Arbitration Awards Not Subject to Dilution

Arbitration awards are subject to limited judicial review. May parties contract to further limit the review afforded by courts to an award? The Second Circuit ruled parties may not seek to lower the standard of review of an arbitration award to be applied by a court. Hoeft v. MVL Group, 343 F.3d 57 (2d Cir. 9/3/03) (Parker, Raggi, and Goldberg, Cir. Judges).

The parties' arbitration agreement selected an arbitrator and provided that his decision “shall not be subject to any type of review or appeal whatsoever.” The arbitrator awarded $1.4 million in damages to the prevailing party and the losing party challenged the award. The district court vacated the award, finding that the arbitrator's award was issued in manifest disregard of the law. On appeal, the prevailing party argued that the arbitration agreement barred judicial review of the award.

The Second Circuit rejected this claim, ruling that parties may not eliminate the limited judicial review afforded arbitration awards. The court noted that Congress in the Federal Arbitration Act imposed critical safeguards on private dispute resolution mechanisms while providing parties with flexibility in the process. “This balance would be eviscerated, and the integrity of the arbitration process could be compromised, if parties could require that awards, flawed for any of [the reasons set forth in the FAA], must nevertheless be blessed by federal courts.” The court declined to rule, however, whether parties, by contract, could enhance the level of review of such awards rather than seek to deny courts the minimum review standards imposed by Congress.

On the merits, the Second Circuit overturned the lower court's finding of manifest disregard of the law and confirmed the award.

Arbitration awards are subject to limited judicial review. May parties contract to further limit the review afforded by courts to an award? The Second Circuit ruled parties may not seek to lower the standard of review of an arbitration award to be applied by a court. Hoeft v. MVL Group , 343 F.3d 57 (2d Cir. 9/3/03) (Parker, Raggi, and Goldberg, Cir. Judges).

The parties' arbitration agreement selected an arbitrator and provided that his decision “shall not be subject to any type of review or appeal whatsoever.” The arbitrator awarded $1.4 million in damages to the prevailing party and the losing party challenged the award. The district court vacated the award, finding that the arbitrator's award was issued in manifest disregard of the law. On appeal, the prevailing party argued that the arbitration agreement barred judicial review of the award.

The Second Circuit rejected this claim, ruling that parties may not eliminate the limited judicial review afforded arbitration awards. The court noted that Congress in the Federal Arbitration Act imposed critical safeguards on private dispute resolution mechanisms while providing parties with flexibility in the process. “This balance would be eviscerated, and the integrity of the arbitration process could be compromised, if parties could require that awards, flawed for any of [the reasons set forth in the FAA], must nevertheless be blessed by federal courts.” The court declined to rule, however, whether parties, by contract, could enhance the level of review of such awards rather than seek to deny courts the minimum review standards imposed by Congress.

On the merits, the Second Circuit overturned the lower court's finding of manifest disregard of the law and confirmed the award.