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Arbitration: The Symbiosis of Statute and Contract

Arbitration continues to gain popularity as a dispute resolution method, primarily due to the time and cost savings it offers to parties. While Massachusetts recognizes arbitration as "a creature of contract," the Massachusetts Arbitration Act (G.L. c. 251) (the "MAA") provides the legal framework (1) to compel parties to adhere to agreements to arbitrate; (2) to enforce arbitration awards through the courts; (3) to define the powers of arbitrators; and (4) to vacate arbitration awards under certain circumstances.  

In a recent decision, the Supreme Judicial Court addressed the interplay between the power of parties to agree to arbitrate a dispute and the statutory framework that limits their contractual ability to determine how that dispute will be resolved. "Although arbitration is a matter of contract," parties may not, for example, contractually "modify the scope of judicial review" of an arbitrator's award "that is set out in... the MAA." Katz, Nannis & Solomon, P.C. v. Levine, 473 Mass. 784, 789 (2016). Restricting the grounds for judicial review of arbitration awards through the MAA - as opposed to letting parties modify or create their own - "preserves arbitration as an expeditious and reliable alternative to litigation for commercial purposes." See id. at 794-95.  

In Levine, the Court addressed one of those statutory grounds - that the arbitrator(s) "exceeded their powers" - again showing the symbiosis between the creature of contract and the statute governed by it. "An arbitrator exceeds his or her authority by granting relief that is beyond the scope of the arbitration agreement, beyond that to which the parties bound themselves, or prohibited by law." Id. at 795. The contract that creates the arbitration, in other words, limits the scope of the arbitrator's power to the terms that lay out the matters to be decided and damages available for award. Within those boundaries, however, the arbitrator's rulings on the matters contractually before him or her will not be disturbed by the court unless the limited grounds for judicial review exist. See id. at 795-96 ("Interpreting the agreement is the role of the arbitrator, not this court."). 

As with all contracts, therefore, the adage to "look before you leap" certainly applies to an arbitration agreement - perhaps even to greater effect.

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