Ninth Circuit Vacates “Completely Irrational” Arbitration Award

While judicial enforcement of arbitrators’ decisions is an essential centerpiece of arbitration law and practice, the Ninth Circuit Court of Appeals recently vacated the district court opinion in Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors, 2019 WL 333339 (9th Cir. Jan. 28, 2019), finding that the arbitrator issued a “completely irrational” award. The Ninth Circuit opinion is unusual in the extent to which it relies on labor arbitration precedents to vacate a non-labor arbitration award.

The underlying dispute in Aspic was between a subcontractor hired to construct facilities in Afghanistan and the general contractor. The sub alleged the GC owed the sub a significant amount and the arbitrator agreed despite the fact the sub failed to perform material provisions of the underlying contract. By ruling for the subcontractor despite these failings, the arbitrator exceeded his authority, according to the Ninth Circuit.

Aspic correctly noted that, under the Federal Arbitration Act, it “may vacate an arbitration award where, among other reasons, ‘the arbitrators exceeded their powers.’” Aspic Eng’g & Constr. Co., 2019 WL 333339 at 8. The Ninth Circuit said that, “arbitrators ‘exceed their powers’ when the award is ‘completely irrational’ or exhibits a ‘manifest disregard of the law.’”

However, the Ninth Circuit cited labor arbitration cases for the proposition that an award is completely irrational when it “fails to draw its essence from the agreement.’” Ninth Circuit labor arbitration case law says a rational award must not “disregard contract provisions to achieve a desired result.” 2019 Wl 3333339 at 11. According the Ninth Circuit, a rational award would consider the terms of the contract as written. The arbitrator cannot “improperly stray[] from the plain text of the contract.”

The court also echoed a sentiment initially made by Liz Kramer of Stinson Leonard Street seven years ago: “we have become an arbitration nation.”

For more in depth coverage, see Liz Kramer’s Arbitration Nation blog here.