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Court Remand to an Arbitrator: Good or Bad for Arbitration?

September 24, 2019

A recent decision of the 2nd Circuit Court of Appeals may suggest a change in the way courts can approach the review of arbitral awards presented for judicial review.

One of the hallmarks of arbitration is the finality and enforceability of the arbitrator’s decision, or “award.” Arbitrators’ awards are judicially enforceable and not subject to judicial review absent unusual circumstances involving fraud, evident partiality, misconduct or a decision in excess of the arbitrator’s authority. Additionally, courts have held that an arbitrator’s award may be vacated if it is “in manifest disregard of the law.” This standard is very high. It does not result from a mere error in understanding or applying the law, nor does it permit the reviewing court to substitute the court’s interpretation of the law for that of the arbitrator. Rather, it requires a finding that the arbitrator essentially ignored well-defined legal principles applicable to the case, resulting in significant injustice.

Robin Weiss v. Sallie Mae, Incorporated (2019 U.S. App. LEXIS 27476, Docket No. 18-2362, September 12, 2019), well analyzed by Paul C. Besozzi in the Squire Patton Boggs blog (via Lexology), involved a claim by Ms. Weiss against Sallie Mae (now Navient Solutions, LLC) under the Telephone Consumer Protection Act (“TCPA”). The claim alleged harassing phone calls to collect on a student loan debt. As required by her student loan promissory note, Ms. Weiss’s claim went to arbitration. The arbitrator found that her claim had been included within the scope of a separate class action settlement, and that by failing to file a “consent revocation” in that class action case by a certain date, Ms. Weiss could not recover from the same defendant in her arbitration. However, the arbitrator awarded Ms. Weiss statutory damages under the TCPA of $108,500 for the calls she received prior to the date her “consent revocation” in the class action was due. This despite the fact that the settlement in the class action contained a general release that applied to “any and all” TCPA claims, a fact that the arbitrator failed to address.

The 2nd Circuit Court of Appeals found it impossible to reconcile the arbitrator’s finding that the class action settlement barred Ms. Weiss’s arbitration claim with the award of statutory damages, particularly without any mention of the broad form of release. However, rather than simply affirming the decision of the District Court vacating the arbitration award for manifest disregard, the 2 nd Circuit remanded the case with instructions that the arbitrator be given the opportunity to interpret the release provision in the class action settlement, or explain why it didn’t bar Ms. Weiss’s claim. This remand to the arbitrator was fairly unusual. On one hand, this approach could be seen as a positive development for arbitration as a dispute resolution process, as it suggests (1) courts may give arbitrators an opportunity to “fix” their awards when they appear headed toward judicial vacatur, and (2) public confidence in arbitration may be boosted if parties believe their arbitrator’s award will be given close, de novo review on the merits by a reviewing court. In my view, these potential consequences are not worth the price.

For decades courts have affirmed arbitration awards under the manifest disregard standard, some of which undoubtedly raised questions about why and exactly how the arbitrator got to his or her conclusion. If courts now interpret manifest disregard to create an opportunity to ask those questions by way of remand to the arbitrator, the standard of review will be greatly changed. Further, given the possibility of remand to the arbitrator, litigants would have a new tool to challenge any award – find something in the award that is arguably unclear, unstated or unresolved and convince the court that justice requires that flaw to be corrected via remand.

Parties choose arbitration, in part, because of the finality and enforceability of arbitrators’ awards. The efficiency and cost-effectiveness of the arbitration process includes the ability to reach an endpoint with some certainty. That endpoint is the arbitrator’s award.

Based on the limited information available, it appears that the award in Robin Weiss v. Sally Mae may have been an appropriate candidate for vacatur. If so, that should have been the result. If not, the award should have been affirmed. This more traditional approach encourages arbitrators to be sufficiently clear and complete in their awards that the manifest disregard standard does not come into play, and it precludes reviewing courts from second guessing arbitrators’ judgment by way of an a la carte review.

[Image by Gerd Altmann from Pixabay.]

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