Opinion ID: 220200
Heading Depth: 2
Heading Rank: 2

Heading: District Court's Authority to Vacate Award

Text: The Federal Arbitration Act (FAA) sets forth specific grounds for vacating arbitration awards. 9 U.S.C. § 10(a). Grounds for vacating an award under section 10(a) are: corruption, fraud, or undue means in procurement of the award, evident partiality or corruption in the arbitrators, specified misconduct on the arbitrators' part, or `where the arbitrators exceeded their powers.' Wall Street Assocs., L.P. v. Becker Paribas Inc., 27 F.3d 845, 848 (2d Cir.1994) (quoting 9 U.S.C. § 10(a)). Because the FAA supports a strong presumption in favor of enforcing arbitration awards ... the policy of the FAA requires that the award be enforced unless one of those grounds is affirmatively shown to exist. Id. at 849. In addition to the section 10(a) grounds for vacatur, we have recognized a judicially-created ground, namely that an arbitral decision may be vacated when an arbitrator has exhibited a manifest disregard of law. [1] Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200, 208 (2d Cir.2002) (internal quotation marks omitted); Porzig v. Dresdner, Kleinwort, Benson, North America LLC, 497 F.3d 133, 139 (2d Cir. 2007). We have ... `consistently accorded the narrowest of readings' to section 10(a)(4) permitting vacatur where the arbitrator has exceeded her powers. ReliaStar, 564 F.3d at 85 (quoting Banco de Seguros del Estado v. Mut. Marine Office, Inc., 344 F.3d 255, 262 (2d Cir.2003)); Westerbeke, 304 F.3d at 220. This is especially true when section 10(a)(4) is invoked to challenge an award deciding a question which all concede to have been properly submitted in the first instance. DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 824 (2d Cir.1997) (quoting Fahnestock & Co. v. Waltman, 935 F.2d 512, 515 (2d Cir.1991)). The focus of our inquiry in challenges to an arbitration award under section 10(a)(4) is whether the arbitrators had the power, based on the parties' submissions or the arbitration agreement, to reach a certain issue, not whether the arbitrators correctly decided that issue.  Id. (emphasis added); Westerbeke, 304 F.3d at 220. Put simply, [s]ection 10(a)(4) does not permit vacatur for legal errors. Westerbeke, 304 F.3d at 220. If the arbitrator's award draws its essence from the agreement to arbitrate, then the scope of the court's review of the award itself is limited. Notably, we do not consider whether the arbitrators correctly decided the issue.  ReliaStar, 564 F.3d at 86 (internal quotation marks and alterations omitted) (emphasis added). We will uphold an award so long as the arbitrator offers a barely colorable justification for the outcome reached. Id. (internal quotation marks omitted). As the Supreme Court emphasized in Stolt-Nielsen, vacating an arbitration award requires the moving party to clear a high hurdle, and [i]t is not enough ... to show that the panel committed an erroror even a serious error. It is only when an arbitrator strays from interpretation and application of the agreement and effectively dispenses his own brand of industrial justice that his decision may be unenforceable. 130 S.Ct. at 1767 (internal quotation marks, citations, and alterations omitted). In other words, as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, a court's conviction that the arbitrator has committed serious error in resolving the disputed issue does not suffice to overturn his decision. ReliaStar, 564 F.3d at 86 (internal quotation marks omitted). Accordingly, an arbitrator may exceed her authority by, first, considering issues beyond those the parties have submitted for her consideration, or, second, reaching issues clearly prohibited by law or by the terms of the parties' agreement. For example, in Westerbeke, 304 F.3d at 220, we drew a distinction between two situations. One is where the law or the parties' agreement categorically prohibits the arbitrator from reaching an issue so that, in reaching that issue, the arbitrator exceeds her authority. Id. (citing Fahnestock, 935 F.2d at 519 (vacating an arbitration award imposing punitive damages where New York law expressly prohibited arbitrators from imposing punitive damages) and Katz v. Feinberg, 290 F.3d 95, 97-98 (2d Cir.2002) (holding that the arbitrators had exceeded their authority by reaching an issue that the agreement exclusively committed to independent accountants, not the arbitrators)). The other is a situation where the parties grant the arbitrator the authority to determine an issue, but the arbitrator makes an error of law in deciding that issue. Id. (citing Di-Russa, 121 F.3d at 824) (confirming an award denying attorneys' fees for a party that successfully established a violation of the Age Discrimination in Employment Act, which required a statutory award of attorneys' fees). Concluding that the parties were contesting whether the arbitrator properly interpreted New York law regarding the award of expectancy damages, not whether the arbitrator had the authority to award such damages generally, the court in Westerbeke held that the award could not be vacated under section 10(a)(4) despite the fact that such damages might be precluded by New York law. 304 F.3d at 220. In other words, the arbitrator may well have committed an error of law, but in doing so she was rendering a decision the parties authorized her to make and thus did not exceed her authority in making the determination. The threshold issues for the district court to consider in this case when deciding whether it was appropriate to vacate the award pursuant to section 10(a)(4) was, first, whether the parties had submitted to the arbitrator the question of whether their arbitration agreement permitted class arbitration and, second, whether the agreement or the law categorically prohibited the arbitrator from reaching that issue. The district court, however, appears not to have considered the high hurdle that vacating an award under section 10(a)(4) requires but to have proceeded instead to engage in a substantive review of the arbitrator's decision, holding that in light of Stolt-Nielsen, ... the arbitrator's construction of the RESOLVE agreements as permitting class arbitration was in excess of her powers and therefore cannot be upheld. In substance, while articulating a rationale that purported to examine whether the arbitrator exceeded her authority, the district court's analysis focused in fact on whether the arbitrator had correctly interpreted the arbitration agreement itself. This was error. The district court seems to have taken the plaintiffs' concession that the agreement lacked an explicit authorization permitting class arbitration as a concession that the agreement did not manifest even an implicit intent to permit class arbitration. Jock, 725 F.Supp.2d at 448. The plaintiffs' concession that there was no explicit agreement to permit class arbitration, however, is not the same thing as stipulating that the parties had reached no agreement on the issue. Nor is it the same as stipulating that the agreement is silent on the issue of class arbitration in the sense that silent was used by the Stolt-Nielsen majority. As the district court correctly acknowledged,  Stolt-Nielsen does not foreclose the possibility that parties may reach an `implicit'rather than express'agreement to authorize class-action arbitration.' Id. at 449 (quoting Stolt-Nielsen, 130 S.Ct. at 1775). Where the district court strayed was in substituting its interpretation of the agreement for that already undertaken by the arbitrator when she performed the legal analysis she was asked by the parties to undertake. When the district court did so, it determined that nothing in the record supported any implied agreement to permit arbitration, but this was an issue the arbitrator had already considered and decided differently. Id. Under our precedent it is not for the district court to decide whether the arbitrator got it right when the question has been properly submitted to the arbitrator and neither the law nor the agreement categorically bar her from deciding that issue. ReliaStar, 564 F.3d at 85-86; Westerbeke, 304 F.3d at 220. In that regard, there is no question that the issue of whether the agreement permitted class arbitration was squarely presented to the arbitrator. In its brief submitted to the arbitrator on the issue, Sterling expressly asked the arbitrator to find ... [t]hat RESOLVE does not allow for class arbitration. Similarly, in the converse, the plaintiffs asked the arbitrator to find that the RESOLVE Arbitration Agreements at issue permit class arbitration. In sum, the parties agree that they disagree about whether the arbitration agreement permits class arbitration. Put another way, unlike Stolt-Nielsen, the parties have not stipulated that the agreement is silent as to class arbitrationthat is, the parties here are not in agreement that the RESOLVE agreement contains no explicit or implicit intent regarding the issue of class arbitrationand there is no escaping the fact that the parties submitted that question to the arbitrator for a decision. Nor did the arbitrator exceed her authority under the agreement or the law by deciding the issue and ruling that the arbitration agreement allowed the plaintiffs to pursue class arbitration even though the agreement lacked an express provision permitting class arbitration. Stolt-Nielsen, on which the district court relied, did not create a bright-line rule requiring that arbitration agreements can only be construed to permit class arbitration where they contain express provisions permitting class arbitration. 130 S.Ct. at 1776 n. 10. There is nothing in the agreement itself, moreover, that prohibits an arbitrator from determining whether the agreement contemplates class arbitration. In other words, the arbitrator was acting within her authority when she concluded that the arbitration agreement between Sterling and the plaintiffs manifested an intent to allow for class arbitration because the issue was properly before her having been placed there by the parties. In addition, she had a colorable justification under Ohio law to reach the decision she did, to wit, Ohio law does not bar class arbitration. By re-examining the record to determine the question that the arbitrator had already decidedwhether the parties intended to permit arbitration of class claimsthe district court substituted its legal reasoning for the arbitrator's. Yet the only question before it, both preceding and following the issuance of Stolt-Nielsen, was whether the arbitrator was authorized by the parties, the agreement, and applicable law to render the decision she did. The record demonstrates unequivocally that the arbitrator operated within the bounds of her authority in reaching her decision. Sterling has not argued, nor would we find, that the decision manifestly disregarded the law. The decision of the arbitrator should thus be confirmed. It is worth reemphasizing that the primary thrust of our decision is whether the district court applied the appropriate level of deference when reviewing the arbitration award. With all due respect, our dissenting colleague appears to have fallen into the same trap as did the district court by focusing, to the point of disposition, on what the correct interpretation of Stolt-Nielsen should be. Like the district court, the dissent fails to identify how the arbitrator exceeded her authority, which, if true, would be a valid basis for vacating the award. Indeed, the dissent explicitly acknowledges that the arbitrator faithfully followed the law as it existed at the time of her decision. (Dissenting Op. p. 130-31). Our Circuit has never held that an intervening change of law, standing alone, provides grounds for vacating an otherwise proper arbitral award. Instead, the dissent, like the district court, focuses impermissibly on substituting its interpretation of what the arbitration agreement does or does not allowa function explicitly submitted by the parties to the sound judgment of the arbitrator. To achieve the result that both the dissent and the district court would impose in this case would require that we forsake the substantial deference we have for decades accorded to an arbitrator's decision that is rendered within the authority given her by the parties and under law. Yusuf Ahmed Alghanim & Sons v. Toys R Us, Inc., 126 F.3d 15, 23 (2d Cir.1997). There is simply no basis for abandoning that principle in this case and toppling the pedestal on which our federal jurisprudence has repeatedly placed a properly authorized arbitrator's determination of the facts and analysis of the law. To do so here in order to strike down the arbitral determination allowing class arbitration requires throwing the baby out with the bathwater.