Curbing the Runaway Arbitrator in Commercial Arbitration: Making Exceeding the Powers Count

Abstract

Arbitration is in crisis. Under fire as an oppressive, claim-suppressing method of dispute resolution, imposed by businesses upon unsuspecting employees and consumers, arbitration is also becoming increasingly unpopular with its original designers – businesses in commercial disputes with other businesses. While academic commentators spill considerable ink assessing the propriety of businesses imposing pre-dispute arbitration agreements on consumers and employees, to date they have paid scant attention to the reasons underlying business flight from arbitration as a preferred method for resolving disputes with other businesses. Empirical research sheds some light on this issue – surveys reveal that in-house counsel believe that arbitration is no longer the dispute resolution mechanism of choice because of the risk of arbitrator compromise and the inability to appeal adverse arbitration awards to court. If arbitration is to revive as a primary dispute resolution mechanism for commercial disputes, parties must have some means for securing effective review of arbitral awards — an escape hatch for the runaway-arbitrator problem. This article proposes a new approach courts should use to evaluate arbitration agreements containing limitations on arbitrator remedial authority and choice of law. Because arbitration is a process that parties control and design, judicial review of arbitral awards must appropriately value party autonomy in process design while also ensuring that arbitration remains an efficient and economical dispute resolution mechanism. Existing federal and state arbitration acts all contain an “exceeding the powers” provision for reviewing arbitration awards. Under this provision, a losing party may challenge an adverse arbitration award on the basis that the arbitrator rendered an award inconsistent with the limitations the parties included in their agreement. Unfortunately, courts haphazardly and inconsistently apply this provision, rarely vacating an arbitration award even when the arbitrator ignored the parties’ limitations on her remedial authority or choice of law. Judicial failure to acknowledge parties’ contractual limitations may occur because the term “exceeding the powers” has no real definition. Using language adopted in other arbitration cases, this article proposes providing some definition to the term -- asserting that, in cases where an arbitrator ignores party limitations on remedies that are clearly and unmistakably articulated in the parties’ agreement, she has exceeded her powers. This proposal provides a mechanism for determining whether the parties actually intended to limit the arbitrator’s remedial authority while still honoring the traditional deference due arbitration awards. If the parties’ limits are clear and unmistakable, the next question is whether the limits should be enforced. Thus, the article also explores whether the unconscionability test courts use to evaluate party limits on judicial remedial authority could be applied to evaluate party agreements to constrain arbitrator remedial authority. The article also proposes that arbitration agreements containing choice of law clauses be evaluated in the same manner as choice of law provisions in traditional contracts, rather than under the heightened scrutiny test the courts currently use. Using this approach, a court would find that the arbitrator exceeded her powers if she ignored the parties’ choice of law, and that ignorance was apparent on the face of the award or through a review of the arbitrator’s opinion. This approach would provide consistency when courts review of these provisions and, at the same time, avoid placing an unnecessary burden on parties to prove that they really meant it when they adopted a choice of law provision. This structured approach to the exceeding the powers ground for challenging an arbitration award would acknowledge the essential role party autonomy plays in arbitration. The approach would ensure that parties receive their negotiated-for arbitration process. Arbitration is a party-designed process that parties will continue to use only if their negotiated limitations on arbitral authority, whether in the form of limits to remedial authority or choice of law, are enforced. Deference to arbitration awards, when unjustified, serves only to hasten party flight from a useful and efficient dispute resolution process.