The Different Types of Arbitration Awards

In the absence of a provision requiring something more, therefore, the following award would be perfectly adequate: “I find in favor of claimant. Respondent shall pay claimant $150,000.00.”

Giving an explanation for the award could undermine the promise of arbitration as a quick, efficient and informal means of private dispute resolution. Because an arbitrator must spend more time to draft a reasoned award, a reasoned award could delay the final determination of the matter and increase the fees of the arbitrator.

On the other hand, parties should not necessarily accept “bare” awards. An arbitrator who makes a “reasoned” award probably will be more likely to base the award on the evidence. Further, giving the basis for the award will enable the parties to understand the award and lead to increased faith and trust in the arbitration process. By contrast, a conclusory, one-sentence award could undermine the credibility of the arbitrator; the losing party may conclude ' rightly or wrongly ' that the arbitrator ignored the loser's evidence, arguments and presentations.

A 'Reasoned' Award

What exactly is a “reasoned” award? Is there any test to determine whether an award is “reasoned”?

Courts have considered attacks on arbitration awards in which the arbitrator allegedly failed to provide a “reasoned” explanation in accordance with the parties' agreement. Courts carefully have distinguished between: a) agreements that say only that the arbitrator should “explain” the basis for the award; and b) agreements that say that the arbitrator should provide “findings of fact and conclusions of law.”

In Green v. Ameritech Corp., 12 F. Supp. 2d 662 (E.D. Mich. 1998), a federal district court, in an appeal from an employment discrimination arbitration award, vacated an arbitration award; the court said the arbitrator exceeded his authority by not explaining his decision, as the parties expressly had required. The award stated only that “plaintiff has not met his burden of proof” ' after an arbitration proceeding that took place over nine days, in which the parties submitted post-arbitration briefs exceeding 50 pages. In supporting its conclusion that the arbitration award did not pass muster, the court held:

[T]he arbitrator did not adhere to the Arbitration Agreement, and specifically Paragraph 10 which requires that the award “be accompanied by an opinion which explains the arbitrator's decision with respect to each theory advanced by each plaintiff.” ' Here, the arbitrator did not “explain” his decision with respect to each one of plaintiff's theories, as the term “explain” is commonly understood. Rather, the arbitrator merely announced his decision with respect to each one of plaintiff's theories. The arbitrator's opinion is totally conclusory and insufficient according to the terms of the Arbitration Agreement. Since the arbitrator did not perform in accordance with the Arbitration Agreement, he exceeded his authority under the Agreement and his award should be vacated under 9 U.S.C. '10(a)(3).

However, this was not the last word on the validity of this arbitration award. The Sixth Circuit agreed the award was “brief and conclusory.” Green v. Ameritech Corp. , 200 F.3d 967, 976 (6th Cir. 2000). But, the court concluded, there was an explanation. Why? Because the award said claimant “had not met his burden of proving that the decision was discriminatory or retaliatory.” Id . To ensure parties are not disappointed by future and equally pithy awards, the Sixth Circuit instructed drafters of arbitration agreements to use more precise legal terms so they get what they bargained for:

If parties to an arbitration agreement wish a more detailed arbitral opinion, they should clearly state in the agreement the degree of specificity required. In addition, the use of familiar legal terms would serve to ensure that reviewing courts have a standard to guide their analysis.

More recently, the Eleventh Circuit, in Cat Charter , reiterated the need for unambiguous instructions regarding the requested type of award. There, the parties “agreed that the panel shall provide a reasoned award.” Id . at 840. After a five-day hearing and post-trial briefing, however, the panel's principal award and supporting “reasons” amounted only to the following:

• [W]e find that Claimants have proven their claim against Respondents by the greater weight of the evidence.
• On the claim of the Claimant, CAT CHARTER, LLC, for breach of contract by Respondent MTI, we find that Claimant, CAT CHARTER, LLC has proven its claim against MTI by the greater weight of the evidence.
• All other claims of the Claimants are hereby denied. All counter-claims of the Respondents, MTI and SCHURTENBERGER, are denied'.

Id .

As in Green v. Ameritech Corp. , the district court vacated the award, “agreeing with the Defendants that the Panel had exceeded its powers ' by failing to provide a satisfactorily reasoned award.” Cat Charter LLC v. Schurtenberger, 691 F. Supp. 2d 1339, 1344-45 (S.D. Fla. 2010).

Also as in Green v. Ameritech Corp., the court of appeals reversed the district court; the Eleventh Circuit concluded the arbitrators had done enough. The Eleventh Circuit resorted to the dictionary to determine the meaning of “reasoned,” concluding that “a 'reasoned' award is an award that is provided with or marked by the detailed listing or mention of expressions or statements offered as a justification of an act ' the 'act' here being, of course, the decision of the Panel.” Id. at 844. The Eleventh Circuit then held that the arbitration panel had done its job and provided a reasoned opinion: “[w]e certainly cannot say that this statement ["that Claimant ' has proven its claim against MTI by the greater weight of the evidence"] is devoid of any statements offered as a justification; the reason for the Plaintiffs' victory is plainly provided.” Id. at 845.

Once again, the court provided guidance for lawyers and parties: “To be sure, the Panel could have provided more. But again, had the parties wished for a greater explanation, they could have requested that the Panel provide findings of fact and conclusions of law'.” Id. at 845; see also, Rain CII Carbon, LLC v. ConocoPhillips Co., 674 F.3d 469, 474 (5th Cir. 2012) (“[I]f Conoco wanted a more thorough discussion of why the arbitrator reached the decision he did, it could have contracted for an award to include findings of fact and conclusions of law. Instead, the parties agreed to a reasoned award, which, according to our case law, is more than a simple result.”); American Centennial Ins. Co. v. Global Int'l Reinsurance Co., 2012 U.S. Dist. LEXIS 94754, at *25 (“The parties did not request findings of fact and conclusions of law, an exhaustive standard familiar to the courts; rather, they agreed to a reasoned award, without further elaboration.”) (citation omitted).

Conclusion

The bottom line, then, is that parties seeking a particular type of award should expressly instruct the arbitrators whether they want a bare award, a “reasoned” award, or findings of fact and conclusions of law. See , Cat Charter, LLC v. Schurtenberger, 646 F.3d at 844 (“Logically, the varying forms of awards may be considered along a spectrum of increasingly reasoned awards, with a 'standard award' requiring the least explanation and 'findings of fact and conclusions of law' requiring the most. In this light, therefore, a reasoned award is something short of findings and conclusions but more than a simple result.”) (citation omitted).

If the parties are going to design and customize the arbitration process, they better spend the time and care to make certain that the final product ' the arbitration award ' conforms to their needs. Otherwise, they will not get what they think they bargained for.

Charles F. Forer is a member in the Philadelphia office of Eckert Seamans Cherin & Mellott, LLC, where he practices all types of Alternative Dispute Resolution. He is a former co-chair of both the Philadelphia Bar Association's Alternative Dispute Resolution Committee and the Fee Disputes Committee. We welcome him to the FBLA'Board of Editors with this issue. He can be contacted at 215-851-8406 and [email protected].

This is the third in an ongoing series of articles that will provide franchise attorneys with practical advice about arbitration.

Arbitration can be a quick, efficient and informal means to resolve disputes. Plus, parties can adapt arbitration to their needs. They even can decide the type of arbitration award they want. The only requirement is that an arbitration award must be in writing. See, e.g., Uniform Arbitration Act '8(a) (“The award shall be in writing and signed by the arbitrators joining in the award.”); 42 Pa. Cons. Stat. Ann. '7310 (“The award of the arbitrators shall be in writing and signed by the arbitrators joining in the award.”). Recognizing that old-fashioned “writings” are being used less and less, the revised Uniform Arbitration Act states that: “An arbitrator shall make a record of an award. The record must be signed or otherwise authenticated by any arbitrator who concurs with the award.” (The revised Uniform Arbitration Act has been enacted in almost 20 states.)

The arbitrator need not explain the reasoning for the award, unless the arbitration agreement expressly requires the arbitrator to do so. Cat Charter, LLC v. Schurtenberger, 646 F.3d 836, 844 (11th Cir. 2011) (“Generally, an arbitrator need not explain her decision; thus, in a typical arbitration where no specific form of award is requested, arbitrators may provide a 'standard award' and simply announce a result.”); American Centennial Insurance Co. v. Global Int'l Reinsurance Co., 2012 U.S. Dist. LEXIS 94754, at *21 (S.D.N.Y. July 9, 2012).

In the absence of a provision requiring something more, therefore, the following award would be perfectly adequate: “I find in favor of claimant. Respondent shall pay claimant $150,000.00.”

Giving an explanation for the award could undermine the promise of arbitration as a quick, efficient and informal means of private dispute resolution. Because an arbitrator must spend more time to draft a reasoned award, a reasoned award could delay the final determination of the matter and increase the fees of the arbitrator.

On the other hand, parties should not necessarily accept “bare” awards. An arbitrator who makes a “reasoned” award probably will be more likely to base the award on the evidence. Further, giving the basis for the award will enable the parties to understand the award and lead to increased faith and trust in the arbitration process. By contrast, a conclusory, one-sentence award could undermine the credibility of the arbitrator; the losing party may conclude ' rightly or wrongly ' that the arbitrator ignored the loser's evidence, arguments and presentations.

A 'Reasoned' Award

What exactly is a “reasoned” award? Is there any test to determine whether an award is “reasoned”?

Courts have considered attacks on arbitration awards in which the arbitrator allegedly failed to provide a “reasoned” explanation in accordance with the parties' agreement. Courts carefully have distinguished between: a) agreements that say only that the arbitrator should “explain” the basis for the award; and b) agreements that say that the arbitrator should provide “findings of fact and conclusions of law.”

In Green v. Ameritech Corp., 12 F. Supp. 2d 662 (E.D. Mich. 1998), a federal district court, in an appeal from an employment discrimination arbitration award, vacated an arbitration award; the court said the arbitrator exceeded his authority by not explaining his decision, as the parties expressly had required. The award stated only that “plaintiff has not met his burden of proof” ' after an arbitration proceeding that took place over nine days, in which the parties submitted post-arbitration briefs exceeding 50 pages. In supporting its conclusion that the arbitration award did not pass muster, the court held:

[T]he arbitrator did not adhere to the Arbitration Agreement, and specifically Paragraph 10 which requires that the award “be accompanied by an opinion which explains the arbitrator's decision with respect to each theory advanced by each plaintiff.” ' Here, the arbitrator did not “explain” his decision with respect to each one of plaintiff's theories, as the term “explain” is commonly understood. Rather, the arbitrator merely announced his decision with respect to each one of plaintiff's theories. The arbitrator's opinion is totally conclusory and insufficient according to the terms of the Arbitration Agreement. Since the arbitrator did not perform in accordance with the Arbitration Agreement, he exceeded his authority under the Agreement and his award should be vacated under 9 U.S.C. '10(a)(3).

However, this was not the last word on the validity of this arbitration award. The Sixth Circuit agreed the award was “brief and conclusory.” Green v. Ameritech Corp. , 200 F.3d 967, 976 (6th Cir. 2000). But, the court concluded, there was an explanation. Why? Because the award said claimant “had not met his burden of proving that the decision was discriminatory or retaliatory.” Id . To ensure parties are not disappointed by future and equally pithy awards, the Sixth Circuit instructed drafters of arbitration agreements to use more precise legal terms so they get what they bargained for:

If parties to an arbitration agreement wish a more detailed arbitral opinion, they should clearly state in the agreement the degree of specificity required. In addition, the use of familiar legal terms would serve to ensure that reviewing courts have a standard to guide their analysis.

More recently, the Eleventh Circuit, in Cat Charter , reiterated the need for unambiguous instructions regarding the requested type of award. There, the parties “agreed that the panel shall provide a reasoned award.” Id . at 840. After a five-day hearing and post-trial briefing, however, the panel's principal award and supporting “reasons” amounted only to the following:

• [W]e find that Claimants have proven their claim against Respondents by the greater weight of the evidence.
• On the claim of the Claimant, CAT CHARTER, LLC, for breach of contract by Respondent MTI, we find that Claimant, CAT CHARTER, LLC has proven its claim against MTI by the greater weight of the evidence.
• All other claims of the Claimants are hereby denied. All counter-claims of the Respondents, MTI and SCHURTENBERGER, are denied'.

Id .

As in Green v. Ameritech Corp. , the district court vacated the award, “agreeing with the Defendants that the Panel had exceeded its powers ' by failing to provide a satisfactorily reasoned award.” Cat Charter LLC v. Schurtenberger, 691 F. Supp. 2d 1339, 1344-45 (S.D. Fla. 2010).

Also as in Green v. Ameritech Corp., the court of appeals reversed the district court; the Eleventh Circuit concluded the arbitrators had done enough. The Eleventh Circuit resorted to the dictionary to determine the meaning of “reasoned,” concluding that “a 'reasoned' award is an award that is provided with or marked by the detailed listing or mention of expressions or statements offered as a justification of an act ' the 'act' here being, of course, the decision of the Panel.” Id. at 844. The Eleventh Circuit then held that the arbitration panel had done its job and provided a reasoned opinion: “[w]e certainly cannot say that this statement ["that Claimant ' has proven its claim against MTI by the greater weight of the evidence"] is devoid of any statements offered as a justification; the reason for the Plaintiffs' victory is plainly provided.” Id. at 845.

Once again, the court provided guidance for lawyers and parties: “To be sure, the Panel could have provided more. But again, had the parties wished for a greater explanation, they could have requested that the Panel provide findings of fact and conclusions of law'.” Id. at 845; see also, Rain CII Carbon, LLC v. ConocoPhillips Co., 674 F.3d 469, 474 (5th Cir. 2012) (“[I]f Conoco wanted a more thorough discussion of why the arbitrator reached the decision he did, it could have contracted for an award to include findings of fact and conclusions of law. Instead, the parties agreed to a reasoned award, which, according to our case law, is more than a simple result.”); American Centennial Ins. Co. v. Global Int'l Reinsurance Co., 2012 U.S. Dist. LEXIS 94754, at *25 (“The parties did not request findings of fact and conclusions of law, an exhaustive standard familiar to the courts; rather, they agreed to a reasoned award, without further elaboration.”) (citation omitted).

Conclusion

The bottom line, then, is that parties seeking a particular type of award should expressly instruct the arbitrators whether they want a bare award, a “reasoned” award, or findings of fact and conclusions of law. See , Cat Charter, LLC v. Schurtenberger , 646 F.3d at 844 (“Logically, the varying forms of awards may be considered along a spectrum of increasingly reasoned awards, with a 'standard award' requiring the least explanation and 'findings of fact and conclusions of law' requiring the most. In this light, therefore, a reasoned award is something short of findings and conclusions but more than a simple result.”) (citation omitted).

If the parties are going to design and customize the arbitration process, they better spend the time and care to make certain that the final product ' the arbitration award ' conforms to their needs. Otherwise, they will not get what they think they bargained for.

Charles F. Forer is a member in the Philadelphia office of Eckert Seamans Cherin & Mellott, LLC, where he practices all types of Alternative Dispute Resolution. He is a former co-chair of both the Philadelphia Bar Association's Alternative Dispute Resolution Committee and the Fee Disputes Committee. We welcome him to the FBLA'Board of Editors with this issue. He can be contacted at 215-851-8406 and [email protected].