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.

Inherent and Implied Powers of Arbitrators

Loyola Chicago Law Professor Margaret L. Moses writes in her abstract:     

The powers of arbitrators are generally based on the provisions of an arbitration clause agreed to by the parties to an arbitration, including any arbitral rules chosen to govern the arbitration. However, because these short clauses cannot set forth every kind of power that an arbitrator may need in the course of an arbitration, he may have to call on inherent or implied powers. This article sets forth a framework for understanding what is meant by inherent powers and implied powers of arbitrators. The distinction is important, but many commentators and courts use the terms interchangeably. Basically implied powers are those that can be implied or discerned from a textual provision, either in the clause adopted by the parties, or in the arbitral rules chosen by the parties, or in the applicable arbitration law. Inherent powers are those that an arbitrator may need to call on when novel situations occur for which there is no specific rule or authority. In all cases, but particularly with respect to inherent powers, an arbitrator must act with caution not to overstep proper authority and thereby endanger the enforcement of an arbitral award.

Arbitration of Trust Disputes, Telephonic Hearing, and Whether Arbitrator Exceeded Powers

All this in an interesting recent 8th Circuit case, Brown v. Brown-Thill.