A Private Path to Appellate Arbitration

Reprinted with permission from the author and from the Boston Bar Journal (Jan/Feb 2006), a publication of the Boston Bar Association.
Lawyers and their clients sometimes recoil from agreeing to an arbitration clause because there is no appeal from the arbitrator’s decision. No matter how wrong or, indeed, stupid, the arbitrator’s decision is binding on the parties as to the facts and law, so long as it was arrived at honestly. United Paperworkers Int’l. Union v. Misco, Inc., 484 U.S. 29, 36- 37 (1987), Lynn v. Thompson, 435 Mass. 54, 61-62 (2001); Bernard v. Hemisphere Hotel Mgmt., Inc., 16 Mass. App. Ct. 261, 263-64 (1983); Delta Air Lines, Inc., vs. Air Line Pilots Assn., Int’l., 861 F.2d 665, 670 (11th Cir. 1988) (states the general rule but describes its limits in the face of public policy). 

Parties might feel more comfortable about submitting disputes to arbitration if there were some machinery, judicial or private, for appealing the arbitral decision. The private appeal panel is a more sure-fire approach.

Suppose, for example, an arbitration clause that pro- vides that either side may ask a court to review whether there was substantial evidence to support the arbitrator’s findings of fact and whether the arbitrator made errors of law that were outcome-determinative. The difficulty with such a clause is that courts generally, although not univer- sally, have not permitted parties to define the scope of their jurisdiction by private arrangement. In Kyocera Corp. v. Prudential-Bache Trade Servs. Inc., 342 F.3d 987, 1000 (9th Cir. 2003), an en banc court concluded that although private parties are free to design whatever procedures for arbitration they think suit them best, they may not prescribe the scope of a review of a court to which either party appeals.

At the core of the Kyocera opinion was the court’s conclusion that section 10(a) of the Federal Arbitration Act, 9 U.S.C.A. § 10(a), limited the bases on which a court could consider vacating an arbitration award (award procured by fraud, manifest partiality of the arbitrator, or arbitrator acting in excess of authority). See also § 12 of the Uniform Arbitration Act, as appearing in G. L. c. 251, § 12. Allowing parties by agreement to bestow on courts more plenary reviewing authority than the statute provided was contrary to the purpose of making arbitration quick and, particularly, final. Two other circuits had already taken the same view: Chicago Typographical Union No. 16 v. Chicago Sun Times, Inc., 935 F.2d 1501, 1504-1505 (7th Cir. 1991); Bowen v. Amoco Pipeline Co., 254 F.3d 925, 936-937 (10th Cir. 2001).

Some courts have seen room in the Federal Arbitration Act (which the Uniform Arbitration Act, applicable in 30 states, greatly resembles) for parties to tailor their arbitration proceedings in a way that would give courts a wider reviewing role. Gateway Technologies, Inc., v. MCI Telecomm. Corp., 64 F.3d 993, 996-997 (5th Cir. 1995); Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287, 291-293 (3rd Cir. 2001).

The decisional authority is sufficiently Janus-faced that parties cannot reliably agree to judicial review wider than that prescribed in the Federal Arbitration Act and the analogous Uniform Act. See Moses, “Can Parties Tell Courts What to Do?” Expanded Judicial Review of Arbitral Awards,” 52 Kan. L.Rev. 429, 443-444 (2004).

What parties to an arbitration can do is to provide in their agreement to arbitrate that any party to the arbitration may claim review of a single arbitrator’s award by a non- judicial (i.e., private) panel of arbitrators. That device dodges the considerable uncertainty of being able to obtain judicial review of an arbitral award, and fashions a mechanism to correct serious errors of fact or law by a single arbitrator.

Parties to an arbitration can opt in the first instance for tri-partite arbitration on the ground that three arbitra- tors are smarter than one. A three-party arbitration, however, involves greater initial cost, scheduling problems, and often, more time to release the arbitrators’ award.

When parties and their lawyers prefer a single arbitrator, yet harbor misgivings about having to live with a substan- tially unreviewable award, they may grab for the security blanket of a right to appeal to an “appellate” panel of arbitrators. That right of appeal must be written into the original agreement to arbitrate. Otherwise, under § 11 of the Uniform Act, the prevailing party is entitled to confir- mation of the award, subject only to the very limited statutory grounds for vacating an award. The agreement had also better provide that the single arbitrator shall make findings of material fact and rulings on outcome- determinative questions of law — otherwise there will be little for an appellate arbitration panel to rule on.
Alternate dispute organizations generally offer appellate arbitration.