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Contract Intrepretation and Enforcement in Arbitration 1

Contract Interpretation And Enforcement In Arbitration 10-11-2021:

When Can An Arbitration Award Be Challenged?

Louisiana continues to struggle with unprecedented challenges including multiple major hurricanes, as well as the Covid-19 pandemic. Our courts are doing the best they can to cope with these obstacles. Arbitration, as an alternative to litigation, has never been more important than it is today. Arbitration can take a load off the court system at a time when that load is a heavy one to bear. The informality of arbitration lends itself to remote proceedings, some would say more so than the formalities of a court room, at this time. Our system of justice must, and will, evolve to meet the challenges we face.

However, while arbitration is favored, the participants must be vigilant to guard against abuses, injustices, and deprivations of the parties’ fundamental rights. The confirmation of an arbitration award by a court is necessary to transform the award into an enforceable judgement. A duly elected judge, empowered to act under the Louisiana Constitution, is not a mere rubber stamp to endorse any arbitration award.

Parties who choose to arbitrate, as well as arbitrators themselves, must be ever mindful that the authority granted to the arbitrator is not unlimited. Those limits are defined by the Federal Arbitration Act (“FAA”) and the Louisiana Binding Arbitration Law, La. R.S. 9:4201, et seq., (“LBAL”), and can be further defined by the contract that forms the source of the arbitrator’s power to decide a dispute between the parties to the contract. Limits can also be established by public policy, as well as the parties’ submissions to the arbitrator.

Some say the arbitrator does not have to follow the law. It is beyond dispute that mere error of law is no reason to overturn an arbitration award. In some jurisdictions, the arbitrator’s manifest disregard of the law is considered grounds to vacate the award. Some Louisiana courts have considered that as well. But it is a horse of another color for an arbitrator to refuse to apply the unambiguous contract provisions that the parties themselves have agreed to (which contract also contains an arbitration provision). An arbitration clause in the contract does not give license to the arbitrator to substitute the arbitrator’s own brand of justice for the parties’ choices contained and clearly expressed in their agreement. While it is the arbitrator’s job to interpret the contract, where the contract is clear and unambiguous what authority does the arbitrator have to re-write it entirely?

While such circumstances are truly rare, all parties (and the courts) need to be vigilant about challenging and upsetting those awards, where necessary, in order to uphold the contract provisions that grant the arbitrator the power to decide the parties’ dispute in lieu of the court. The highest court in the land, the United States Supreme Court, as well as state appellate and district courts across the country, including courts here in Louisiana, recognize that an arbitration award can be vacated in such circumstances. It is well settled, but not often found, that an arbitrator exceeds his power when he ignores the contract in order to substitute his own brand of justice instead. The United States Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662, 671-72, 130 S.Ct. 1758, 1767, 176 L.Ed.2d 605 (2010) reasoned:

Petitioners contend that the decision of the arbitration panel must be vacated, but in order to obtain that relief, they must clear a high hurdle. It is not enough for petitioners to show that the panel committed an error—or even a serious error. See Eastern Associated Coal Corp. v. Mine Workers, 531 U.S. 57, 62, 121 S.Ct. 462, 148 L.Ed.2d 354 (2000); Paperworkers v. Misco, Inc., 484 U.S. 29, 38, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987). It is only when [an] arbitrator strays from interpretation and application of the agreement and effectively ‘dispense[s] his own brand of industrial justice’ that his decision may be unenforceable.” Major League Baseball Players Assn. v. Garvey, 532 U.S. 504, 509, 1015, 121 S.Ct. 1724, 149 L.Ed.2d 740 (2001) (per curiam) (quoting Steelworkers v. Enterprise Wheel & Car *672 Corp., 363 U.S. 593, 597, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960)). In that situation, an arbitration decision may be vacated under § 10(a)(4) of the FAA on the ground that the arbitrator “exceeded [his] powers,” for the task of an arbitrator is to interpret and enforce a contract, not to make public policy.

More recently, the United States Court of Appeals for the Fifth Circuit in Kemper Corporate Services, Inc. v. Computer Sciences Corp., 946 F.3d 817 (5th Cir. 2020) provided tools to distinguish ignoring contract language as grounds for vacatur of an arbitration award from mere mistake or error. In Kemper, the court listed a number of factors to determine if an arbitrator’s award even arguably interpreted the parties’ agreement: “(1) whether the arbitrator identifies [his] task as interpreting the contract; (2) whether [he] cites and analyzes the text of the contract; and (3) whether [his] conclusions are framed in terms of the contract’s meaning.” Kemper at 823.

This principle is not inconsistent with the public policy that favors arbitration. Quite the contrary, overturning such awards is necessary to maintain arbitration as a viable path to justice. This principle protects the integrity of arbitration and prevents abuses which undermine it.

Nevertheless, arbitration awards are not often vacated or modified, and most are duly confirmed. Seek advice and make an informed decision when considering agreeing to arbitrate disputes.

Russel W. Wray is an attorney and owner of Wray & Associates ( and practices in Louisiana.

This article is informational and should not be used as legal advice. One should independently consult with an attorney, prior to relying on any of the information provided herein.

Wray & Associates © 2021.

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