As this blog has chronicled in the past, it is extremely difficult for an arbitral award to be vacated. The Federal Arbitration Act and many state arbitral acts provide very limited grounds for vacatur, as courts are reluctant to second-guess an arbitrator’s decision. Indeed, courts have even refused to vacate awards when the arbitrator erred in his application of the law. Even a “grave error” made by the arbitrator is insufficient to vacate an award, as it is not amongst the grounds for vacating a decision.
According to Section 10 of the FAA, an award may be vacated:
(i) Where the award was procured by corruption, fraud, or undue means;
(ii) Where there was evident partiality or corruption in the arbitrators, or either of them;
(iii) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(iv) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
In a recent decision, the Supreme Court of the State of New York took the extraordinary step of vacating an arbitral award. The case, which involved television fees paid by MASN (which is owned by the Baltimore Orioles) to the Washington Nationals and Major League Baseball for the right to be able to broadcast Nationals games on MASN. The fee disputes, which have existed for years, were the subject of an arbitration in 2012. A panel of three arbitrators set the fee at a level that the Orioles and MASN did not like. So they then moved to vacate the award.
The grounds? Evident partiality. The three arbitrators on the panel were MLB owners, whose teams are represented by Proskauer Rose. In the course of the arbitration, the Washington Nationals were also represented by Proskauer Rose. Despite this obvious conflict of interest, the arbitration moved forward, with neither MLB nor the Nationals having taken any steps at all to address MASN’s concern that the arbitrators might have been biased. The court states that “this complete inaction objectively demonstrates an utter lack of concern for fairness of the proceeding that is ‘so inconsistent with basic principles of justice’ that the award must be vacated.” It is a remarkable case of partiality, and the court indeed notes that it cannot cite to a previous case because the “lack of precedent is [due to the fact that] arbitrators in similar situations have disqualified themselves rather than risk a charge of partiality.”
Although vacatur is frequently sought, it is rarely granted. However, there are some cases “where partiality runs without even the semblance of a check.” Thus, the “alternative process created does not warrant – and cannot be given — the great deference that arbitrators, and their awards, are bestowed by courts under the FAA.” In this case, Major League Baseball and the Washington Nationals did not create a process – or, at least, enough checks on that process – to ensure that there was full impartiality. Now, an arbitral award has been vacated and the process will have to start again.