Arbitration clauses are finding their way increasingly into commercial and real estate contracts, taking various forms, but the objective is the same: resolve disputes expeditiously. Arbitration’s finality is a key to achieving this objective. Ordinarily, parties going into arbitration expect: whatever the arbitrator decides, that will end the matter. But, what if the contracting parties want arbitration but without its finality? What if the contracting parties agree to submit their future disputes to arbitration, can they further agree to reserve the right to have a court take a second look at the decisions the arbitrators make. According to a recent Georgia Court of Appeals opinion, the answer is, no. The Georgia Arbitration Code (O.C.G.A. § 9 9 13(b)) says the courts can review an arbitration award for the following reasons:The parties before the Court in Brookfield Country Club, Inc. v. St. James Brookfield, LLC, A09A1408 (July 16, 2009), agreed as part of a real property lease to arbitrate any dispute arising from the agreement; however, on finality, they hedged their bets, so to speak. Specifically, the Brookfield parties qualified their arbitration clause by stipulating: Reading between the lines, the Brookfield litigants in so casting their arbitration clause attempted to address one of arbitration’s major drawbacks: no appellate supervision. That is, the Brookfield litigants were happy to submit any dispute arising from their lease to arbitration, but they agreed to leave the door open to having a court check afterward that the arbitrator’s decision was consistent with applicable law and supported by the preponderance of the evidence, neither of which grounds the Arbitration Act mentions. The Georgia Court of Appeals rebuffed the Brookfield parties’ mutual reservations about their arbitrators having the final word. Instead, the court decreed that unless the objecting party proves one of the grounds set out in the Arbitration Code, the courts must accept the arbitration award in question. Contracting parties cannot confer jurisdiction on the courts to take a second look at arbitration awards on grounds beyond those set out in the arbitration statute, the Brookfield court ruled. Also interesting in the Brookfield opinion is that the Court construed a section of O.C.G.A. § 9 13-13(b)(5) giving the courts authority to overturn an arbitrator’s award where there is a finding of “the arbitrator’s manifest disregard of the law” very narrowly. In my professional experience, it is commonly believed by lawyers and principals that if it can be shown that an arbitrator in rendering its decision simply “blew it,” i.e., arrived at the wrong decision as a matter of law, the courts will overturn the arbitration award. This is not a valid assumption as Brookfield shows. Specifically, the court said that the party invoking the manifest disregard grounds to overturn an arbitration award has to show that the decision of the arbitrator is contrary to law, the law in question is certain in its interpretation as applied to the facts at hand and most important, the arbitrator knew the law and deliberately ignored it. That is an extremely high hurdle. The Brookfield decision involved a question of first impression in Georgia, but the Court took great comfort in citing an earlier U.S. Supreme Court interpretation of a federal statute similar to the Georgia Arbitration Code, Hall Street Associates v. Mattel, Inc, ___ U.S. _____, 128 SC 1396, 170 L.Ed 2d 254 (2007). The way the Supreme Court saw things in Hall, it is not a good idea to allow contracting parties to add to the statutory grounds for vacating an arbitration award. To do otherwise, the U.S. Supreme Court calculated, would “open [the] door to the full blown legal and evidentiary appeals that can render informal arbitration merely as a prelude to a more cumbersome and time consuming judiciary review process and bring arbitration theory to grief in post arbitration process.” Under Brookfield, contracting parties who employ an arbitration clause may get more finality from any resulting arbitration than they bargained for. Brookfield tells us that where contracting parties choose arbitration to resolve their disputes, the matter lies in the hands of the arbitrator and the courts will not review any resulting award unless the award is, in summary, either corrupt, the product of knowing and deliberate disregard of the applicable law, or produced an award that is so deficient that a court cannot produce a meaningful order from it. This is true even where by agreement the parties invite the court to take a fresh look at the substantive issues involved in the dispute in question. Consequently, practitioners and principals should weigh carefully the perceived benefits before inserting an arbitration clause in their contract. If you have any questions about arbitration clauses in general, their enforceability or value, please do not hesitate to contact Ron Gold at rtg@merollagold.co |
