it does not rest upon any appropriate legal basis

or (ii) that it is based upon factual findings clearly unsupported by the

record or that the original award is subject to one or more grounds set

forth in Section 10 of the Federal Arbitration Act for vacating an award.

9. If the original award is affirmed on appeal, appellant bears the entire cost

of the appeal including the appellees legal fees and other expenses, unless

the panel decides otherwise. If the original award is not fully affirmed, the

appellate tribunal is empowered to allocate all such costs.

10. If a party appeals the decision of the appellate panel to a court and is

unsuccessful, it bears the opponents costs related to the court proceeding.

11. The appeal procedure is confidential.

12. The parties may agree on an appellate procedure as part of their original

agreement or after the dispute has arisen.

CPR has accomplished a miraculous result by establishing a procedure available

for those who feel compelled to the security blanket of an appeal process but without

encouraging another layer of process by narrowly focusing the grounds for an appeal and

establishing a cost-risk for groundless appeals. It also points out that to minimize an

irrational award, only highly qualified arbitrators should be selected in the first place.


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An interesting variation is a proposal by M. Scott Donahey published in the

Economic Commerce & Law Report, BNA 2001 entitled A Proposal for an Appellate

Panel for the Uniform Domain Name Dispute Resolution Policy. He refers to the CPR

procedures in his article. While dealing with an area unrelated to construction, it is

interesting to note that the concept of appellate review does have proponents in other

areas.

III. CONCLUSION

No article dealing with appealing arbitration awards would be complete without

returning to the article published in the Summer 2005 issue of Dispute Resolution

Magazine titled Vacating Arbitration Award, which was the subject of commentary in

the early portions of this paper. It should be noted that the authors reviewed every case,

state and federal published and unpublished, reported between January 1, 2004 and

October 31, 2004 in which a court decided a motion to vacate an arbitration award based

the federal statutory grounds for vacatur. The cases totaled 182, 120 were state court

cases and 62 were federal court cases. Their study showed that only 37 cases or 20%

were vacated. Interestingly enough, 25.8 % of the state cases resulted in vacatur while

9.7% of the federal cases resulting in vacatur. The authors were surprised that vacatur

based upon evident partiality or corruption of the arbitrators was sought in only 33% of

the cases since this ground encompasses the much discussed topic of arbitrator

disclosures and succeeded in only 12% of the cases (4 to be precise).

In the Commercial Arbitration at its Best, a member of the CPR commission

stated Even if I had Judge Cardozo on my panel, there might be mistakes. We all make

mistakes. The question is, is the opportunity for review worth the time and expense.


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APPENDIX 1

JAMS Optional Arbitration Appeal Procedure

NOTICE

These rules are the copyrighted property of JAMS. They cannot be copied, reprinted or used in any waywithout permission of JAMS, unless they are being used by the parties to an arbitration as the rules for thatarbitration. If they are being used as the rules for an arbitration, proper attribution must be given to JAMS. Ifyou wish to obtain permission to use our copyrighted materials, please contact JAMS at 949-224-1810.

The parties hereby agree to the following Optional Appeal Procedures:

(A) The Appeal Panel will consist of three neutral members, unless the Parties agree

that there will be one neutral member. Upon the filing of an Appeal inaccordance with (B)(i) below, the Case Manager will recommend to the Parties an

Appeal Panel and will make any disclosures that are mandated by applicable lawregarding the candidates for the Panel. The Case Manager will seek the

agreement of the Parties as to the selection of the Appeal Panel members. If theParties do not agree on the composition of the Appeal Panel within seven (7)

calendar days of having received the Case Manager recommendation for theAppeal Panel, the Case Manager will appoint an Appeal Panel.

(B) The Procedure for filing and arguing an Appeal is as follows:

(i) If all Parties have agreed to the Optional Appeal Procedure, any party may

Appeal an Arbitration Award that has been rendered pursuant to the applicableJAMS Arbitration Rules and has become final. The Appeal must be served, in

writing, to the Case Manager and on the opposing Party(ies) within fourteen (14)calendar days after the Award has become final. The letter or other writing

evidencing the Appeal must specify those elements of the Award that are beingAppealed and must contain a brief statement of the basis for the Appeal.

(ii) Within seven (7) calendar days of the service of the Appeal, the opposingParty(ies) may serve on the Case Manager and on the opposing Party(ies) a Cross-

Appeal with respect to any element of the Award. The letter or other writingevidencing the Cross-Appeal must specify those elements of the Award that are

being Appealed and must contain a brief statement of the basis for the Cross-Appeal.

(iii) The record on Appeal will consist of the stenographic or other record of the

Arbitration Hearing and all exhibits, deposition transcripts and affidavits that hadbeen accepted into the record of the Arbitration Hearing by the Arbitrator(s). TheParties will cooperate with the Case Manager in compiling the record on Appeal,and the Case Manager will provide the record to the Appeal Panel. No evidence

not previously accepted by the Arbitrator(s) will be considered by the AppealPanel, unless the basis of the Appeal is non-acceptance by the Arbitrator of

certain evidence or unless the Appeal Panel determines that there is good cause tore-open the record pursuant to the applicable JAMS Arbitration Rules.


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(iv) The Parties may elect to rely on the memoranda or briefs previouslysubmitted to the Arbitrator(s). In the absence of such election, the Case Manager

will obtain the agreement of the Parties on a briefing schedule.

If no agreement is reached, the Case Manager will set the briefing schedule.

Ordinarily, only opening briefs (of no more than 25 double-spaced pages) will beallowed. The briefs may be in the form of a letter.

(v) The Appeal Panel will conduct an oral argument if all Parties request suchargument or may conduct oral argument, in complex cases or unusual

circumstances, on its own initiative.

If there is to be oral arguments, the Case Manager will obtain the agreement of the

Parties on both the date of such argument and the duration, including theallocation of time. In the absence of agreement, the Appeal Panel will set the date

and duration of the oral argument, including the allocation of time.

(vi) All fees for the original arbitration must be paid in full before an appeal willbe scheduled.

(C) Once an Appeal has been timely filed, the Arbitration Award is no longer

considered final for purposes of seeking judicial enforcement, modification orvacating pursuant to the applicable JAMS Arbitration Rules.

(D) The Appeal Panel will apply the same standard of review that the first-levelappellate court in the jurisdiction would apply to an appeal from the trial court

decision. The Appeal Panel will respect the evidentiary standard set forth in Rule22(d) of the JAMS Comprehensive Arbitration Rules. The Panel may affirm,

reverse or modify an Award.

The Panel may not remand to the original Arbitrator(s), but may re-open the

record in order to review evidence that had been improperly excluded by theArbitrator(s) or evidence that is now necessary in light of the Panel's

interpretation of the relevant substantive law. A three-member Appeal Panel willmake its decision by majority vote and, absent good cause for an extension, will

issue the decision within twenty-one (21) calendar days of the date of either oralargument, the receipt of the new evidence or receipt of the record and of all briefs,

whichever is applicable or later. The Panel's decision will consist of a concisewritten explanation, unless all Parties agree otherwise.

(E) If a Party refuses to participate in the Optional Appeal Procedure after havingagreed to do so, the Appeal Panel will maintain jurisdiction over the Appeal and

will consider the Appeal as if all Parties were participating, including retainingthe authority to modify any Award or element of an Award that had previously

been entered in favor of the non-participating Party, assuming it believes that therecord, after application of the appropriate standard of Appeal, justifies such

action.


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(F) After the Appeal Panel has rendered a decision and provided the Parties have paidall JAMS fees in full, JAMS will issue the decision by serving copies on the

Parties. Service will be deemed effective five (5) calendar days after deposit inthe US Mail. Upon service of the Appeal Panel decision, the Award will be final

for purposes of judicial review.

Signed: Signed:

Print Name: Print Name:

For: For:

Dated: Dated:

Signed: Signed:

Print Name: Print Name:

For: For:

Dated: Dated:


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APPENDIX 2

CPR Arbitration Appeal Procedure (1999)

CPR Institute for Dispute Resolution

I. APPEAL CLAUSE

It is suggested that parties wishing to authorize an appeal to the CPR Arbitration AppealTribunal under the Rules of Procedure set forth below include the following language in

their arbitration clauses. The appeal provision should in most circumstances appear inthe basic agreement between the parties. A similar clause can also be inserted in a post-

dispute arbitration agreement.

An appeal may be taken under the CPR Arbitration Appeal

Procedure from any final award of an arbitral panel in anyarbitration arising out of or related to this agreement that is

conducted in accordance with the requirements of suchProcedure. Unless otherwise agreed by the parties and the

appeal tribunal, the appeal shall be conducted at the placeof the original arbitration.

II. RULES OF PROCEDURE

A. General and Introductory Rules

Rule 1. Scope of Application

1.1. The parties to any binding arbitration conducted in the

United States, pursuant to CPR Rules or otherwise, may agree in writing that a party mayfile an appeal (the "Appeal") under the CPR Arbitration Appeal Procedure (the

"Procedure") from an arbitration award (the "Original Award").

1.2 The appeal shall be to a CPR Arbitration Appeal Tribunal

(the "Tribunal") chosen from the panel constituted by CPR to hear Appeals (the "Panel"),consisting of former Federal judges.

1.3 No appeal may be filed hereunder, unless:

(a) the arbitrator(s) (was) (were) required to reach a

decision in compliance with the applicable law andrendered a written decision setting forth the factual

and legal bases of the award; and

(b) there is a record (the "Record") that includes all

hearings and all evidence (including exhibits,deposition transcripts, affidavits, etc. admitted into

evidence) in the arbitration proceeding from whichthe appeal is taken.


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Rule 2. Commencement of Appeal

2.1 An Appeal shall be commenced by written notice to the

opposing party(ies) and to CPR (attention: Panel Management Group), given within thirtydays of the date on which the Original Award was received but the parties, unless the

parties agree on a different period. The notice shall set forth the agreement in writingproviding for the appeal, shall state the elements of the Original Award that are being

appealed and the basis for the Appeal and shall transmit that portion of the Record thatthe appellant deems relevant to the Appeal.

2.2 The opposing party(ies) may serve a cross-appeal by noticein writing to the appellant(s) and to CPR (attention: Panel Management Group) within

fourteen days of receipt of the notice of appeal. The notice shall state the elements of theOriginal Award that are being appealed and the basis for the Appeal. The appellee shall

transmit any portion of the Record deemed relevant by the appellee that was nottransmitted by the appellant.

2.3 Once an Appeal has been timely filed, the Original Awardshall not be considered final for purposes of seeking judicial confirmation, enforcement,

vacation or modification. If the Tribunal affirms the Original Award, it shall be deemedfinal as of the date of the Tribunal's affirmance. If the Tribunal does not affirm the

Original Award, its award on appeal (the "Appellate Award") shall be deemed the finalaward in the arbitration, in lieu of the Original Award. If the Appeal is withdrawn for

any reason (other than a settlement), the Original Award shall be deemed final as of thedate of such withdrawal.

2.4 By agreeing to become a party to an Appeal under theseRules, each party (a) irrevocably waives the right to initiate court action to seek to

confirm, enforce, vacate or modify the Original Award until the appeal process has beencompleted, and (b) agrees that any statutory time period for the commencement of court

actions to confirm, enforce, vacate or modify arbitral awards shall be tolled for the periodbeginning with the commencement of the appeal and ending with the decision on the

appeal under these Rules. Subject to these Rules of Procedure, each party may requestthe Tribunal to affirm, vacate or modify the Original Award on any of the grounds

specified in Rule 8.2 hereof.

Rule 3. Notices

The provisions of Rule 2 of the CPR Rules for Non-Administered

Arbitration (Rev. 2000) (the "CPR Arbitration Rules") shall apply to all proceedingspursuant to these Rules.


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B. Rules with Respect to The Tribunal

Rule 4. Selection of Appeal Tribunal

4.1 The Tribunal shall consist of three members of the Panel,unless the parties agree that it shall consist of one Panel member.

4.2 After CPR has received the notice of appeal and any noticeof cross-appeal, it shall promptly submit to the parties a list of not less than seven

candidates from the Panel (or not less than three candidates if one is to be chosen) whohave been pre-screened for possible conflicts and availability. The list shall be

accompanied by each candidate's biographic information and compensation rate. Theparties shall attempt to agree on the required number of candidates from the list. They

shall promptly inform CPR of any candidates on whom they have agreed. Failingcomplete agreement within ten days, the parties shall submit the list to CPR within an

additional five days, rank ordering the candidates on whom they did not agree.Thereupon, the required number of candidates receiving the lowest combined score shall

be chosen by CPR, which shall also break any tie. Any party failing without good causeto return a rank-ordered-candidate list within the prescribed time shall be deemed to have

assented to all candidates on the list.

4.3 If the Tribunal is composed of three members, they shall

select one of their number as the chair (the "Chair"). The Chair shall be responsible forthe expeditious conduct of the proceedings and for administrative matters, but shall be

equal in voting and all other respects.

Rule 5. Qualifications, Challenges and Replacement of Arbitrator

Rule 7 of the CPR Arbitration Rules shall apply to thequalifications of, challenges to and replacement of members of Tribunals selected

pursuant to these Rules.

Rule 6. Challenge to the Jurisdiction of the Tribunal

Rule 8 of the CPR Arbitration Rules shall apply to any challenge tothe jurisdiction of the Tribunal.

C. Rules with Respect to the Conduct of the Appeal

Rule 7. General Provisions

7.1 Rules 9.1 and 9.2 of the CPR Arbitration Rules shall applyto the conduct of any appeal under these Rules.

7.2 The appellant(s) shall be allowed one opening brief and oneresponse brief. The appellee(s) shall be allowed one brief, except that an appellee who is

also a cross-appellant shall be allowed two briefs. Briefs or memoranda previouslysubmitted may be used. The Chair shall request the parties to agree on a briefing


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schedule. Failing prompt agreement, the Chair shall set the schedule. The Tribunal mayrequest the parties to submit such further briefs or other materials as it may deem

appropriate.

7.3 The Tribunal may request the parties to supplement the

Record initially submitted by the parties as it may deem appropriate in order to fulfill itsfunctions under Rule 8.

7.4 Oral argument shall be held at the request of a party or ifthe Tribunal sees a need therefor. The Tribunal shall set the date, duration and place for

oral argument in consultation with the parties. If the appellant alleges one or more of thegrounds for vacating the Original Award set forth in Section 10 of the Federal Arbitration

Act, the Tribunal may take evidence supporting and rebutting such an allegation.

Rule 8. The Decision

8.1 If the Tribunal finds that it does not have appellate

jurisdiction, it shall forthwith dismiss the Appeal and the Original Award will thereuponbe final.

8.2 If the Tribunal hears the Appeal, it may issue an Appellate

Award modifying or setting aside the Original Award, but only on the following grounds:

a. That the Original Award (i) contains material and

prejudicial errors of law of such a nature that it doesnot rest upon any appropriate legal basis, or (ii) is

based upon factual findings clearly unsupported bythe record; or

b. That the Original Award is subject to one or moreof the grounds set forth in Section 10 of the Federal

Arbitration Act for vacating an award.

The Tribunal does not have the power to remand the award.

These grounds are the following:

1. Whether the award was procured by corruption, fraud or undue means.

2. Where there was evident partiality or corruption in the arbitrators, or any of them.3. Where the arbitrators were guilty of misconduct in refusing to postpone the

hearing, upon sufficient cause show, or in refusing to hear evidence pertinent andmaterial to the controversy; or of any other misbehavior by which the rights of any party

have been prejudiced.4. 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.


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8.3 If the Tribunal does not modify or set aside the OriginalAward pursuant to Rule 8.2 above, it shall issue an Appellate Award approving the

Original Award and the Original Award shall be final as provided in Rule 8.6 below.

8.4 A three member Tribunal shall make its decision by

majority vote. The decision shall be set forth in an Appellate Award in writing and shallinclude a concise written explanation, unless all parties agree otherwise. A member who

does not join the decision may file a dissenting opinion, which shall not constitute part ofthe Appellate Award.

8.5 If a party refuses to participate in an Appeal after havingagreed to do so, the Tribunal shall maintain jurisdiction over the Appeal, including

authority to make an Appellate Award.

8.6 The Chair shall cause the Tribunal's Appellate Award and

any dissenting opinion to be mailed to the parties. The Appellate Award or the OriginalAward, as the case may be, shall be final upon receipt by the parties.

D. Miscellaneous Rules

Rule 9. Use of Best Efforts to Avoid Delay

The parties and the Tribunal shall use their best efforts to avoiddelay and to assure that the Appeal will be concluded within six months of its

commencement.

Rule 10. Compensation of the Tribunal

Each member of a Tribunal shall be compensated at an hourly ratedetermined at the time of appointment for all time spent in connection with the

proceeding and shall be reimbursed for any travel and other expenses.

Rule 11. Deposit of Costs

The Tribunal may require each party to deposit with the Chair anequal amount as an advance for the anticipated fees and expenses of its members. Any

such funds shall be held and disbursed in such a manner as the Tribunal may deemappropriate. After the Appellate Award has been rendered, the Tribunal shall return any

unexpended balance from deposits made to the parties. If the requested deposits are notpaid in full within twenty days after receipt of the request, the Tribunal may so inform the

parties in order that jointly or severally they may make the required payment. If suchpayment is not made, the Tribunal may suspend or terminate the proceedings.

Rule 12. Distribution of Costs

In the event that the Tribunal fully affirms the Original Award, the

appellant(s) shall promptly reimburse the appellee(s) (a) the share of the costs of theAppeal theretofore expended by the appellee(s), and (b) the appellee's attorney fees and


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other out-of-pocket expenses related to the Appeal, unless the Tribunal orders otherwise.If the Tribunal modifies or reverses the Original Award, the Tribunal may apportion the

parties' costs of the Appeal, attorney fees and other out-of-pocket expenses among theparties in such manner as it deems reasonable, taking into account the circumstances and

result of the Appeal.

Rule 13. Confidentiality

The parties and the arbitrators shall treat the proceedings, includingthe Record, and the decision of the Tribunal as confidential, except in connection with a

judicial challenge to, or enforcement of, the Original Award and the Appellate Award,and unless otherwise required by law.

Rule 14. Costs with Respect to Judicial Appeal

If following an Appellate Award, a party(ies) seeks judicial review

(or opposes confirmation), that does not result in the vacation or substantial modification

of the Original Award or the Appellate Award handed down by the Tribunal, thatparty(ies) shall promptly reimburse the opposing party(ies) legal fees and other out-of-pocket expenses incurred in connection with the judicial review.

Rule 15. Action Against CPR or Member of Tribunal

Neither CPR nor any member of a Tribunal shall be liable to any

party for any act or omission in connection with any Appeal conducted under theseRules, except for wilful misconduct.


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IV. FAILURE TO DISCLOSE AS A BASIS

FOR VACATING AN AWARD


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AMERICAN ARBITRATION ASSOCIATION

Construction Industry Arbitration Rules

and

Mediation Procedures

July 1, 2003

R-17 Disclosure

(a) Any person appointed or to be appointed as an arbitrator shall disclose to the

AAA any circumstance likely to give rise to justifiable doubt as to the arbitrator'simpartiality or independence, including any bias or any financial or personal

interest in the result of the arbitration or any past or present relationship with theparties or their representatives. Such obligation shall remain in effect throughout

the arbitration.

(b) Upon receipt of such information from the arbitrator or another source, the AAA

shall communicate the information to the parties and, if it deems it appropriate todo so, to the arbitrator and others.

(c) In order to encourage disclosure by arbitrators, disclosure of information pursuantto this Section R-17 is not to be construed as an indication that the arbitrator

considers that the disclosed circumstances is likely to affect impartiality orindependence.

R-18(b) Disqualification of Arbitrator

(a) Any arbitrator shall be impartial and independent and shall perform his or her

duties with diligence and in good faith, and shall be subject to disqualification for

(i) partiality or lack of independence,

(ii) inability or refusal to perform his or her duties with diligence and in goodfaith, and

(iii) any grounds for disqualification provided by applicable law. The partiesm

beyond no-appeal gov

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