In the District of Columbia, under D.C. Code § 16-4423(a), a court shall vacate an arbitration award for specified reasons involving corruption, fraud and misconduct. However, D.C. Code § 16-4423(b) provides that the court may set aside an arbitration award in the event it sees any "reasonable ground" for doing so.
Dissatisfied parties have seized upon § 16-4423(b) as an opportunity for de novo review of the arbitration award. However, several recent D.C. court decisions have declined to interpret the statute as such. Affinity Fin. Corp. v. AARP Fin., Inc., No. 10-CV-2055 (D.D.C. mem. op. July 1, 2011), is the latest decision to reject de novo review of an arbitration award.
In Affinity Financial, the parties entered into an agreement requiring the resolution of disputes by arbitration. The agreement broadly granted arbitrators authority to "fashion appropriate relief," including monetary damages and equitable relief.
After a four-day arbitration before three arbitrators, the panel issued a written decision unanimously favoring the petitioners, Affinity Financial. The written decision found both parties were in default at various times during the term of the contract, but "considering the law and the equities," the panel awarded Affinity Financial $2.75 million in damages.
Pursuant to the Federal Arbitration Act ("FAA") and the D.C. Revised Uniform Arbitration Act ("UAA"), Affinity Financial petitioned the United States District Court for the District of Columbia to confirm the arbitration award. AARP Financial opposed the petition and filed a motion under FAA and UAA to vacate the arbitration award.
In addition to the grounds for vacatur under the FAA, the D.C. Circuit recognizes "manifest disregard of the law" as a basis for vacating an arbitration award. Affinity Fin., Mem. Op. at 4. To vacate an arbitration award on the basis of manifest disregard of the law, the court must find that (1) the arbitrator knew of a governing legal principle yet refused to apply it or ignored it altogether and (2) the law ignored was well-defined, explicit and clearly applicable to the case. Id., citing Di Russa v. Dean Witter Reynolds, Inc., 121 F.3d 818, 821 (2d Cir. 1997).
The court found the arbitration panel neither exceeded its powers nor manifestly disregarded the law. Importantly, the court also narrowly interpreted D.C. Code § 16-4423(b) to mean "the recognized principle that an arbitration award may be set aside if it manifestly disregards some clear expression of binding law or public policy." Id. at 9. A broader interpretation would "undermine the stability and finality of arbitration awards" by circumventing the clear limitation of judicial review under the FAA. Id.
This decision follows the D.C. Court of Appeals' decision in A1 Team USA Holdings, LLC v. Bingham McCutchen LLP, 998 A.2d 320 (D.C. 2010), which held that the legislative history of the UAA did not support abandoning the standard of "narrow and extremely limited" judicial review of an arbitration award. A1 Team, 998 A.2d at 326. Such a standard is necessary to balance the need for expeditious dispute resolution with confidence in the arbitration process. Id. at 326-27; see also Foulger-Pratt Residential Contracting, LLC v. Madrigal Condos., LLC, 2011 U.S. Dist. LEXIS 45167 at *59-61 (D.D.C. 2011) (following A1 in finding "other reasonable ground" does not expand the "extremely limited" standard of review to de novo).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.