The role of substantive law in business arbitration and the importance of volition

American Business Law Journal

Volumn 35, Issue 1, 1997, Pages 105-180

  Levin, Murray S ^a  

^a NONE

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EID: 0041171435     PISSN: 00027766     EISSN: None     Source Type: Journal    
DOI: 10.1111/j.1744-1714.1997.tb01003.x     Document Type: Article

References (371)

1. The primary focus of this article is binding arbitration that occurs through agreement of the disputants, as distinguished from arbitration that is merely advisory in effect or arbitration that is court ordered or statutorily mandated.
2. The American Arbitration Association ("AAA") total arbitration case filings has risen fairly steadily from 36,609 in 1984 to 68,346 in 1996. AAA DISPUTE RESOLUTION TIMES, Summer 1997, at 5. In recent years the AAA has reported rapid growth in the areas of securities, real estate, franchising, computers, employment, banking, patent, trademark, and copyright disputes, and the international case load more than doubled between 1987 and 1993. AAA DISPUTE RESOLUTION TIMES, Spring 1994, at 1. The number of securities industry arbitrations filed with the National Association of Securities Dealers, Inc. ("NASD") has risen even more dramatically from 1,400 in 1985 to 5,631 in 1996 (with a high in 1995 of 6,055). NASD REGULATION THE NEUTRAL CORNER, April 1997, at 11.
3. The American Arbitration Association ("AAA") total arbitration case filings has risen fairly steadily from 36,609 in 1984 to 68,346 in 1996. AAA DISPUTE RESOLUTION TIMES, Summer 1997, at 5. In recent years the AAA has reported rapid growth in the areas of securities, real estate, franchising, computers, employment, banking, patent, trademark, and copyright disputes, and the international case load more than doubled between 1987 and 1993. AAA DISPUTE RESOLUTION TIMES, Spring 1994, at 1. The number of securities industry arbitrations filed with the National Association of Securities Dealers, Inc. ("NASD") has risen even more dramatically from 1,400 in 1985 to 5,631 in 1996 (with a high in 1995 of 6,055). NASD REGULATION THE NEUTRAL CORNER, April 1997, at 11.
4. The American Arbitration Association ("AAA") total arbitration case filings has risen fairly steadily from 36,609 in 1984 to 68,346 in 1996. AAA DISPUTE RESOLUTION TIMES, Summer 1997, at 5. In recent years the AAA has reported rapid growth in the areas of securities, real estate, franchising, computers, employment, banking, patent, trademark, and copyright disputes, and the international case load more than doubled between 1987 and 1993. AAA DISPUTE RESOLUTION TIMES, Spring 1994, at 1. The number of securities industry arbitrations filed with the National Association of Securities Dealers, Inc. ("NASD") has risen even more dramatically from 1,400 in 1985 to 5,631 in 1996 (with a high in 1995 of 6,055). NASD REGULATION THE NEUTRAL CORNER, April 1997, at 11.
5. The U. S. Supreme Court recently laid to rest any questions about the enforceability of arbitration clauses in transactions involving or affecting interstate commerce. See Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265 (1995).
6. See infra notes 101-03 and accompanying text.
7. STEPHEN B. GOLDBERG ET AL., DISPUTE RESOLUTION 4 (2d ed. 1992).
8. See generally Kenneth R. Davis, Due Process Right To Judicial Review Of Arbitral Punitive Damages Awards, 32 AM. BUS. L.J. 583, 588-89 (1995) (comparing arbitration and litigation).
9. Substantive law is defined as "[t]hat part of the law which creates, defines, and regulates rights, as opposed to 'adjective or remedial law,' which prescribes methods of enforcing the rights or obtaining redress for their invasion." BLACK'S LAW DICTIONARY (5th ed. 1979). In the context of arbitration, notions of procedure and substance sometimes coalesce. See infra text accompanying notes 56-61. Other than as briefly treated in these referenced pages, this article does not address the substantive right to arbitrate. Moreover, in this article, unless otherwise indicated, the author intends "substantive law" to be read narrowly. The author desires to distinguish that which he refers to as "substantive law" from all aspects of the law that relate to procedures for enforcement of rights and duties in courts and other forums. The intent is to refer to the rights and duties of people as they act in society (such as the common law of torts or contracts or the non-procedural components of statutory securities, employment discrimination, or antitrust laws) rather than in the process of dispute resolution.
10. The term "commercial arbitration" is used in a fairly broad manner in this article to refer to arbitrations involving businesses (i.e., not just arbitrations between businesses) regarding business related matters. It is not the intent of the author, however, to include in this definition arbitration in the organized labor context. Despite this focus on business arbitration, the article does include occasional references to and discussion of organized labor cases and non-commercial cases as they may be relevant to an understanding of the role of substantive law in arbitration. The broad range of arbitration contexts and the general lack of regard for unique contextual differences complicate the evaluation of arbitration. See infra text accompanying notes 269-72.
11. 9 U.S.C. §§ 1-14 (1996).
12. 7 U.L.A. 5 (1985).
13. The act defines "maritime transactions" as "charter parties, bills of lading of water carriers, agreements relating to wharfage, supplies furnished vessels or repairs of vessels, collisions, or any other matters in foreign commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction." 9 U.S.C. § 1 (1996).
14. To be precise, the act governs any arbitration provision in "a contract evidencing a transaction involving commerce," which is defined as "commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any Territory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation, but nothing contained herein shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." 9 U.S.C. § 1 (1996). "Involving commerce" has been read broadly to mean "affecting" commerce. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995).
15. These states are Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, and Wyoming.
16. A significant attribute of the FAA, the UAA, and the modern arbitration statutes now in effect in other states is that they provide for enforcement of not only agreements to arbitrate existing controversies, but also any controversies arising in the future. This approach has significantly furthered the use of arbitration in commercial contexts. Two exceptions are Alabama and West Virginia, which honor only the agreement to arbitrate existing controversies. ALA. CODE § 6-6-1 (1993); W. VA. CODE §§ 55-10-1 to -8 (1994).
17. 513 U.S. 265 (1995).
18. 9 U.S.C. § 10 (1996). It is further stated that where an award is vacated and the time for making an award has not yet expired, the court has the discretion to direct a rehearing by the arbitrators. Id. at (e). Section 11 further authorizes a federal district court to modify or correct an award in the following circumstances: (a) Where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award. (b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted. (c) Where the award is imperfect in matter of form not affecting the merits of the controversy. The court may modify and correct the award, so as to effect the intent thereof and promote justice between the parties. 9 U.S.C. § 11 (1996).
19. UAA, supra note 10, § 12. Paragraph 4 refers to Section 5, which establishes required hearing procedures regarding the notices, adjournment, postponement, proceeding with the hearing in the absence of a duly notified party, presentation of evidence, cross examination, authority of the panel to proceed if panel members are not unanimous or a panel member ceases to act. Paragraph 5 refers to Section 2, which addresses proceedings to compel or stay arbitration.
20. Id. Section 13 provides for modification or correction of an award on the same grounds as Section 11 of the United States Arbitration Act. See supra note 16.
21. There is some disagreement about whether the statutorily enumerated grounds for vacation under both the FAA and the UAA are exclusive. See infra notes 103 and 160-62.
22. See infra notes 121-28 and accompanying text.
23. For example, the California statute provides: The court shall vacate the award if the court determines that: (a) The award was procured by corruption, fraud or other undue means; (b) There was corruption in any of the arbitrators; (c) The rights of such party were substantially prejudiced by misconduct of a neutral (d) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted; or (e) The rights of such party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title. CAL. CIV. CODE § 1286.2 (West Supp. 1995).
24. N.H. REV. STAT. ANN. § 542:8 (1974).
25. New Hampshire Ins. Co. v. Bell, 427 A.2d 27 (N.H. 1981). In Rand v. Aetna Life & Casualty Co., 571 A.2d 282 (N.H. 1990), the court explained that the error must be "one which is apparent on the face of the record and which would have been corrected had it been called to the arbitrator's attention." In this case the court denied the request to vacate because there was no record and further declined to order the arbitrator to explain his decision, noting that the AAA rules do not require it. See also Masse v. Commercial Union Ins. Co., 593 A.2d 1164 (N.H. 1991) ("[A]rbitrator must have manifestly fallen into such error with regard to facts or law as must have prevented free and fair exercise of his judgment.").
26. CAL. CIV. CODE § 1296 (West 1982).
27. 42 PA. CONS. STAT. ANN. § 7302(d). Pennsylvania adopted the UAA in 1980. Previously 5 P.S. § 171(d) (Arbitration Act of 1927) broadly authorized vacation where the award was against the law so that a court could have granted a judgment notwithstanding the verdict. See, e.g., Utica Mutual Ins. Co. v. Contrisciane, 473 A.2d 1005 (Pa. 1984). Pennsylvania continues to recognize common law arbitration, and in that context an award may be vacated if "it is clearly shown that a party was denied a hearing or that fraud, misconduct, corruption or other irregularity caused the rendition of an unjust, inequitable or unconscionable award." 42 PA. CONS. STAT. ANN. § 7341.
28. N.J. STAT. ANN. §§ 2A:23A-1 to -30 (West 1987 & Supp. 1995).
29. Id. at §§ 2A:23A-12(a), -12 (e), -13(c)(5), -13(e)(4) (West 1987).
30. Id. at § 2A:24. The New Jersey courts, however, have vacillated on whether to recognize error of law as a basis for reversing an arbitration award. See infra notes 134-43 and accompanying text.
31. See, e.g., Medika Int'l, Inc. v. Scanlan Int'l, Inc., 830 F. Supp. 81 (D.P.R. 1993) ("[A]rbitration will take place in St. Paul, Minnesota with the substantive laws of the State of Minnesota applying."); cf. Western Waterproofing Co., Inc. v. Lindenwood Colleges, 662 S.W.2d 288, 291 n.2 (Mo. Ct. App. 1983) ("Arbitrators must follow the law if they are commanded to do so by the terms of the arbitration agreement.").
32. In international contexts, it is more common for parties to identify the law of a particular country. Although in Europe there has been a common practice of empowering arbitrators as amiables compositeurs - that is, without obligation to observe the rules of law but subject to "natural justice" or fundamental principles of commercial practice. See Julian D.M. Lew, New Act/ New Look for English Arbitration, 1 ADR CURRENTS 7 (1996); Karyn S. Weinberg, Equity In International Arbitration: How Fair Is "Fair"? A Study Of Lex Mercatoria And Amiable Composition, 12 B.U. INT'L L.J. 227 (1994). Regarding choice of law in international arbitration see infra note 86.
33. In international contexts, it is more common for parties to identify the law of a particular country. Although in Europe there has been a common practice of empowering arbitrators as amiables compositeurs - that is, without obligation to observe the rules of law but subject to "natural justice" or fundamental principles of commercial practice. See Julian D.M. Lew, New Act/ New Look for English Arbitration, 1 ADR CURRENTS 7 (1996); Karyn S. Weinberg, Equity In International Arbitration: How Fair Is "Fair"? A Study Of Lex Mercatoria And Amiable Composition, 12 B.U. INT'L L.J. 227 (1994). Regarding choice of law in international arbitration see infra note 86.
34. Perini v. Greate Bay Hotel & Casino, Inc., 610 A.2d 364, 389 (N.J. 1992) (Wilentz, C.J., concurring) ("[P]arties practically never express any intention whatsoever on this subject in their arbitration agreements, their true intent being that the arbitrators will decide what is just and equitable without regard to any state law, it is rare that there is any 'agreement to the contrary,' indeed, rare that there is any agreement at all that mentions state law.").
35. Cabus v. Dairyland Ins. Co., 656 P.2d 54, 56 (Colo. Ct. App. 1982). See also University of Ala. v. Modern Const., Inc., 522 P.2d 1132, 1140 (Ala. 1974) ("The general rule in both statutory and common-law arbitration is that arbitrators need not follow otherwise applicable law when deciding issues before them unless they are commanded to do so by the terms of the arbitration agreement."); Lentine v. Fundaro, 278 N.E.2d 633, 635 (N.Y. 1972) ("Absent provision to the contrary in the arbitration agreement, arbitrators are not bound by principles of substantive law.").
36. AMERICAN ARBITRATION ASSOCIATION, DRAFTING DISPUTE RESOLUTION CLAUSES: A PRACTICAL GUIDE 2 (1992) (hereinafter "DRAFTING CLAUSES").
37. AMERICAN ARBITRATION ASSOCIATION, DRAFTING DISPUTE RESOLUTION CLAUSES: A PRACTICAL GUIDE 2 (1992) (hereinafter "DRAFTING CLAUSES").
38. Id. The suggested clause for the arbitration of existing disputes is similarly silent regarding the role of law: We, the undersigned parties, hereby agree to submit to arbitration under the [applicable] Rules of the American Arbitration Association the following controversy [cite briefly]. We further agree that we will faithfully observe this agreement and the rules, and that we will abide by and perform any award rendered by the arbitrator(s) and that a judgment of the court having jurisdiction may be entered upon the award. Id. The AAA pamphlet A Guide For Commercial Arbitrators is also silent regarding the role of substantive law in arbitration. This pamphlet states under the heading "What It Takes To Be a Good Arbitrator" that "[t]he arbitrator should be a person of integrity, sound judgment, and specialized knowledge" and "must be able to decide cases in accordance with the contractual agreement of the parties and the applicable rules of procedures." AMERICAN ARBITRATION ASSOCIATION, A GUIDE FOR COMMERCIAL ARBITRATORS at 2 (April 1991) [hereinafter AAA Arbitrator's Guide]. The pamphlet explains that the "arbitrator's authority is created by the contract, subject to applicable arbitration law" but that "the parties breathe life into the arbitrator." Id. at 4.
39. Id. The suggested clause for the arbitration of existing disputes is similarly silent regarding the role of law: We, the undersigned parties, hereby agree to submit to arbitration under the [applicable] Rules of the American Arbitration Association the following controversy [cite briefly]. We further agree that we will faithfully observe this agreement and the rules, and that we will abide by and perform any award rendered by the arbitrator(s) and that a judgment of the court having jurisdiction may be entered upon the award. Id. The AAA pamphlet A Guide For Commercial Arbitrators is also silent regarding the role of substantive law in arbitration. This pamphlet states under the heading "What It Takes To Be a Good Arbitrator" that "[t]he arbitrator should be a person of integrity, sound judgment, and specialized knowledge" and "must be able to decide cases in accordance with the contractual agreement of the parties and the applicable rules of procedures." AMERICAN ARBITRATION ASSOCIATION, A GUIDE FOR COMMERCIAL ARBITRATORS at 2 (April 1991) [hereinafter AAA Arbitrator's Guide]. The pamphlet explains that the "arbitrator's authority is created by the contract, subject to applicable arbitration law" but that "the parties breathe life into the arbitrator." Id. at 4.
40. See ROBERT COULSON, BUSINESS ARBITRATION - WHAT YOU NEED TO KNOW 33-40, 60-68, 84-92, 106-18, and 133-36 (rev. 3d ed. 1987).
41. See also CODE OF ETHICS FOR ARBITRATORS IN COMMERCIAL DISPUTES. The AAA and the American Bar Association, together, have set forth generally accepted standards of ethical conduct for the guidance of arbitrators and parties in commercial disputes. Canon V of this Code of Ethics prescribes that an arbitrator should "make decisions in a just, independent and deliberate manner," elaborating that "[a]n arbitrator should decide all matters justly, exercising independent judgment, and should not permit outside pressure to affect the decision." CODE OF ETHICS FOR ARBITRATORS IN COMMERCIAL DISPUTES (1977).
42. See also CODE OF ETHICS FOR ARBITRATORS IN COMMERCIAL DISPUTES. The AAA and the American Bar Association, together, have set forth generally accepted standards of ethical conduct for the guidance of arbitrators and parties in commercial disputes. Canon V of this Code of Ethics prescribes that an arbitrator should "make decisions in a just, independent and deliberate manner," elaborating that "[a]n arbitrator should decide all matters justly, exercising independent judgment, and should not permit outside pressure to affect the decision." CODE OF ETHICS FOR ARBITRATORS IN COMMERCIAL DISPUTES (1977).
43. COMMERCIAL ARBITRATION RULES OF THE AAA, Rule 43 (1996).
44. E.g., CONSTRUCTION INDUSTRY ARBITRATION RULES, Rule 43 (1996); ARBITRATION RULES OF THE GENERAL ARBITRATION COUNCIL OF THE TEXTILE AND APPAREL INDUSTRIES, Rule 36 (1996).
45. E.g., CONSTRUCTION INDUSTRY ARBITRATION RULES, Rule 43 (1996); ARBITRATION RULES OF THE GENERAL ARBITRATION COUNCIL OF THE TEXTILE AND APPAREL INDUSTRIES, Rule 36 (1996).
46. Other organizations active in arbitration similarly emphasize this equitable, extra-legal approach to fashioning a remedy in arbitration. For example, the Securities Industry Conference on Arbitration commences its publication "The Arbitrator's Manual" with the following statement: Equity is justice in that it goes beyond the written law. And it is equitable to prefer arbitration to the law court, for the arbitrator keeps equity in view, whereas the judge looks only to the law, and the reason why arbitrators were appointed was that equity might prevail. SECURITIES INDUSTRY CONFERENCE ON ARBITRATION, THE ARBITRATOR'S MANUAL i (1992).
47. Other organizations active in arbitration similarly emphasize this equitable, extra-legal approach to fashioning a remedy in arbitration. For example, the Securities Industry Conference on Arbitration commences its publication "The Arbitrator's Manual" with the following statement: Equity is justice in that it goes beyond the written law. And it is equitable to prefer arbitration to the law court, for the arbitrator keeps equity in view, whereas the judge looks only to the law, and the reason why arbitrators were appointed was that equity might prevail. SECURITIES INDUSTRY CONFERENCE ON ARBITRATION, THE ARBITRATOR'S MANUAL i (1992).
48. DRAFTING CLAUSES, supra note 33.
49. Id. at 5.
50. Id. at 9.
51. Id. This example reads: "In rendering the award, the arbitrator shall determine the rights and obligations of the parties according to the substantive and procedural law of [state]."
52. Id. These examples are provided: " . . . shall be resolved by arbitration in accordance with Title 9 of the U. S. Code (United States Arbitration Act) and the Commercial Arbitration Rules of the American Arbitration Association." "This contract shall be governed by the laws of the state of [specify]." ". . . shall be settled by arbitration in accordance with [state] Arbitration Law and under the [applicable] Rules of the American Arbitration Association." "The parties acknowledge that this agreement evidences a transaction involving interstate commerce. The United States Arbitration Act shall govern the interpretation, enforcement, and proceedings pursuant to the arbitration clause in this contract." See infra notes 55-86 and accompanying text regarding the interpretation and effect of such language.
53. Id. at 26.
54. COULSON, supra note 35.
55. Id. at 16.
56. Id. at 28-29. See also AAA ARBITRATOR'S GUIDE, supra note 34, at 2 ("Under prevailing arbitration laws, courts will not review awards (arbitrators' decisions) on their merits. This has long been a settled principle in the relationship between arbitration and the law.").
57. Other organizations involved in promoting and administering arbitration have taken a different stance on this aspect of arbitration. For example, the Rules of Arbitration of the Council of Better Business Bureaus, Inc. ("BBB") require the arbitrator to provide the disputants with a written decision, including a thorough explanation of the arbitrator's reasoning. In establishing this rule, the BBB was initially responding to Federal Trade Commission and state "lemon law" requirements for automobile warranty disputes. Now, they emphasize that this process promotes sound decision-making. See Rich Woods, Why Write Reasons?, BBB SOLUTIONS, July 1993, at 3. The Center For Public Resources, another advocate for business use of ADR mechanisms, also requires arbitrator decisions to include the basis for an award. CPR RULES AND COMMENTARY FOR NON-ADMINISTERED ARBITRATION OF BUSINESS DISPUTES, Rule 13.2 (1989). Also, in the field of labor arbitration it is customary for arbitrators to include a written explanation of the decision. The AAA has opted for written opinions in its new National Rules for the Resolution of Employment Disputes, sec. 32 (b) (effective June 1, 1996).
58. Other organizations involved in promoting and administering arbitration have taken a different stance on this aspect of arbitration. For example, the Rules of Arbitration of the Council of Better Business Bureaus, Inc. ("BBB") require the arbitrator to provide the disputants with a written decision, including a thorough explanation of the arbitrator's reasoning. In establishing this rule, the BBB was initially responding to Federal Trade Commission and state "lemon law" requirements for automobile warranty disputes. Now, they emphasize that this process promotes sound decision-making. See Rich Woods, Why Write Reasons?, BBB SOLUTIONS, July 1993, at 3. The Center For Public Resources, another advocate for business use of ADR mechanisms, also requires arbitrator decisions to include the basis for an award. CPR RULES AND COMMENTARY FOR NON-ADMINISTERED ARBITRATION OF BUSINESS DISPUTES, Rule 13.2 (1989). Also, in the field of labor arbitration it is customary for arbitrators to include a written explanation of the decision. The AAA has opted for written opinions in its new National Rules for the Resolution of Employment Disputes, sec. 32 (b) (effective June 1, 1996).
59. COULSON, supra note 35, at 29.
60. Id. at 31. See also AAA ARBITRATOR'S GUIDE, supra note 34, at 24 (advocating brevity as a means of avoiding a challenge to the award by the losing party; noting further that in situations where an arbitrator feels it necessary to write an opinion, it should be contained in a separate document). Cf. Rand v. Aetna Life & Casualty Co., 571 A.2d 282, 284 (N.H. 1990) (denying vacation in the absence of a record, stating that error must be "one which is apparent on the face of the record"). There is disagreement regarding whether a court should remand a case to an arbitrator for an explanation or clarification of the reasoning. Some courts have remanded "ambiguous awards" or expressed favor with the approach. E.g., Olympia & York Fla. Equity Corp. v. Gould, 776 F.2d 42, 45-46 (2d Cir. 1985); Sargent v. Paine Webber, Jackson & Curtis, 674 F. Supp. 920, 924 (D.D.C. 1987). See also Ainsworth v. Skurnick, infra note 201. Unless there is some confusion apparent on the face of the award, the tendency seems to be to adopt a passive, deferential approach - if some plausible explanation can exist, no more need be said. E.g., Robbins v. Day, 954 F.2d 679, 684-85 (11th Cir. 1992); Siegal v. Titan Indus. Corp., 779 F.2d 891, 894 (2d Cir. 1985). In Perini Corp. v. Greate Bay Hotel & Casino, Inc., 610 A.2d 364, 392 (N.J. 1992), the New Jersey Supreme Court expressed disdain for the absence of arbitrator explanation with the following comment: In this case after four years and sixty-four days, the arbitrators simply awarded $14 million to Sands without any explanation whatsoever other than a finding that Perini had 'failed to properly perform its obligations as construction manager pursuant to the contract * * *.' There are no reasons, no findings of fact, no conclusions of law, nothing other than the foregoing. For all we know, the arbitrators concluded that the sun rises in the west, the earth is flat, and damages have nothing to do with the intentions of the parties or the foreseeability of the consequences of a breach. See infra notes 134-40 and accompanying text for discussion of the Perini case.
61. COULSON, supra note 35, at 31.
62. See infra notes 101-02.
63. Soia Mentschikoff, Commercial Arbitration, 61 COLUM. L. REV. 846, 861 (1961). Cf. Harry T. Edwards, Arbitration of Employment Discrimination Cases: An Empirical Study, PROC. OF THE 28TH ANN. MEETING OF THE NAT'L ACAD. OF ARB. 59, 71-72 (1976) (reporting that at least 16 percent of arbitrators have never read any judicial opinions involving Title VII of the Civil Rights Act, and 40 percent do not read advance sheets to keep abreast of Title VII developments; nevertheless, 50 percent of this group who do not monitor Title VII developments feel professionally competent to decide legal issues of employment discrimination).
64. Soia Mentschikoff, Commercial Arbitration, 61 COLUM. L. REV. 846, 861 (1961). Cf. Harry T. Edwards, Arbitration of Employment Discrimination Cases: An Empirical Study, PROC. OF THE 28TH ANN. MEETING OF THE NAT'L ACAD. OF ARB. 59, 71-72 (1976) (reporting that at least 16 percent of arbitrators have never read any judicial opinions involving Title VII of the Civil Rights Act, and 40 percent do not read advance sheets to keep abreast of Title VII developments; nevertheless, 50 percent of this group who do not monitor Title VII developments feel professionally competent to decide legal issues of employment discrimination).
65. See, e.g., In re Arbitration Between U.S. Turnkey Exploration, Inc. and PSI, Inc., 577 So.2d 1131, 1132-33 (La. Ct. App. 1991) where the court evaluated the conduct of the arbitrators in reference to the following clause: Any dispute, claims or controversies connected with, arising out of or related to this Contract, or the breach thereof, shall be settled by Arbitration to be conducted in accordance with the Rules of Arbitration of the American Arbitration Association. . . . The place of Arbitration shall be Lake Charles, Louisiana. All questions arising out of this Contract or its validity, interpretation, performance or breach shall be governed by the laws of the State of Louisiana.
66. The law of remedies is technically separate from either procedural or substantive law. See DAN B. DOBBS, LAW OF REMEDIES: DAMAGES-EQUITY-RESTITUTION 1-2 (2d ed. abr. 1993).
67. E.g., Federal Deposit Ins. Corp. v. Peterson, 770 F.2d 141, 142-43 (10th Cir. 1985). See EUGENE S. SCOLES & PETER HAY, CONFLICT OF LAWS 659 (2d ed. 1992).
68. See DOBBS, supra note 56, at 22-23. There is surprisingly little authority, however, on the effect of a choice-of-law clause on the law of remedies. In Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 60 n.3 (1993), the Supreme Court declined to address whether there is a meaningful distinction between "substance" and "remedy."
69. E.g., Moses H. Cone Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983) (noting that the FAA created "a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate.").
70. DAN B. DOBBS, LAW OF REMEDIES: DAMAGES-EQUITY-RESTITUTION 503 (2d ed. 1993).
71. Id.
72. See infra notes 63-86 and accompanying text.
73. 489 U.S. 468 (1989).
74. Id. at 477.
75. Id. at 476-77.
76. 514 U.S. 52 (1995).
77. Garrity v. Lyle Stuart, Inc., 353 N.E.2d 793 (N.Y. 1976). Some New York federal district court judges have begun to take issue with Garrity. See Prudential v. Laurita, 1997 U.S. Dist. LEXIS 2654 (S.D.N.Y. 1997); Paine Webber, Inc. v. Richardson, 1995 WL 236722 (S.D.N.Y. 1995).
78. Respondents did not challenge the panel's award of compensatory damages in the amount of $159,327. 514 U.S. at 54.
79. 20 F.3d 713 (7th Cir. 1994).
80. Volt, 489 U.S. at 479; see Mastrobuono, 514 U.S. at 57-8.
81. Volt, 489 U.S. at 479; see Mastrobuono, 514 U.S. at 57-8.
82. 72 514 U.S. at 59 (quoting from App. to Pet. for Cert. 44).
83. Id. at 61 (quoting from NASD Code of Arbitration Procedure P3741(e) (1993)).
84. Id.
85. Id. This conclusion seems quite a stretch. See id. at 65-72 (Thomas, J., dissenting).
86. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983) (holding that "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability").
87. 514 U.S. at 63.
88. See infra notes 315-18 and accompanying text.
89. See infra notes 307-13 and accompanying text.
90. 514 U.S. at 63-64. A few other courts have made similar expressions. See, e.g., J. Alexander Sec., Inc. v. Mendez, 21 Cal. Rptr. 2d 826, 830 (Cal. Ct. App. 1993) (acknowledging New York choice-of-law provision that designated the substantive law that the arbitrators must apply in determining whether punitive damages are warranted, but did not deprive the arbitrators of authority to award punitive damages); Osteen v. T.E. Cuttino Constr. Co., 434 S.E.2d 281 (S.C. 1993) (holding that choice of law clause did not cause the South Carolina Arbitration Act to supersede countervailing provisions of the FAA; what the parties intended by including the choice-of-law provision was to designate the substantive law that the arbitrators were to apply in resolving conflicts arising under the parties' construction contract); cf. Snowberger v. Young, 536 P.2d 1069 (Ariz. Ct. App. 1975) (rejecting argument that statement that arbitration be "in accordance with the rules then in effect of the American Arbitration Association, to the extent consistent with the laws of the State of Arizona" called for application of Arizona substantive law).
91. See, e.g., McCain Foods, Ltd. v. Puerto Rico Supplies, Inc., 766 F. Supp. 58, 59 (D.P.R. 1991); Flight Sys. v. Paul A. Laurence Co., 715 F. Supp. 1125, 1127 (D.D.C. 1989).
92. E.g., Volt Info. Sciences, Inc. v. Board of Trustees, 489 U.S. 468, 476-77 (1989); Madison Beauty Supply, Ltd. v. Helene Curtis, Inc., 481 N.W.2d 644, 645 (Wis. Ct. App. 1992) (looking to Wisconsin law to determine the procedure for enforcing the arbitration agreement even though agreement provided that it "be construed in accordance with the law of the state of Illinois").
93. See supra note 68 and accompanying text. See also Pinnacle Group, Inc. v. Shrader, 412 S.E.2d 117 (N.C. Ct. App. 1992) (holding that reference to New York law in arbitration agreement is substantive and entitles party to award of attorneys' fees, despite North Carolina law, under which arbitrators cannot award attorneys' fees).
94. See infra notes 101-03 and accompanying text.
95. See infra notes 101-03 and 143-215 and accompanying text.
96. One leading treatise on arbitration posits that in order to establish an obligation on the part of the arbitrators to apply the law in resolving a dispute there must be an express reference to substantive law. GABRIEL M. WILNER, DOMKE ON COMMERCIAL ARBITRATION § 25.03 (Rev. ed. 1991). But see Faherty v. Faherty, 477 A.2d 1257 (N.J. 1984) (vacating an arbitral award under the "exceeded their powers" section of the arbitration statute where there was an agreement that New Jersey law would govern the resolution of disputes). In the international arbitration context, there have been more systematic endeavors to clarify the effect of contractually designating a nation's law. The Model Law on International Commercial Arbitration, which was adopted by the United Nations Commission on International Trade Law, directs that "[a]ny designation of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of law rules." UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION, Art. 28, par. 1 (June 21, 1985). Furthermore it rejects the amiable compositeur approach unless the parties expressly authorize it. Id. at Art. 28, par. 3. But it does place an overriding emphasis on usages of trade, Id. at Art. 28, par. 4, and it does not provide for vacation based on error of law. Similarly, the International Arbitration Rules of the AAA provide that "[t]he tribunal shall apply the substantive law(s) . . . designated by the parties as applicable to the dispute. Failing such a designation by the parties, the tribunal shall apply such law(s) . . . as it determines to be appropriate." INTERNATIONAL ARBITRATION RULES OF THE AAA, Art. 28(1) (1997) These rules further direct the arbitrator(s) to take into account usages of trade in arbitrations involving application of contracts. Id. at Art. 28(2). And these rules clarify that "[t]he tribunal shall not decide as amiable compositeur or ex aequo et bono unless the parties have expressly authorized it to do so." Id. at Art. 28(3).
97. One leading treatise on arbitration posits that in order to establish an obligation on the part of the arbitrators to apply the law in resolving a dispute there must be an express reference to substantive law. GABRIEL M. WILNER, DOMKE ON COMMERCIAL ARBITRATION § 25.03 (Rev. ed. 1991). But see Faherty v. Faherty, 477 A.2d 1257 (N.J. 1984) (vacating an arbitral award under the "exceeded their powers" section of the arbitration statute where there was an agreement that New Jersey law would govern the resolution of disputes). In the international arbitration context, there have been more systematic endeavors to clarify the effect of contractually designating a nation's law. The Model Law on International Commercial Arbitration, which was adopted by the United Nations Commission on International Trade Law, directs that "[a]ny designation of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of law rules." UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION, Art. 28, par. 1 (June 21, 1985). Furthermore it rejects the amiable compositeur approach unless the parties expressly authorize it. Id. at Art. 28, par. 3. But it does place an overriding emphasis on usages of trade, Id. at Art. 28, par. 4, and it does not provide for vacation based on error of law. Similarly, the International Arbitration Rules of the AAA provide that "[t]he tribunal shall apply the substantive law(s) . . . designated by the parties as applicable to the dispute. Failing such a designation by the parties, the tribunal shall apply such law(s) . . . as it determines to be appropriate." INTERNATIONAL ARBITRATION RULES OF THE AAA, Art. 28(1) (1997) These rules further direct the arbitrator(s) to take into account usages of trade in arbitrations involving application of contracts. Id. at Art. 28(2). And these rules clarify that "[t]he tribunal shall not decide as amiable compositeur or ex aequo et bono unless the parties have expressly authorized it to do so." Id. at Art. 28(3).
98. One leading treatise on arbitration posits that in order to establish an obligation on the part of the arbitrators to apply the law in resolving a dispute there must be an express reference to substantive law. GABRIEL M. WILNER, DOMKE ON COMMERCIAL ARBITRATION § 25.03 (Rev. ed. 1991). But see Faherty v. Faherty, 477 A.2d 1257 (N.J. 1984) (vacating an arbitral award under the "exceeded their powers" section of the arbitration statute where there was an agreement that New Jersey law would govern the resolution of disputes). In the international arbitration context, there have been more systematic endeavors to clarify the effect of contractually designating a nation's law. The Model Law on International Commercial Arbitration, which was adopted by the United Nations Commission on International Trade Law, directs that "[a]ny designation of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of law rules." UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION, Art. 28, par. 1 (June 21, 1985). Furthermore it rejects the amiable compositeur approach unless the parties expressly authorize it. Id. at Art. 28, par. 3. But it does place an overriding emphasis on usages of trade, Id. at Art. 28, par. 4, and it does not provide for vacation based on error of law. Similarly, the International Arbitration Rules of the AAA provide that "[t]he tribunal shall apply the substantive law(s) . . . designated by the parties as applicable to the dispute. Failing such a designation by the parties, the tribunal shall apply such law(s) . . . as it determines to be appropriate." INTERNATIONAL ARBITRATION RULES OF THE AAA, Art. 28(1) (1997) These rules further direct the arbitrator(s) to take into account usages of trade in arbitrations involving application of contracts. Id. at Art. 28(2). And these rules clarify that "[t]he tribunal shall not decide as amiable compositeur or ex aequo et bono unless the parties have expressly authorized it to do so." Id. at Art. 28(3).
99. See supra text accompanying notes 39-54.
100. School City v. East Chicago Fed'n of Teachers, Local 511, 422 N.E.2d 656, 662 (Ind. Ct. App. 1981).
101. Fukaya Trading Co., S.A. v. Eastern Marine Corp., 322 F. Supp. 278 (D. La. 1971).
102. Id. at 284.
103. E.g., Moncharsh v. Heily & Blase, 832 P.2d 899, 904 (Cal. 1994); Muldrow v. Norris, 2 Cal. 74, 77 (1852).
104. 212 P.2d 233 (Cal. 1949).
105. Id. at 239.
106. Silverman v. Benmor Coats, Inc., 461 N.E.2d 1261, 1266 (N.Y. 1984).
107. David Co. v. Jim W. Miller Const., Inc., 428 N.W.2d 590, 594 (Minn. Ct. App. 1988), aff'd, 444 N.W.2d 836 (Minn. 1989).
108. Israel Discount Bank Ltd. v. Rosen, 565 N.Y.S.2d 29, 30 (N.Y. App. Div. 1991); Exercycle v. Marotta, 174 N.E.2d 463, 466 (N.Y. 1961).
109. 389 N.E.2d 456 (N.Y. 1979).
110. Id. at 458. See also Lentine v. Fundaro, 278 N.E.2d 633, 636 (N.Y. 1972) ("In the absence of provisions to the contrary in the arbitration agreement, arbitrators are not bound by principles of substantive law or rules of evidence.").
111. No. 92 Civ. 2269, 1993 U.S. Dist. LEXIS 4839 (S.D.N.Y. April 14, 1993).
112. Id. at *17.
113. E.g., Department of Pub. Safety v. Public Safety Employees Ass'n, 732 P.2d 1090, 1097 (Ala. 1987) (holding that public policy necessitates very limited review); City of Middletown v. Police Local, No. 1361, 445 A.2d 322, 323-24 (Conn. 1982) (favoring arbitration as a means of settling private disputes, courts undertake judicial review of arbitration awards in a manner designed to minimize interference with an efficient and economical system of alternative dispute resolution).
114. E.g., Burchell v. Marsh, 58 U.S. 344, 349 (1854); Northrop Corp. v. Traid Int'l Marketing S.A., 811 F.2d 1265, 1269 (9th Cir. 1987); Moncharsh v. Heily & Blase, 832 P.2d 899 900 (Cal. 1992); Cabus v. Dairyland Ins. Co., 656 P.2d 54 (Colo. Ct. App. 1982); Bodner v. United States Auto Ass'n, 610 A.2d 1212, 1223 (Conn. 1992); Keyes Co. v. Ogee, 590 So.2d 954 955 (Fla. Dist. Ct. App. 1991); Arbitration of Bd. of Directors of Ass'n of Apartment Owners of Tropicana Manor, 830 P.2d 503, 511 (Haw. 1992); Iowa City Community Sch. Dist. v. Iowa City Educ. Ass'n, 343 N.W.2d 139 (Iowa 1983); Jackson Trak Group Inc. v. Mid States Port Auth., 751 P.2d 122, 127 (Kan. 1988); Concerned Minority Educators of Worcester v. School Comm. of Worcester, 466 N.E.2d 114, 116 (Mass. 1984); Koranda v. Austin Mut. Ins. Co., 397 N.W.2d 357, 360 (Minn. Ct. App. 1986); David A. Brooks Enters Inc. v. First Systems Agencies, 370 N.W.2d 434, 436 (Minn. Ct. App. 1985); Western Waterproofing Co. v. Lindenwood Colleges, 662 S.W.2d 288 (Mo. Ct. App. 1983); Silverman v. Benmor Coats, Inc., 461 N.E.2d 1261, 1266 (N.Y. 1984); Crutchley v. Crutchley 293 S.E.2d 793, 797 (N.C. 1982); Harold Schnitzer Properties v. Tradewell Group, Inc., 799 P.2d 180, 183 (Or. Ct. App. 1990); Batten v. Howell, 389 S.E.2d 170, 171-72 (S.C. Ct. App. 1990). Courts have expressed the same view regarding errors of fact. E.g., Air Line Pilots Assn Int'l v. Aviation Assocs., Inc., 955 F.2d 90, 93 (1st Cir. 1992); Garver v. Ferguson, 389 N.E.2d 1181, 1183 (Ill. 1979); Cape Elizabeth Sch. Bd. v. Cape Elizabeth Teachers Ass'n, 459 A.2d 166, 174 (Me. 1983); House Grain Co. v. Obst, 659 S.W.2d 903, 905-06 (Tex. Ct. App. 1983).
115. See, e.g., Moseliey, Hallgarten, Estabrook & Weeded, Inc. v. Ellis, 849 F.2d 264 (7th Cir. 1988); Verdex Steel and Const. Co. v. Board of Supervisors, 509 P.2d 240 (Ariz. Ct. App 1973); Schnurmacher Holding, Inc. v. Noriega, 542 So.2d 1327, 1328-29 (Fla. 1989); Bingham County Comm'n v. Interstate Elec. Co., 665 P.2d 1046 (Idaho 1983); Konicki v. Oak Brook Racquet Club, Inc., 441 N.E.2d 1333 (Ill. 1982); In re Estate of Sandefur v. Greenway 898 S.W.2d 667, 670 (Mo. Ct. App. 1995); New Shy Clown v. Baldwin, 737 P.2d 524 (Nev 1987); Cyclone Roofing Co. v. LaFave Co., 321 S.E.2d 872 (N.C. 1984); Beck Suppliers, Inc. v. Dean Witter Reynolds, Inc., 558 N.E.2d 1187 (Ohio Ct. App. 1988); Aamot v. Eneboe 352 N.W.2d 647 (S.D. 1984); Utility Trailer Sales v. Fake, 740 P.2d 1327 (Utah 1987); Westmark Properties Inc. v. McGuire, 766 P.2d 1146 (Wash. Ct. App. 1989). But see Texas West Oil & Gas Corp. v. Fitzgerald, 726 P.2d 1056, 1061-62 (Wyo. 1986) (finding statutory grounds to vacate an arbitration award not exclusive). Courts in some non-UAA states have similarly found the statutory grounds to be exclusive. E.g., Moncharsh v. Heily & Blase, 832 P.2d 899 (Cal. 1992); Morrison-Knudson v. Makahuena, 675 P.2d 760 (Haw. 1983); City of Sulphur v. Southern Builders, 579 So.2d 1207 (La. Ct. App. 1991). Some courts, however, have identified certain of the standard statutory grounds with error of law. See infra notes 121-27 and accompanying text.
116. See infra notes 105-12 and 117-26 and accompanying text. See supra notes 22-28 and accompanying text for discussion of the limited statutory authority for judicial review based on error of law.
117. E.g., Price v. State Farm Mut. Ins. Co., 458 N.Y.S.2d 315, 316-17 (N.Y. App. Div. 1983) (holding that regarding compulsory arbitration insurance law, award can be vacated if decision is based on inapplicable law). Cf. City of New Haven v. AFSCME, Council 15, Local 530, 544 A.2d 186, 189 (Conn. 1988) (holding that where parties mutually agree to arbitration, award is not reviewable for errors of law or fact).
118. See, e.g., Alaska v. Public Safety Employees Ass'n, 798 P.2d 1281, 1287 (Ala. 1990) (holding that, as a matter of common law, the "arbitrary and capricious" standard of judicial review applies in compulsory arbitration cases); Robert Matzkin Co. v. Pedersen Assocs., Inc., 457 N.Y.S.2d 365, 366 (N.Y. Sup. Ct. 1982) (recognizing civil court rule [N.Y.Ct. Rules, sec. 28.7] providing arbitration award may be vacated upon showing of "good cause" for mandatory arbitration of dispute where amount in controversy is $6,000 or less); Diversified Realty, Inc. v. McElroy, 703 P.2d 323, 325 (Wash. Ct. App. 1985) (holding that Washington Supreme Court Rules require de novo review of mandatory arbitration cases).
119. A major purpose of the FAA and UAA was to change the common law rule that an executory agreement to arbitrate was unenforceable. See Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987); Bunge Corp. v. Perryville Feed & Produce, Inc. 685 S.W.2d 837, 838-39 (Mo. 1985).
120. See, e.g., County Mut. Ins. Co. v. National Bank, 248 N.E.2d 299, 302 (Ill. Ct. App. 1969) (discussing that at common law awards were reviewable for "gross errors of fact or law, a plain mistake of law if the submission agreement required the arbitrator to determine the rights of the parties according to law, and a mistake of law if the award showed on its face that the arbitrator intended to decide according to the law but mistook or misconstrued it"). See also Board of Educ. of Prince George's County v. Prince George's County Educators' Ass'n, Inc., 522 A.2d 931, 941 (Md. 1987) (holding that common law review criteria included mistake so gross as to work manifest injustice).
121. Common law arbitration may come into play when arbitration statutes exempt or do not cover certain kinds of disputes or agreements. E.g., Anderson v. Federated Mut. Ins. Co., 481 N.W.2d 48 (Minn. 1992) (holding that the UAA as adopted in Minnesota does not supersede common law arbitration).
122. E.g., Hall v. Amica Mut. Ins. Co., 648 A.2d 755, 757 (Pa. 1994).
123. Carpenter v. North River Ins. Co., 436 S.W.2d 549, 553 (Tx. Ct. Civ. App. 1968).
124. See, e.g., McElroy v. Waller, 731 S.W.2d 789, 791 (Ark. Ct. App. 1987) ("Unless the illegality of the decision appears on the face of the award, courts will not interfere merely because the arbitrators have mistaken the law, or decided contrary to the rules of established practice as observed by courts of law and equity."); Edward Elec. Co. v. Automation, Inc., 593 N.E.2d 833, 839 (Ill. Ct. App. 1992) (reversing trial court vacation and cautioning that this exception is severely limited: the mistake must appear "on the face of the award (and not in the arbitrator's opinion)"); Board of Educ. v. Prince George's County Educators' Ass'n, Inc., 522 A.2d 931, 941 (Md. 1987); Gordon Sel-way, Inc. v. Spence Bros. Inc., 440 N.W.2d 907, 912 aff'd in part, rev'd in part, 475 N.W.2d 704 (Mich. Ct. App. 1989); Kennewick Educ. Ass'n v. Kennewick Sch. Dist. No. 17, 666 P.2d 928, 930 (Wash. App. 1983).
125. See supra note 49-51 and accompanying text.
126. Edward Elec. Co. v. Automation, Inc., 593 N.E.2d 833, 839 (Ill. App. Ct. 1992).
127. E.g., Humphreys v. Joe Johnston Law Firm, 491 N.W.2d 513, 515 (Iowa 1992) (quoting from Burchell v. Marsh, 58 U.S. 344, 349 (1855), "[A]rbitrators are judges chosen by the parties to decide the matters submitted to them, finally and without appeal. . . . If the award is within the submission, and contains the honest decision of the arbitrators, after a full and fair hearing of the parties, a court of equity will not set it aside for error, either in law or fact. A contrary course would be a substitution of the judgment of the chancellor in place of the judges chosen by the parties, and would make an award the commencement, not the end, of litigation.").
128. WILNER, supra note 86, § 33.04.
129. 809 S.W.2d 699 (Ky. 1991)
130. Id. at 701.
131. Id. at 701-702 (indicating that despite the general rule that vacations should not be based on error of law, "the courts will act in a proper case" and an "award may be so grossly inadequate or excessive as to be in effect a fraud and subject to vacation by a court although no actual fraud is claimed") (quoting from 5 AM. JUR. 2D Arbitration and Award § 167 (1962) and Second Soc'y of Universalists v. Royal Ins. Co., 109 N.E. 384 (Mass. 1915)).
132. Id. at 703. The Kentucky justices were divided in their reasoning and conclusion. In a concurring opinion, Justice Combs confidently supported the judicial intervention. He expressed an extreme view that the arbitration statute usurped the state constitutional judicial power over questions of law - matters of law should always rest with the judiciary. Id. In dissent, Justice Leibson chided his fellow jurists for ignoring the standard that both parties agreed upon in presenting the case to arbitration: [Kodak] insisted on its right to arbitrate and got it; it should now be prepared to accept the results absent proof of some illegality amounting to a fraud . . . . We should keep a clear line of demarcation between the standard for reviewing the decision of a lower court and an agreed arbitration. By failing to abide by the difference, the Majority Opinion strikes at the heart of the process of arbitration. Id. at 704.
133. E.g., 9 U.S.C. § 10(d) and UAA § 12(3). See supra text accompanying notes 16 and 17.
134. E.g., Chicago Typographical Union No. 16 v. Chicago Sun-Times, Inc., 935 F.2d 1501 (7th Cir. 1991); Smitty's Super-Valu, Inc. v. Pasqualetti, 525 P.2d 309 (Ariz. Ct. App. 1974); Moncharsh v. Heily & Blase, 832 P.2d 899 (Cal. 1992); Freeport Constr. Co. v. Star Forge, Inc., 378 N.E.2d 558 (Ill. App. Ct. 1978); Western Waterproofing Co. v. Lindenwood Colleges, 662 S.W.2d 288 (Mo. Ct. App. 1983); Grudem Bros. Co. v. Great Western Piping Corp., 213 N.W.2d 920 (Minn. 1973); Northwestern Sec. Ins. Co. v. Clark, 448 P.2d 39 (Nev. 1968); Carolina Va. Fashion Exhibitors, Inc. v. Gunter, 255 S.E.2d 414 (N.C. Ct. App. 1979); Brewer v. Allstate Ins. Co., 436 P.2d 547, 548-49 (Or. 1968); Batten v. Howell, 389 S.E.2d 170, 172 (S.C. Ct. App. 1990). See generally, Andrew D. Campbell, Annotation: Construction and Application of § 10(a)(4) of Federal Arbitration Act (9 USCS § 10(a)(4)) Providing for Vacation of Arbitration Awards Where Arbitrators Exceed or Imperfectly Execute Powers, 136 A.L.R. Fed. 183 (1997).
135. E.g., In re Arbitration Between Grover and Universal Underwriters Ins. Co., 403 A.2d 448 (N.J. 1979); Walton Acoustics, Inc. v. Currahee Const. Co., Inc., 399 S.E.2d 265 (Ga. Ct. App. 1990) (ruling that an award of attorney fees, which in the court's view was not authorized by law, warranted vacation because the arbitrator overstepped his authority); cf. Garrity v. McCaskey, 612 A.2d 742, 746-47 (Conn. 1992) (speculating that an arbitrator would exceed his powers "if the memorandum of an arbitrator revealed that he had reached his decision by consulting a ouija board"); County Mut. Ins. Co. v. National Bank, 248 N.E.2d 299, 302 (Ill. App. Ct. 1969) (finding arbitrator erred with respect to statute of limitations and by proceeding to hear matter and make award arbitrator exceeded his power).
136. E.g., Baravati v. Josepthal, Lyons & Ross, Inc., 28 F.3d 704, 706 (7th Cir. 1994) (considering arbitrators' application of Illinois defamation law and award of punitive damages and finding the award to have been lawful); Barbier v. Shearson Lehman Hutton Inc., 948 F.2d 117, 122 (2d Cir. 1991) (explaining where arbitrators are not entitled to award punitive damages due to a choice of law provision in the parties' agreement, it is "manifest that the arbitrators would exceed their powers by awarding punitive damages); Stifel Nicolaus & Co., Inc. v. Francis, 872 S.W.2d 484 (Mo. Ct. App. 1994) ("Parties may agree that the arbitration will be decided as a court of law or equity would decide it. In such a case, an arbitrator's failure to follow case precedent would be an act exceeding authority."). In Faherty v. Faherty, 477 A.2d 1257 (N.J. 1984), the parties' separation agreement provided for arbitration of any later disputes and contained a provision that New Jersey law would govern the resolution of such disputes. Based on that provision, the court vacated an arbitral award under the "exceeded their powers" section because the arbitrator, in granting alimony to the wife after she had remarried, had failed to follow New Jersey law. See also infra text accompanying notes 134-43. Cf. Mastrobuono, 20 F.3d at 715 ("Our narrow scope of review does not immunize an award clearly unauthorized by the terms of the agreement."); Miller Brewing Co. v. Brewery Workers Local Union No. 9, 739 F.2d 1159, 1164 (7th Cir. 1984) (stating that court may reverse award that "clearly" was not "within the contemplation of the parties and . . . implicitly authorized by the agreement"); Kearny N.J. PBA Local # 21 v. Town of Kearny, 405 A.2d 393, 398 (N.J. 1979) ("When the parties intend that their contract be interpreted in accordance with the law, [the arbitrator's] authority is circumscribed by being limited to carrying out that intent.").
137. E.g., 9 U.S.C. § 10(d). See supra text at note 16. See, e.g., McHugh Inc. v. Soldo Constr. Co. Inc., 569 A.2d 293 (N.J. Super. Ct. App. Div. 1990) (vacating award directing that the claimant pay part of the award to a subcontractor because there was no evidence supporting that part of the award); Lindon Commodities Inc. v. Bambino Bean Co, Inc., 790 P.2d 228 (Wash. Ct. App. 1990) (vacating an arbitration award, finding that award clearly contradicted UCC section 2-209, which eliminates the consideration requirement for an agreement modifying a contract for the sale of goods).
138. E.g., 9 U.S.C. § 10(a) and UAA § 12(1). See supra text accompanying notes 16 and 17. See. e.g., Perez v. American Bankers Ins. Co., 409 A.2d 269 (N.J. 1979) (equating a mistake of law with undue means); In re Arbitration Between Grover and Universal Underwriters Ins. Co., 403 A.2d 448, 452-53 (N.J. 1979) (setting aside an award viewing a mistake as both "undue means" and "exceeding power"); Held v. Comfort Bus Line, 57 A.2d 20 (N.J. 1948); but see Perini Corp. v. Greate Bay Hotel & Casino, Inc. 610 A.2d 364, 395 (N.J. 1992) (Wilentz, C.J., concurring) (asserting that the idea that "corruption, fraud or undue means" could be converted into a rule that reverses awards for errors of law would be unthinkable if viewed anew).
139. E.g., Russo v. Chittick, 548 N.E.2d 314 (Ohio App. Ct. 1988) (stating that while legal and factual conclusions are not reviewable, a court can ascertain whether fraud or evident mistake made the award unjust or unconscionable and citing OHIO REV. CODE ANN. § 2711.01 et seq., which included a vacation provision that closely tracks the language in section 10 of the FAA).
140. E.g., 9 U.S.C. § 10(c), (d); UAA § 12(2), (3). See supra text accompanying notes 16-17.
141. See Perini Corp. v. Greate Bay Hotel & Casino, Inc., 610 A.2d 364, 399 (N.J. 1992), where in the concurring opinion Chief Justice Wilentz provided the following critical observation: [P]arties are free to expand the scope of judicial review by providing for such expansion in their contract; that they may, for example, specifically provide that the arbitrators shall render their decision only in conformance with New Jersey law, and that such awards may be reversed either for mere errors of New Jersey law, substantial errors, or gross errors of New Jersey law and define therein what they mean by that. I doubt if many will. And if they do, they should abandon arbitration and go directly to the law courts.
142. 832 P.2d 899 (Cal. 1992).
143. Id. at 902.
144. Id. at 920. Both the majority and dissenting opinions included an exhaustive recounting of prior California case law and a thorough policy analysis.
145. Id. at 919-20. "Worst of all, the majority has forsaken the goal that has defined and legitimized the judiciary's role in society - to strive always for justice." Id. at 920. Despite the disagreement regarding the reasoning of the majority opinion, Justice Kennard was of the belief that this case did not involve an error apparent on the face of the award that would cause substantial injustice and, therefore, agreed with the result. Id. at 924. See also Intel v. Advanced Micro Devices, Inc., 885 P.2d 994, 1012 (Cal. 1994) where Justice Kennard, dissenting, described arbitration as "an instrument of injustice." The majority upheld an award despite the fact that there was unanimous agreement that the arbitrator had gone beyond what any court could do in ordering that AMD receive a permanent, royalty-free license to specified Intel intellectual property.
146. 610 A.2d 364 (N.J. 1992). This case focuses on the following issues: (1) whether the asserted mistake of law was reviewable by the courts; (2) the continued validity of the principle that mistakes of law are the equivalent of undue means; and (3) the alleged disproportionality of the arbitration award.
147. Id. at 372-73.
148. Id. at 373.
149. Id. at 370.
150. Id. at 389. The only explanation for judicial intervention on the basis of error of law that seems to account for arbitration as a system that is not beholden to the law is that expressed by Chief Justice Wilentz : The approach permitting judicial reversals for mistakes of law grew out of what was meant to be a minor exception to these otherwise firm rules against judicial intervention in the arbitration process. [I]f arbitrators mean to decide according to law but mistake the law, in a material respect, and their mistake appears on the face of the award, or they admit it, the award will be set aside because it does not express their real judgment; but in cases where they do not intend to let the law govern their judgment, but to decide according to their own notions of what is just and right, the courts will not interfere, but allow their award to stand. (Citing Leslie v. Leslie, 50 N.J. Eq. 103, 107-08 (Ch. 1892)). Id. at 386.
151. Id. at 402-03. The part that they would have vacated was an award of over $4,000,000 for delay damages that accrued after the date of substantial completion.
152. Id. at 390. Chief Justice Wilentz summarily declared "[j]udges are not adept at making such distinctions." See also infra text accompanying notes 148-60 (discussing I/S Stavborg and San Martine cases).
153. 640 A.2d 788 (N.J. 1994).
154. Justice Clifford switched positions declaring "the plain truth of the matter is that I have thought more about it and have changed my mind." Id. at 797 (Clifford, J., concurring).
155. Id. at 793.
156. 346 U.S. 427 (1953).
157. The full statement in Wilko was as follows: Power to vacate an award is limited. While it may be true . . . that a failure of the arbitrators to decide in accordance with the provisions of the Securities Act would 'constitute grounds for vacating the award pursuant to section ten of the Federal Arbitration Act,' that failure would need to be made clearly to appear. In unrestricted submissions, such as the present margin agreements envisage, the interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation. 346 U.S. at 436-37 (quoting Wilko v. Swan, 201 F.2d 439, 445 (2d Cir. 1953)).
158. 346 U.S. at 440.
159. Alternatively, a few courts seem to view manifest disregard as a subspecies of certain statutory grounds for vacation such as "undue means" or "exceeding power." E.g., A.G. Edwards & Sons, Inc. v. McCullough, 764 F. Supp. 1365 (D. Ariz. 1991), rev'd, 967 F.2d 1401 (9th Cir. 1992). See infra notes 159-60 and accompanying text.
160. 500 F.2d 424 (2d Cir. 1974).
161. Id. at 431 n.13.
162. Id. Actually the first to point out the ungrammatical structure and the lack of necessity to the decision was Justice Jackson in his concurring opinion in Wilko. 346 U.S. at 438-39. See also Brandeis Intsel Ltd. v. Calabrian Chems. Corp., 656 F. Supp. 160, 164 (S.D.N.Y. 1987).
163. For a similar display of this problem regarding an attempt to distinguish between a "gross error" and a "minor mistake," see supra notes 134-40 and accompanying text.
164. It appears that the arbitrators found a conflict among contract clauses where one did not exist and that they then looked to parol evidence, which would not have been admissible in a court of law, to resolve it. 500 F.2d at 431-32. As an aside the court observed that had the arbitrators not rendered a written opinion in the case (which the American Arbitration Association discourages and is rarely provided in commercial arbitration) the courts ability to review the decision would be greatly limited. Id. at 429.
165. Id. at 432.
166. Id.
167. Id. at 433. See infra text accompanying notes 216-42 regarding vacating irrational awards.
168. 293 F.2d 796 (9th Cir. 1961).
169. Id. at 801 n.4. For a similar and more contemporary reaction in a state court, see Chief Justice Wilentz's concurring opinion in Perini, 610 A.2d at 390.
170. Id. at 801.
171. Id. The court found no evidence of such impropriety in the case before it. The party seeking vacation of the arbitration award had asserted that the arbitrators had erred in awarding profits received from the use of a vessel on the basis of unjust enrichment and awarding damages for abuse of process regarding the non-malicious attachment detention of a vessel. The court acknowledged that the arbitrators may have been mistaken in their view of the law respecting these matters, but it was not clear that their decision was based on these rationales. Id. at 800.
172. Id. Cf. A.G. Edwards & Sons, Inc. v. McCullough, 764 F. Supp. 1365, 1372 (D. Ariz. 1991), rev'd 967 F.2d 1401 (9th Cir. 1992) (The District Court noted that there was no authority construing the meaning of "undue means" in the Ninth Circuit, and concluded that "raising multiple facially meritless defenses constituted procurement of an award by 'undue means' within the meaning of 9 U.S.C. § 10(a)." The Ninth Circuit reversed, specifically ruling that sloppy or over zealous lawyering coupled with facially meritless defenses do not constitute "undue means.")
173. E.g., Metal Products Workers Union v. Torrington Co., 242 F. Supp. 813 (D. Conn. 1965) aff'd 358 F 2d 103 (2d Cir. 1966) (discussing whether manifest disregard is an aspect of misbehavior by arbitrators (FAA sec. 10(c)) or exceeding or imperfectly executing their powers (FAA sec. 10(d)).
174. E.g., Jenkins v. Prudential-Bache Sec., Inc., 847 F.2d 631 (10th Cir. 1988); Sheet Metal Workers Intl Ass'n Local Union No. 420 v. Kinney Air Conditioning Co., 756 F.2d 742, 746 (9th Cir. 1985) ("Independent of section 10 of the Act, a district court may vacate an arbitral award which exhibits manifest disregard of the law."); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986).
175. See, e.g., Rostad & Rostad v. Investment Mgmt. & Res., 923 F.2d 694 (9th Cir. 1991) (ruling that arbitrators did not manifestly disregard the law by awarding punitive damages because contrary to assertion of defendant, arbitrators are not prevented from awarding punitive damages on a common law fraud count associated with claims brought under the Montana Securities Act); In re U.S. Offshore, Inc., 753 F. Supp. 86, 90 (S.D.N.Y. 1990) ("there was no error at all, let alone manifest error").
176. E.g., Siegel v. Titan Indus. Corp., 779 F.2d 891, 892-93 (2d Cir. 1985); Trafalgar Shipping Co. v. International Milling Co., 401 F.2d 568, 573 (2d Cir. 1968) (characterizing "manifest disregard" of law as an exception to the enforceability of arbitration awards that must be "severely limited"); Warth Line, Ltd. v. Merinda Marine Co., Ltd., 778 F. Supp. (S.D.N.Y. 1991) (indicating common law doctrine of manifest disregard of the law does not significantly expand Arbitration Act's grounds for vacating award); Lukowski v. Dankert, 503 N.W.2d 15 (Wis. Ct. App. 1993) (explaining that since the precedent was not ignored, but distinguished [albeit possibly erroneously], this was not a disregard of the law.)
177. E.g., Health Servs. Mgmt. Corp. v. Hughes, 975 F.2d 1253, 1267 (7th Cir. 1992) (explaining arbitrator must deliberately disregard what he or she knows to be the law); Marshall v. Green Giant Co., 942 F.2d 539 (8th Cir. 1991) (finding party failed to demonstrate that the arbitrators both recognized and ignored the law); O.R. Sec., Inc. v. Professional Planning Assoc., 857 F.2d 742, 746 (11th Cir. 1988); Fairchild & Co., Inc. v. Richmond, F. & P.R. Co., 516 F. Supp. 1305, 1315 (D.D.C. 1981) ("Nowhere is it alleged that the arbitrators undertook to correctly state the law and then proceeded to disregard their own pronouncement." Instead Fairchild's allegations fall within the realm of "errors in the understanding or application of the law."); Reynolds Sec., Inc. v. Macquown, 459 F. Supp. 943 (D. Pa. 1978) (declaring one must establish that arbitrators understood and correctly stated law but proceeded to ignore it); Fukaya Trading Co., S.A. v. Eastern Marine Corp., 322 F. Supp. 278 (D. La. 1971) (holding arbitrators did not manifestly disregard the law since they did not understand the law); Western Waterproofing Co. v. Lindenwood Colleges, 662 S.W.2d 288 (Mo. Ct. App. 1983) (indicating it must be shown that the arbitrator understood and correctly stated the law, but ignored it). The Tenth Circuit would also seem to be in this camp with the expression that the manifest disregard of the law standard requires a "willful unattentiveness to the governing law." Jenkins v. Prudential-Bache Sec., Inc., 847 F.2d 631, 634 (10th Cir. 1988). The Securities and Exchange Commission has described the "manifest disregard" concept as follows: The error must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator. Moreover, the term 'disregard' implies that the arbitrator appreciates the existence of a clearly governing legal principle but decides to pay no attention to it. Securities Exchange Act Release No. 26,805 [1989-90 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 80,109 n.45 (May 10, 1989).
178. E.g., Glennon v. Dean Witter Reynolds, Inc., 83 F.3d 132 (6th Cir. 1996) (stating that decision must fly in the face of clearly established legal precedent); Advest, Inc. v. McCarthy, 914 F.2d 6, 10 (1st Cir. 1990) ("In certain circumstances, the governing law may have such widespread familiarity, pristine clarity, and irrefutable applicability that a court could assume the arbitrators knew the rule, and notwithstanding, swept it under the rug."); Bell Aerospace Co. Div. of Textron, Inc. v. Local 516, 356 F. Supp. 354, 356 (W.D.N.Y. 1973), rev'd on other grounds, 500 F.2d 921 (2d Cir. 1974). Some courts have discussed the concept confusing objective and subjective criteria. E.g., Marshall v. Green Giant Co., 942 F.2d 539, 550 (8th Cir. 1991) ("Manifest disregard of the law exists when an arbitrator commits an error that was obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator. Moreover 'disregard' implies that the arbitrator appreciates the existence of a clearly governing legal principle but decides to ignore or pay no attention to it." [quoting from Merrill Lynch Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986)]).
179. See, e.g., Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9 (2d Cir 1997) (district court finding no legal basis for the arbitrator's award and ordering vacation based on manifest disregard of the law; court of appeals finding "at least one barely colorable justification" and reversing); Horn v. Maryland Casualty Co., 661 A.2d 1032 (Conn. 1995). For discussion of other such cases, see infra text accompanying notes 174-214 and 231-41.
180. Coblentz v. Hotel Employees & Restaurant Employees Union Welfare Fund, 925 P.2d 496 (Nev. 1996); Wichinsky v. Mosa, 847 P.2d 727 (Nev. 1993).
181. Wichinsky is a peculiar one at that. Since the arbitration proceedings were without a record the court relied on the affidavit of counsel for Wichinsky, which was not met with a counter affidavit by opposing counsel. From this, the court proceeded to identify three errors. First all of the elements of tortious interference with economic expectations had not been established. Second, the "record" did not support the arbitrator's finding of a breach of fiduciary duty. Third, the "record" did not disclose evidence that would support a finding of fraud, oppression or malice justifying punitive damages. Id. at 730. The opinion includes no justification for such an appellate review. The court simply declared: "when an arbitrator manifestly disregards the law, a reviewing court may vacate an arbitration award." Id. (citing from French v. Merrill Lynch, Pierce, Fenner & Smith, 784 F.2d 902, 906 (9th Cir. 1986) ("an arbitrator's decision must be upheld unless it is 'completely irrational,' or it constitutes a 'manifest disregard of the law'")). In Coblentz, the court, in much the same summary manner, pronounced that the arbitrators' conclusion rendered a lease agreement provision meaningless and thus constituted manifest disregard of the law. 925 P.2d at 501. At the time of the Coblentz decision, judicial review for error of law apparently was appropriate in New Mexico. The court explained that the Nevada statutes provided that following an arbitration award either party could request a trial on any of the issues arising out of the action. Id. (citing NEV. REV. STAT. § 38.109). This provision was subsequently repealed. 1995 Nev. Stat., ch. 660, § 4 at 2538. But see Graber v. Comstock Bank, 905 P.2d 1112, 1116 (Nev. 1995), (describing manifest disregard of the law in conventional terms: "when searching for manifest disregard of the law, a court should attempt to locate arbitrators who appreciate the significance of clearly governing legal principles but decide to ignore or pay no attention to those principles").
182. See, e.g., Garrity v. McCaskey, 612 A.2d 742, 747 (Conn. 1992) ("The 'manifest disregard of the law' ground for vacating an arbitration award is narrow and should be reserved for circumstances of an arbitrator's extraordinary lack of fidelity to established legal principles."); Southwest Parke Educ. Ass'n v. Southwest Parke Community Sch. Trustees Corp., Bd. of Sch. Trustees, 427 N.E.2d 1140, 1147-48 (Ind. Ct. App. 1981) (holding even if an erroneous interpretation of the law, it was a conscientious attempt to apply the law and therefore not a manifest disregard of the law); I.D.C., Inc. v. Natchitoches Dev. Co., 482 So.2d 958, 960 (La. App. 1986); Perini Corp. v. Great Bay Casino, 610 A.2d 372 (N.J. 1992); Wayne Distrib. Co. v. Piti Bldg. Co., Inc., 512 A.2d 870 (R.I. 1986) (indicating allegations of manifest disregard of the law could warrant a vacation); Muzzy v. Chevrolet Div., General Motors Corp., 571 A.2d 609, 613 (Vt. 1989) (referring to manifest disregard of the law and holding that "only under extreme circumstances can we intervene to correct an error of law"). In Stifel, Nicolaus and Co., Inc. v. Francis, 1994 Mo. App. LEXIS 76, the Court of Appeals of Missouri for the Western District refused to recognize manifest disregard of the law as a basis for vacating an arbitration award, reversing a trial court vacation. But see Western Waterproofing Co., Inc. v. Lindenwood Colleges, 662 S.W.2d 288, 292 (Mo. Ct. App. 1983) (Eastern District Court of Appeals endorsed the concept).
183. E.g., Glennon v. Dean Witter Reynolds, Inc., 83 F.3d 132 (6th Cir. 1996); Michigan Mut. Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 826 (9th Cir. 1995); United Indus. Workers v. Gov't of the Virgin Islands, 987 F.2d 162 (3d Cir. 1992); Advest, Inc. v. McCarthy, 914 F.2d 6 (1st Cir. 1990); Jenkins v. Prudential-Bache Sec., Inc., 847 F.2d 631 (10th Cir. 1988); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930 (2d Cir. 1986); San Martine Compania de Navegacion, S.A. v. Saguenay Terminals Ltd., 293 F.2d 796 (9th Cir. 1961); Johnston Lemon & Co. v. Smith, 886 F.Supp. 54 (D.D.C. 1995), aff'd, 84 F.3d 1452.
184. See, e.g., Lee v. Chica, 983 F.2d 883 (8th Cir. 1991) (briefly referring to the manifest disregard doctrine with seeming approval) and Marshall v. Green Giant & Co., 942 F.2d 539 (8th Cir. 1991) (noting court has never adopted manifest disregard of the law and specifically refraining from deciding the matter in that case). In Chameleon Dental Products, Inc. v. Jackson, 925 F.2d 223, 226 (7th Cir. 1991), the Seventh Circuit court rejected the theory. Later in Health Services Management Corp. v. Hughes, 975 F.2d 1253 (7th Cir. 1992) and in Eljer Manufacturing, Inc. v. Kown Development Corp., 14 F.3d 1250 (7th Cir. 1994) the court expressed favor for the concept. And in Baravati v. Josepthal, Lyons & Ross, Inc., 28 F.3d 704, 706 (7th Cir. 1994), Judge Posner writing for the same court refused to apply it and criticized its recognition: We can understand neither the need for the formula nor the role that it plays in judicial review of arbitration (we suspect none - that it is just words). If it is meant to smuggle review for clear error in by the back door, it is inconsistent with the entire modern law of arbitration. If it is intended to be synonymous with the statutory formula that it most nearly resembles - whether the arbitrators "exceeded their powers" - it is superfluous and confusing. There is enough confusion in the law. The grounds for setting aside arbitration awards are exhaustively stated in the statute. Now that Wilko is history, there is no reason to continue to echo its gratuitous attempt at nonstatutory supplementation.
185. E.g., R.M. Perez & Assocs., Inc. v. Welch, 960 F.2d 534, 539-40 (5th Cir. 1992); Robbins v. Day, 954 F.2d 679 (11th Cir. 1992); Raiford v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 1410 (11th Cir. 1990); O.R. Sec., Inc. v. Professional Planning Assoc., 857 F.2d 742 (11th Cir. 1988). Although the 11th Circuit has rejected manifest disregard of the law as a basis for vacation, it seems to have embraced another nonstatutory theory -irrationality. See Ainsworth v. Skurnick, 909 F.2d 456 (11th Cir. 1990) and 960 F.2d 939 (11th Cir. 1992), discussed infra at notes 231-42. See also Brandeis Intsel Ltd. v. Calabrian Chems. Corp., 656 F. Supp. 160, 165 (S.D.N.Y. 1987) (rejecting application of manifest disregard concept to cases involving international law).
186. 636 F. Supp. 444 (S.D.N.Y.), rev'd, 808 F.2d 930 (2d Cir. 1986).
187. 808 F.2d at 931-32.
188. 636 F. Supp. at 447-48.
189. 808 F.2d at 934.
190. Id. at 933 and 936-37.
191. Id. at 937.
192. Id. at 936-37.
193. Id. at 937-38. See also Brandeis Intsel Ltd. v. Calabrian Chems. Corp., 656 F. Supp. 160, 168 (S.D.N.Y. 1987) (endorsing Judge Meskill's approach: "I do not find it necessary or appropriate to agree or disagree with the arbitrators' conclusions. It is sufficient to say that their award reflects the arbitrators' awareness of the governing statute and efforts to apply its terms to the facts as found. . . . I am 'not at liberty to set aside an arbitration panel's award because of an arguable difference regarding the meaning or applicability of laws urged upon it.'").
194. According to a 1988 Securities and Exchange Commission study, 96% of margin accounts, 95% of option accounts, and 39% of cash accounts were subject to arbitration clauses. Order Approving Proposed Rule Changes by the NYSE, NASD and AMEX Relating to the Arbitration Process and the Use of Predispute Arbitration Clauses, Rel. No. 34-26805, 54 Fed. Reg. 21,144 (1989). This trend toward increased use of arbitration may reverse. Brokerage firms appear to be less enthralled with arbitration now that arbitrators have made awards based on RICO claims and have issued a number of large punitive damage awards against firms. This may cause firms to rethink the decision to routinely incorporate arbitration agreements in brokerage contracts.
195. Of course, opportunities for legislative and administrative clarification remain.
196. The same comment would apply to challenges couched in terms of the grounds for vacation set forth in the FAA and UAA and the irrationality and public policy grounds discussed later in this article.
197. 761 F. Supp. 773 (N.D. Ala. 1991), rev'd, 954 F.2d 679 (11th Cir. 1992).
198. 909 F.2d 456 (11th Cir. 1990) (order of the District Court for the Southern District of Florida vacating the arbitration award is included in Appendix 1 of this per curiam certification).
199. Raiford v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 1410, 1412-13 (11th Cir. 1990).
200. 761 F. Supp. 773, 776-77 (citing Raiford v. Merrill, Lynch, Pierce Fenner & Smith, Inc 903 F.2d 1410, 1412-13 (11th Cir. 1990)). The court noted that while the Eleventh Circuit Court of Appeals had not adopted the manifest disregard of the law standard it had defined it. It further acknowledged the Eleventh Circuit's earlier expressions of skepticism whether the manifest disregard standard could ever be met. The court also identified a statutory ground for vacating this award. The court found that the award should be vacated on the basis of FAA section 10(c). During the hearings four of the individual respondents pled the Fifth Amendment proven againts self-incrimination, refusing to testify except as to their names and addresses. Permitting this blanket refusal to testify (especially since these respondents had already answered a broad spectrum of questions during depositions thereby losing their privilege) was an egregious error constituting "a refusal 'to hear evidence pertinent and material to the controversy.'" Id. at 776 (citation omitted).
201. Given the scarcity of such findings in other cases, it would seem that this is a case with either a very zealous court or a very shabby arbitration panel. Although the disregarded law was remedial law, rather than substantive, the handling of the manifest disregard issue is still illuminating regarding the issue of the role of substantive law in arbitration.
202. 761 F. Supp. at 777.
203. ALA. CODE §§ 8-6-17, -19 (1996).
204. 761 F. Supp. at 777, citing 18 U.S.C. § 1964(c).
205. Id. citing 18 U.S.C. § 1961 (1)(D). The court was most emphatic on this point. "The court must express its amazement at the panel's denial of RICO . . . claims." The court did not address the obvious possibility that the arbitrators may have denied the RICO claim because other elements of this complex cause of action were lacking.
206. Robbins v. Day, 954 F.2d 679 (11th Cir. 1992).
207. The court first addressed the appropriate standard of appellate review. The court explained the need for a double standard. Confirmation of an arbitration award should be narrowly reviewed - an abuse of discretion standard. Id. at 681 (citing Schmidt v. Finberg, 942 F.2d 1571 (11th Cir. 1991) and Raiford v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 1410, 1412 (11th Cir. 1990)). In contrast a judicial granting of a motion to vacate an arbitration award should be broadly reviewed - a de novo review. Id. (citing Employers Ins. of Wausau v. National Union Fire Ins. Co., 933 F.2d 1481 (9th Cir. 1991); Forsythe Intern., S.A. v. Gibbs Oil Co. of Texas, 915 F.2d 1017 (5th Cir. 1990); Anderman/Smith Operating Co. v. Tennessee Gas Pipeline Co., 918 F.2d 1215 (6th Cir. 1991); Independent Employees' Union v. Hilshire Farm Co., 826 F.2d 530 (7th Cir. 1987)). Such a de novo review of a district court's order is nonetheless very narrow because it entails applying the same legal standards that bound the district court. 954 F.2d at 682 (citing Stay, Inc. v. Cheney, 940 F.2d 1457 (11th Cir. 1991)). This unusual approach "emphasize[s] the unique context of arbitration, which requires deferential judicial review to promote the primary advantages of arbitration - speed and finality." 954 F.2d at 682.
208. For example, it noted that the courts are not in agreement about the degree of the "showing on the record" required - some require actual statements showing subjective awareness and others are willing to infer awareness. See supra notes 164-66 and accompanying text.
209. 954 F.2d at 684 (citing Raiford v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 1410, 1412 (11th Cir. 1990)). The court also reversed the district court's ruling that the arbitrators' award should be vacated on the basis of section 10(c) (for refusing to hear evidence pertinent and material to the controversy). Id. at 684-85. Prior to the arbitration, the respondents moved to postpone the hearings until after the outcome of pending criminal proceedings. The claimants opposed this, representing that the brokers' testimony was unimportant and that the brokers had the right to invoke the Fifth Amendment. For this reason the court decided that the arbitrators' refusal to hear this evidence had not prejudiced the rights of the claimants and had not denied them a fair hearing.
210. See infra notes 215-41 and accompanying text.
211. The court reasoned that when no rationale is given for a lump sum award, as in this case, and a rational ground for the arbitrators' decision can be inferred from the facts of the case, the award should be confirmed. 954 F.2d at 684-85.
212. 909 F.2d at 459.
213. 909 F.2d at 459-60.
214. Section 517.12 specifically provides: No dealer, associated person, or issuer of securities shall sell or offer for sale any securities in or from offices in this state, or sell securities in this state to persons thereof from offices outside this state, by mail or otherwise, unless the person has been registered with the department pursuant to provisions of this section. FLA. STAT. ANN. § 517.12 (West 1996).
215. Id. at § 517.211.
216. The claimant was deaf and never spoke with respondent over the telephone. The record included numerous letters from the broker to his client regarding transactions. 909 F.2d at 462-63.
217. Id. at 462. Since uncontradicted expert testimony at the arbitration hearing was offered to show that the claimant's damages were $54,108.78, the court entered a judgment against respondent for that amount plus interest.
218. Id. at 458.
219. Compare the approach of the court in Clemons v. Dean Witter Reynolds, Inc., 708 F. Supp. 62, 63-64 (S.D.N.Y. 1989) (addressing a similar brokerage registration law in Kentucky, the court responded that, since the Kentucky courts had not decided the issue the circumstances were insufficient to establish that the arbitrators deliberately ignored a well defined, explicit and clearly applicable law as is necessary before finding manifest disregard of the law).
220. See also Kane v. Shearson Lehman Hutton, Inc., 916 F.2d 643 (11th Cir. 1990) (vacating an award under the Florida Blue Sky Law even though no showing that arbitrators deliberately ignored any well denned and clearly applicable legal authority).
221. C. Evan Stewart, Securities Arbitration Appeal: An Oxymoron No Longer?, 79 KENTUCKY L. REV. 347, 352 (1990-91); C. Edward Fletcher, Privatizing Securities Disputes Through the Enforcement of Arbitration Agreements, 71 MINN. L. REV. 393, 457 (1987); see also David E. Robbins, A Practitioner's Guide to Securities Arbitration, in SECURITIES ARBITRATION 1989 (PLI) 130 (analogizing the success of applying the "manifest disregard" doctrine to "a snow ball's chance in hell").
222. C. Evan Stewart, Securities Arbitration Appeal: An Oxymoron No Longer?, 79 KENTUCKY L. REV. 347, 352 (1990-91); C. Edward Fletcher, Privatizing Securities Disputes Through the Enforcement of Arbitration Agreements, 71 MINN. L. REV. 393, 457 (1987); see also David E. Robbins, A Practitioner's Guide to Securities Arbitration, in SECURITIES ARBITRATION 1989 (PLI) 130 (analogizing the success of applying the "manifest disregard" doctrine to "a snow ball's chance in hell").
223. C. Evan Stewart, Securities Arbitration Appeal: An Oxymoron No Longer?, 79 KENTUCKY L. REV. 347, 352 (1990-91); C. Edward Fletcher, Privatizing Securities Disputes Through the Enforcement of Arbitration Agreements, 71 MINN. L. REV. 393, 457 (1987); see also David E. Robbins, A Practitioner's Guide to Securities Arbitration, in SECURITIES ARBITRATION 1989 (PLI) 130 (analogizing the success of applying the "manifest disregard" doctrine to "a snow ball's chance in hell").
224. One commentator has suggested that recognition of the manifest disregard of the law standard actually promotes disregard of the law since arbitrators that are aware of the standard can avoid any complicated legal analysis by ignoring the issue altogether, as long as they take care not to explain that they acted in this way. Bret F. Randall, Comment, The History, Application, and Policy of the Judicially Created Standards of Review for Arbitration Awards, 1992 B.Y.U. L. REV. 759, 768.
225. 9 U.S.C. § 10(b) (1996) or UAA § 12(1), (2).
226. 9 U.S.C. § 10(c) (1996) or UAA § 12(2), (4).
227. 9 U.S.C. § 10(d) (1996) or UAA § 12(3).
228. See, e.g., Kanuth v. Prescott, Ball &Turben, Inc., 949 F.2d 1175 (D.C. Cir. 1991) (ruling that panel presiding over employment dispute did not manifestly disregard Ohio law in making incentive compensation award to employee); Americas Ins. Co. v. Seagull Compania Naviera, S. A., 774 F.2d 64 (2d Cir. 1985) (holding there is nothing to indicate that the arbitrators' intent not to permit set-off evidenced manifest disregard of the law regarding an issue of a maritime insurer's right to set-off ); Office of Supply, Gov't of Republic of Korea v. New York Navigation Co., 469 F.2d 377, 379 (2d Cir. 1972) (concluding that claim was time barred by one year statute of limitations provision of Carriage of Goods by Sea Act of the U.S. (COGSA) incorporated by reference into the contract of the parties did not constitute manifest disregard); Amicizia Societa Navegazione v. Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805 (2d Cir. 1960) (ruling that misapplication of the rules of contract interpretation in interpreting the meaning of the term "double rigged" in a contract description of how vessels were to be constructed did not rise to the level of manifest disregard of the law); Elite Inc. v. Texaco Panama Inc., 777 F. Supp. 289 (S.D.N.Y. 1991) (ruling that refusal to sustain statute of limitations defense did not constitute manifest disregard of the law where one year statute of limitations was based upon an interpretation of a complex series of documents); Fine v. Bear, Stearns & Co., Inc., 765 F. Supp. 824 (S.D.N.Y. 1991) (ruling that it is not manifest disregard of the law where award can be explained as a product of conflicting testimony from expert witnesses regarding the standard of care owed by the defendant).
229. E.g., Tate v. Saratoga Sav. & Loan Ass'n, 265 Cal. Rptr. 440, 447 (Cal. Ct. App. 1989) (explaining if the award rests on a "completely irrational" construction of the contract, the arbitrator exceeded his or her powers); O-S Corp. v. Samuel A. Kroll, Inc., 348 A.2d 870, 872 (Md. Ct. Spec. App. 1975) ("Statutory support for this is found not only in the fact that arbitrators 'exceeded their powers' when they reach a completely irrational result, but also in the connotation of the words 'undue means' in § 3-224(b)(1).").
230. E.g., Hacket v. Milbank, Tweed, Hadley & McCloy, 654 N.E.2d 95, 100 (N.Y. 1995) (ruling trial court was not justified in substituting its characterization of partnership agreement for that of arbitrator); Diaz v. Pilgrim State Psychiatric Center, 465 N.E.2d 32 (N.Y. 1984) ("It cannot be said that arbitrator's procedural resolution of the issue concerning compliance with the contractual requirement that demand for arbitration be made in specified time and manner was irrational."); Smith v. Chubb & Sons, Inc., 528 N.Y.S.2d 236 (N.Y. App. Div. 1988) (ruling that it was not irrational to conclude that in order to be entitled to no fault benefits claimant must have personally suffered a bodily injury as a result of use of insured vehicle).
231. E.g., Local 771, I.A.T.S.E. v RKO General, Inc., WOR Div., 419 F. Supp. 553 (S.D.N.Y. 1976); Prudential Property and Casualty Ins. Co. v. Ogubro, 500 N.Y.S.2d 561 (N.Y. App. Div. 1986).
232. E.g., Sprinzen v. Nomberg, 389 N.E.2d 456 (N.Y. 1979).
233. E.g., French v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 784 F.2d 902, 906-07 (9th Cir. 1986) (stating award should be upheld because it was not "completely irrational"); Local 1445, United Food & Commercial Workers v. Stop & Shop Cos., 776 F.2d 19, 21-22 (1st Cir. 1985). Cf. Safeway Stores v. American Bakery & Confectionery Workers, 390 F.2d 79, 82 (5th Cir. 1968) ("if . . . no judge, or group of judges, could ever conceivably have made such a ruling"); Gunther v. San Diego & Ariz. E. Ry., 382 U.S. 257, 261 (1965) ("wholly baseless and completely without reason").
234. The relatively few cases actually involving vacations of arbitration awards because of irrationality relate more to irrational contract interpretation than to misuse of principles of substantive law. E.g., O-S Corp. v. Samuel A. Kroll, Inc., 348 A.2d 870, 872 (Md. Ct. Spec. App. 1975) (finding arbitrator's award of wages pursuant to a reimbursable wages provision of a construction contract to be based on a completely irrational interpretation of the contract); In re Riverbay Corp., Operating Co-op City and Local 32-E, S.E.I.V., AFL-CIO, 456 N.Y.S.2d 378 (N.Y. App. Div. 1982) (finding award that was premised upon lack of clear warning to be a totally irrational construction of collective bargaining agreement, which did not require that any warning be given); Swift Indus., Inc. v. Botany Indus., Inc., 325 F. Supp. 577 (W.D. Pa. 1971), aff'd, 466 F.2d 1125 (3d Cir. 1972) (finding award of a $6 million cash surety bond completely irrational where the agreement did not specify a bond as a remedy for breach of warranty and in accordance with a formula for sharing liabilities set forth in reorganization agreement the maximum liability would have been approximately $1.5 million).
235. The irrationality concept is also associated with the review of compulsory arbitrations. See, e.g., Board of Educ. of Carlsbad Mun. Sch. v. Harrell, 882 P.2d 511, 526 (N.M. 1994) ("The scope of review constitutionally required for compulsory arbitration is the review required for administrative adjudications. . . . [J]udicial review of administrative action . . . requires a determination whether the administrative decision is arbitrary . . . .")
236. E.g., Matter of Silverman, 461 N.E.2d 1261 (N.Y. 1984); Weidman v. Fuchsberg, 576 N.Y.S.2d 232 (N.Y. App. Div. 1991); Diaz v. Pilgrim State Psychiatric Center of New York, 465 N.E.2d 32 (N.Y. App. Div. 1984); Lieberman v. Lieberman, 566 N.Y.S.2d 490 (N.Y. Sup. Ct. 1991). While Lentine v. Fundaro, 278 N.E.2d 633 (N.Y. 1972), is repeatedly cited as the leading authority for vacating on the basis of irrationality, the court did not find that the award in question was the product of irrationality. The dispute centered on a liquidating distribution upon the break-up of a partnership. Since the arbitration award directly contradicted the partnership agreement, which provided for equal distribution to the partners upon partnership liquidation, the award was attacked as being irrational. The court, however, ruled that even though the partnership agreement was not ambiguous, by taking into account the unequal capital contributions of the partners (other than as contemplated in the agreement) the award could not be said to be irrational.
237. E.g., World Invest Corp. v. Breen, 684 So.2d 221 (Fla. Ct. App. 1996) ("arbitrary and capricious"); Foley Co. v. Grindsted Prods., Inc., 662 P.2d 1254 (Kan. 1983) (stating errors of law do not justify vacating; award must be "completely irrational"); Snyder v. Berliner Const. Co., Inc., 555 A.2d 523 (Md. Ct. Spec. App. 1989). But see Messersmith, Inc. v. Barclay Townhouse Ass'ns, 547 A.2d 1048, 1051 n.2 (Md. Ct. Spec. App. 1988) (calling the irrationality doctrine into question).
238. E.g., Prudential-Bache Sec., Inc. v. Caporale, 664 F. Supp. 72 (S.D.N.Y. 1987); Sargent v. Paine Webber, Jackson & Curtis, Inc., 674 F. Supp. 920 (D.D.C. 1987).
239. E.g., French v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 784 F.2d 902, 906 (9th Cir. 1986); Industrial Mut. Ass'n v. Amalgamated Workers, 725 F.2d 406 (6th Cir. 1984); Andros Compania Maritima, S.A. v. Marc Rich & Co., A.G., 579 F.2d 691 (2d Cir. 1978); Swift Indus, v. Botany Indus., 466 F.2d 1125, 1131 (3d Cir. 1972); Safeway Stores v. American Bakery & Confectionery Workers Int'l Union, Local 111, 390 F.2d 79, 82 (5th Cir. 1968) (stating award may be vacated as arbitrary and capricious "if the reasoning is so palpably faulty that no judge, or group of judges, could ever conceivably have made such a ruling").
240. The First Circuit discussed this basis for vacating an award in Advest, Inc. v. McCarthy, 914 F.2d at 9 n.6 (1st Cir. 1990), and concluded that it was superfluous because "any case which purports to fall into this residual category involves an award made contrary to the plain meaning of the contract authorizing arbitration or one made in manifest disregard of the law." For a commentary that takes issue with this conclusion as it might pertain to an error in fact finding, see Stephen H. Kupperman and George C. Freeman III, Selected Topics in Securities Arbitration: Rule 15c 2-2, Fraud, Duress, Unconscionability, Waiver, Class Arbitration, Punitive Damages, Rights of Review, and Attorneys'Fees and Costs, 65 TUL. L. REV. 1547, 1625 (1991).
241. In one of the few exceptional cases in this regard, the court made the following observation: "[we] generally will not vacate an arbitrator's award where the error claimed is the incorrect application of a rule of substantive law . . . unless it is so 'irrational as to require vacatur.' Even apart from its apparent circularity, this standard is substantially less exacting than that applied in the review of the legal conclusions of administrative agencies." Motor Vehicle Mfrs.' Ass'n of the U.S. v. State, 550 N.E.2d 919, 929 (N.Y. 1990) (quoting from Matter of Smith Fireman's Ins. Co., 55 N.Y.2d 224, 232 (1982)).
242. E.g., Amalgamated Transit Union v. Green Bus Lines, Inc., 409 N.E.2d 1354 (N.Y. 1980); SRC Construction Corp. v. Town of Poughkeepsie, 643 N.Y.S.2d 396 (N.Y. App. Div. 1996).
243. E.g., Sobel v. Hertz, Warner & Co., 469 F.2d 1211, 1216 (2d Cir. 1972) (stating if decision cannot be inferred from facts of case then it is arbitrary and capricious). See also O-S Corp. v. Samuel A. Kroll, Inc., 348 A.2d 870 (Md. Ct. Spec. App. 1975); Swift Indus., Inc. v. Botany Indus., Inc., 325 F. Supp. 577 (W.D. Pa. 1971).
244. Brown v. Rauscher Pierce Refsnes, Inc., 994 F.2d 775 (11th Cir. 1993); Ainsworth v. Skurnick, 960 F.2d 939 (11th Cir. 1992); Ierna v. Arthur Murray Int'l Inc., 833 F.2d 1472 (11th Cir. 1987).
245. Brown, 994 F.2d at 781. In Brown the court, however, rejected the effort at vacation before it. See infra note 241.
246. See supra text accompanying notes 200-08 for discussion of the earlier proceedings in this case.
247. Skurnick v. Ainsworth, 591 So.2d 904, 906 (Fla. 1991).
248. Ainsworth v. Skurnick, 960 F.2d 939 (11th Cir. 1992).
249. Id. at 941.
250. Id. (quoting from Raiford, 903 F.2d at 1413). This case does not seem to fit this description. One need not search for inferences in this case; on remand the arbitrators specifically stated that they found the respondent was negligent in handling the account, but that there were no resulting damages, and further that claimant had not established recovery on the other claims, including a violation of Fla. Stat. ch. 517.12. 909 F.2d at 941. From this it might be said that the arbitrators committed an error by misinterpreting this law or, if there was no disagreement about the law, that they acted in manifest disregard of it; but not that they acted arbitrarily or capriciously. The arbitrants argued two different interpretations of the relevant statute. The arbitrators expressed a rational ground for their decision; it was later established that their interpretation of the statute was nonmeritorious. Though the arbitrators may have engaged in an erroneous analysis, it was not lacking in rationality.
251. 960 F.2d at 941.
252. 909 F.2d at 459.
253. 960 F.2d at 941.
254. Id. (citations omitted).
255. In Brown v. Rauscher Pierce Refsnes, Inc., 994 F.2d 775 (11th Cir. 1993), the court did reach that conclusion, rejecting the effort at vacation. The court explained that "[w]ith the benefit of hindsight we now know that the Panel's interpretation of the Florida statute is incorrect . . . . Nevertheless, at the time the panel rendered its decision, Ainsworth had not yet been decided. As there was no definitive interpretation of the statute, the Panel's interpretation was not wholly unfounded." Id. at 781.
256. E.g., Culinary Workers Union, Local 165 v. Riverboat Casino, 817 F.2d 524 (9th Cir. 1987) (stating that awards are not vacatable unless illegal, contrary to public policy or in manifest disregard of the law); Maross Const., Inc. v. Central New York Regional Transp. Auth., 488 N.E.2d 67 (N.Y. 1985) (stating that arbitration award may include misapplication of substantive rules of law and still not be vacatable unless the court concludes it is totally irrational or violative of strong public policy).
257. See W.R. Grace & Co. v. Local Union 759, Int'l Union of United Rubber Workers, 461 U.S. 757,766 (1983) ("As with any contract, . . . a court may not enforce a collective bargaining agreement that is contrary to public policy. . . . If the contract as interpreted [by the arbitrator] violates some explicit public policy, we are obliged to refrain from enforcing it."); Loving & Evans v. Blick, 204 P.2d 23 (Cal. 1949) and All Points Traders, Inc. v. Barrington Assoc., 211 Cal.App.3d 723 (Cal Ct. App. 1989) (permitting judicial review of arbitrators' rulings where a party claimed the entire contract or transaction was illegal).
258. 484 U.S. 29 (1987).
259. Id. at 44.
260. Id. at 43. In Misco, the arbitrator had ordered reinstatement of a worker who had been arrested for possession of illicit drugs. The district court vacated the award, ruling that reinstating this worker to a position where he operated a dangerous machine violated public policy. The court of appeals affirmed, and the Supreme Court reversed because there was no evidence that the employee was operating the machinery under the influence of drugs. Id. at 44.
261. See, e.g., Stead Motors v. Automotive Machinists Lodge 1173, 886 F.2d 1200 (9th Cir. 1989) (by a plurality decision, a divided en banc panel rejected the employer's public policy arguments, limiting the public policy exception to situations where the award compels violation of the law; dissenting Judge Trott expressed that this "chokes the 'public policy' exception . . . into oblivion."); AFL-CIO v. Department of Central Mgmt., 671 N.E.2d 668 (Ill. 1996). See Bret F. Randall, Comment, The History, Application, and Policy of the Judicially Created Standards of Review for Arbitration Awards, 1992 B.Y.U. L. REV. 759, 769-83.
262. E.g., Stroehmann Bakeries, Inc. v. Local 766, Int'l Broth, of Teamsters, 969 F.2d 1436 (3d Cir. 1992) (vacating award granting reinstatement to employee who was fired for sexually harassing a customer's employee); United States Postal Serv. v. American Postal Workers Union, AFL-CIO, 736 F.2d 822 (1st Cir. 1984) (holding award for reinstatement of convicted embezzler violates public policy).
263. Cf. Haynes Constr. Co. v. Cascella & Son Constr., Inc., 1993 Conn. Super. LEXIS 1521, rev'd 647 A.2d 1015 (Conn. Cir. Ct. 1994) (trial court explored vacating construction contract award on public policy ground, but did not need to resolve that issue as they vacated the award on basis of evident partiality of arbitrator); Dean Witter Reynolds, Inc. v. Trimble, 631 N.Y.S. 2d 215 (N.Y. Sup. Ct. 1995) (a rare non-labor context arbitration where court stayed remedial claim for punitive damages because New York public policy prohibits their award).
264. See Reicks v. Farmers Commodities Corp., 474 N.W.2d 809, 811 (Iowa 1991) ("A refined quality of justice is not the goal in arbitration matters. Indeed such a goal is deliberately sacrificed in favor of a sure and speedy resolution. Under our common-law view the purpose of arbitration is to end disputes without court participation. It is no idle coincidence that the words "arbitration" and "arbitrary" are both derived from the same Latin word.").
265. Arbitration has been trending toward litigation for some time. Historian Jerald Auerbach blamed the legal profession for this result, characterizing it as the "price for the cooperation of the legal community." JERALD S. AUERBACH, JUSTICE WITHOUT LAW? 109 (1983).
266. See GOLDBERG ET AL., supra note 5, at 5, 290-94.
267. Yet arbitration does offer flexibility of design under the control of the disputants. Thus, arbitrants have the opportunity, should they so desire, to require, through their arbitration agreement or by subsequent agreement, that the arbitrator decide the matter in accordance with specified principles (of law or some other belief system) and to structure the procedure more like litigation. See supra notes 29-45 and accompanying text. Apparently many disputants and even their lawyers have not understood these attribute distinctions. Over time this confusion should be reduced.
268. Indeed, the law may or may not produce fair and just results. See AUERBACH, supra note 251, at 144-45. Auerbach concluded that social context and political choice determine whether courts or alternative institutions can render justice. He observed that adjudication in the courts and arbitration both "can be discretionary, arbitrary, domineering - and unjust." Moreover, "[l]aw can symbolize justice, or conceal repression. It can reduce exploitation, or facilitate it." Id. To some extent it may be dissatisfaction with the law that justifies arbitration without adherence to the law. This author has observed many business students, including fairly sophisticated graduate students with considerable work experience, express a preference for common sense over the law. Simply put, it seems that some disputants favor arbitration without devotion to the law precisely because they distrust the law. This lack of regard (if not disdain) for the law is similarly manifest in the jury nullification phenomenon. See NORMAN J. FINKEL, PERFECTION BY NULLIFICATION - COMMON SENSE JUSTICE: JURORS' NOTIONS OF THE LAW (1996); Major Michael J. Davidson, Jury Nullification: A Call for Justice or an Invitation to Anarchy?, 139 MIL. L. REV. 131 (1993).
269. Indeed, the law may or may not produce fair and just results. See AUERBACH, supra note 251, at 144-45. Auerbach concluded that social context and political choice determine whether courts or alternative institutions can render justice. He observed that adjudication in the courts and arbitration both "can be discretionary, arbitrary, domineering - and unjust." Moreover, "[l]aw can symbolize justice, or conceal repression. It can reduce exploitation, or facilitate it." Id. To some extent it may be dissatisfaction with the law that justifies arbitration without adherence to the law. This author has observed many business students, including fairly sophisticated graduate students with considerable work experience, express a preference for common sense over the law. Simply put, it seems that some disputants favor arbitration without devotion to the law precisely because they distrust the law. This lack of regard (if not disdain) for the law is similarly manifest in the jury nullification phenomenon. See NORMAN J. FINKEL, PERFECTION BY NULLIFICATION - COMMON SENSE JUSTICE: JURORS' NOTIONS OF THE LAW (1996); Major Michael J. Davidson, Jury Nullification: A Call for Justice or an Invitation to Anarchy?, 139 MIL. L. REV. 131 (1993).
270. Indeed, the law may or may not produce fair and just results. See AUERBACH, supra note 251, at 144-45. Auerbach concluded that social context and political choice determine whether courts or alternative institutions can render justice. He observed that adjudication in the courts and arbitration both "can be discretionary, arbitrary, domineering - and unjust." Moreover, "[l]aw can symbolize justice, or conceal repression. It can reduce exploitation, or facilitate it." Id. To some extent it may be dissatisfaction with the law that justifies arbitration without adherence to the law. This author has observed many business students, including fairly sophisticated graduate students with considerable work experience, express a preference for common sense over the law. Simply put, it seems that some disputants favor arbitration without devotion to the law precisely because they distrust the law. This lack of regard (if not disdain) for the law is similarly manifest in the jury nullification phenomenon. See NORMAN J. FINKEL, PERFECTION BY NULLIFICATION - COMMON SENSE JUSTICE: JURORS' NOTIONS OF THE LAW (1996); Major Michael J. Davidson, Jury Nullification: A Call for Justice or an Invitation to Anarchy?, 139 MIL. L. REV. 131 (1993).
271. Perini, 610 A.2d at 384-85 (Wilentz, C.J. concurring).
272. See supra text accompanying notes 16-17.
273. AAA Arbitration Times, Winter 1991-92, at 7.
274. Murray S. Levin & Doug Joyce, Pilot Study: Arbitration Survey, University of Kansas School of Business (August 1990) (unpublished paper available from author).
275. Respondents indicated their level of agreement by selecting either "strongly agree," "agree," "neutral," "disagree," or "strongly disagree." Average positive or negative scores were calculated for each statement by scoring the choices as 2, 1, 0, -1, and -2 points respectively. The level of disagreement for the statement "the fact that arbitrators do not strictly adhere to rules of law negatively affects the fairness of arbitration" averaged -.29.
276. There was a +.25 average agreement score for this statement.
277. This statement was supported with a +.08 average agreement score.
278. Average agreement score was +.78.
279. Average agreement score was +.80.
280. Average agreement score was +.93.
281. Average agreement score was +.39, with only 17% disagreeing with the statement.
282. The following statements elicited the strongest levels of agreement: Experienced and knowledgeable arbitrators are the key to continuing development and increased use of arbitration (+1.15); Arbitration results in significant cost savings (+1.08); Arbitration results in more timely resolution of disputes (+1.05); Arbitrators have greater knowledge of subject matter than jurors (+.95). The following statements elicited the strongest levels of disagreement: A lack of familiarity with arbitration has resulted in our electing to use other methods of dispute resolution (-.84); We only enter into contracts which call for binding arbitration (-.62); A reason that we use arbitration is that it results in less publicity than court proceedings (-.39).
283. See infra notes 301-12 and accompanying text.
284. Johnson v. American Family Mut. Ins. Co., 426 N.W.2d 419 (Minn. 1988), represents a rare exception to this. In Johnson, the court acknowledged that "[g]enerally, arbitration law states that arbitrators are the final judges of both law and fact." The court, however, proceeded to distinguish between arbitration of insurance claims and labor arbitration. The court stated: We think that consistency mandates that the courts interpret the no-fault statutes, not various panels of arbitrators. Therefore, we hold that in the area of automobile reparation, arbitrators are limited to deciding issues of fact, leaving the interpretation of law to the courts. In this case, the measure of the gap between Johnson's damages and the available liability insurance is an issue of law which must be determined by the court, not by the arbitration panel. Id. at 421. See also Cole v. Burns Intern. Sec. Servs., 105 F.3d 1465, 1467 (D.C. Cir. 1997) (acknowledg-ing distinctions between arbitration of labor disputes under collective bargaining agreement and mandatory arbitration of individual statutory claims outside of that context).
285. AUERBACH, supra note 251, at 33. In the Steelworkers Trilogy (United Steelworkers v. American Mfg. Co., 363 U.S. 564 (1960), United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960), United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960)) the Supreme Court laid out a different vision of the role of arbitration in the collective bargaining context. The Court contrasted the commercial context where arbitration is the substitute for litigation with the collective bargaining context where "arbitration is the substitute for industrial strife" and a "means of solving the unforeseeable by molding a system of private law for all the problems which may arise and to provide for their solution in a way which will generally accord with the variant needs and desires of the parties." 363 U.S. at 578-79. The court also recognized that in the collective bargaining context arbitrators perform functions different from those performed by courts. Id. at 581-582. Moreover, "[i]t is the arbitrator's construction [of the collective bargaining agreement] which was bargained for; . . . the court's have no business overruling him because their interpretation of the contract is different from his." Id. at 599.
286. AUERBACH, supra note 25, at 4.
287. Id. at 16.
288. See Jean R. Sternlight, Panacea Or Corporate Tool? Debunking The Supreme Court's Preference For Binding Arbitration, 74 WASH. U. L. Q. 637, 647-51 (1996). Based on an analysis of legislative history and an analysis of public policy, Sternlight criticizes the courts for enforcing arbitration agreements in transactions involving consumers, employees, franchisees and other "little guys." Similarly, the propriety of arbitration is more questionable when disputes are imbued with broader public concerns. See, e.g., Safety Equip. Corp. v. J.P. Maguire & Co., 391 F.2d 821 (2d Cir. 1968) (concluding that public interest in enforcement of the antitrust laws and the nature of claims arising in such cases render antitrust claims inappropriate for arbitration); Aimcee Wholesale Corp. v. Tomar Prods., Inc. 237 N.E.2d 223, 225 (N.Y. 1968) (stating that since arbitrators "are not bound by rules of law" they should not be allowed to decide certain issues of antitrust law which could by their nature [e.g. discriminatory pricing] affect the people as a whole). The Supreme Court, however, seems to have laid this issue to rest. For example, in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), the Court upheld the enforcement of an arbitration clause in an international transaction regarding counterclaims based on the Sherman Act. In Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987), the Court rejected arguments that factors such as industry-sponsored panels, the complexity of securities law claims, and criminal attributes of RICO, necessarily render arbitration inappropriate. And in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), the Court decided to compel arbitration of a statutory age discrimination claim. This decision was in spite of the protestation of Justices Stevens and Marshall that compelling arbitration of employment discrimination claims "eviscerates the important role played by an independent judiciary in eradicating employment discrimination." Id. at 42 (Stevens, J., dissenting).
289. See Richard Shell, Is Arbitration A Just Route?, NAT'L L. J., Feb. 11, 1991, at 13.
290. Banks Force Griping Customers To Forgo Courts for Arbitration, WALL ST. J., Jan. 20, 1993, at B1. According to this report, major banks elsewhere are similarly preparing to impose new dispute resolution policies. The Journal commented: "If the practice becomes a fixture in retail banking, other consumer service companies, including merchandisers and airlines, also are expected to make arbitration a condition of doing business with them."
291. Banks Force Griping Customers To Forgo Courts for Arbitration, WALL ST. J., Jan. 20, 1993, at B1. According to this report, major banks elsewhere are similarly preparing to impose new dispute resolution policies. The Journal commented: "If the practice becomes a fixture in retail banking, other consumer service companies, including merchandisers and airlines, also are expected to make arbitration a condition of doing business with them."
292. 500 U.S. 20 (1991).
293. See Mei L. Bickner et al., Developments In Employment Arbitration, DISP. RES. J. 8, 13-14 (1997).
294. Employee Pacts To Arbitrate Sought by Firms, WALL ST. J., Oct. 22, 1992, at B1; Kevin P. McGowan, Arbitration: Employers Pursue Mandatory Arbitration Despite EEOC's Opposition To Practice, 1996 DAILY LABOR REPORT 197 d8 (BNA Oct. 10, 1996). This article reports specifically that the EEOC's stance against mandatory arbitration has not deterred 120,000 employee Darden Restaurants Inc. Darden requires new hires to agree to arbitration as a condition of employment. When this program was first instituted, existing employees were given three months notice of the change.
295. Employee Pacts To Arbitrate Sought by Firms, WALL ST. J., Oct. 22, 1992, at B1; Kevin P. McGowan, Arbitration: Employers Pursue Mandatory Arbitration Despite EEOC's Opposition To Practice, 1996 DAILY LABOR REPORT 197 d8 (BNA Oct. 10, 1996). This article reports specifically that the EEOC's stance against mandatory arbitration has not deterred 120,000 employee Darden Restaurants Inc. Darden requires new hires to agree to arbitration as a condition of employment. When this program was first instituted, existing employees were given three months notice of the change.
296. Margaret A. Jacobs, Arbitration Policy Faces EEOC Challenge, WALL ST. J., Apr. 12, 1995, at B6.
297. II EEOC COMPLIANCE MANUAL § 132, Aug. 17, 1995. On this issue the EEOC has had mixed results in court. See, e.g., EEOC v. Midland Food Services, L.L.C., N.D. Ohio, No. 1:96-MC-107 (N.D. Ohio) (company successfully rebuffed EEOC's motion for preliminary injunction to bar company from requiring prospective employees to sign arbitration agreement as a condition of employment); EEOC v. River Oaks Imaging & Diagnostic, 1995 U.S. Dist. LEXIS 6140, *1 (S.D. Tex. 1995) (enjoining employer from requiring employees to agree to arbitration, finding "the so-called 'ADR Policy' . . . so misleading and against the principles of Title VII . . . that its use violates such law").
298. E.g., Robert A. Gorman, The Gilmer Decision and the Private Arbitration of Public-Law Disputes, 3 U. ILL. L. REV. 635 (1995); Lewis Maltby, Paradise Lost - How the Gilmer Court Lost the Opportunity for Alternative Dispute Resolution to Improve Civil Rights, 12 N.Y.L. SCH. J. HUM. RTS. 1 (1994); Patrick D. Smith, Arbitration - The Court Opens Door to Arbitration of Employment Disputes: Gilmer v. Interstate/Johnson Lane Corp., 17 J. CORP. L. 865 (1992). See also Samuel Estreicher, Arbitration of Employment Disputes without Unions, 66 CHI.-KENT L. REV. 753, 758 (1990) ("To extend the special status that arbitration enjoys under the Trilogy . . . to settings where collective bargaining does not take place would be to divorce the Court's doctrine from its underlying justification.").
299. E.g., Robert A. Gorman, The Gilmer Decision and the Private Arbitration of Public-Law Disputes, 3 U. ILL. L. REV. 635 (1995); Lewis Maltby, Paradise Lost - How the Gilmer Court Lost the Opportunity for Alternative Dispute Resolution to Improve Civil Rights, 12 N.Y.L. SCH. J. HUM. RTS. 1 (1994); Patrick D. Smith, Arbitration - The Court Opens Door to Arbitration of Employment Disputes: Gilmer v. Interstate/Johnson Lane Corp., 17 J. CORP. L. 865 (1992). See also Samuel Estreicher, Arbitration of Employment Disputes without Unions, 66 CHI.-KENT L. REV. 753, 758 (1990) ("To extend the special status that arbitration enjoys under the Trilogy . . . to settings where collective bargaining does not take place would be to divorce the Court's doctrine from its underlying justification.").
300. E.g., Robert A. Gorman, The Gilmer Decision and the Private Arbitration of Public-Law Disputes, 3 U. ILL. L. REV. 635 (1995); Lewis Maltby, Paradise Lost - How the Gilmer Court Lost the Opportunity for Alternative Dispute Resolution to Improve Civil Rights, 12 N.Y.L. SCH. J. HUM. RTS. 1 (1994); Patrick D. Smith, Arbitration - The Court Opens Door to Arbitration of Employment Disputes: Gilmer v. Interstate/Johnson Lane Corp., 17 J. CORP. L. 865 (1992). See also Samuel Estreicher, Arbitration of Employment Disputes without Unions, 66 CHI.-KENT L. REV. 753, 758 (1990) ("To extend the special status that arbitration enjoys under the Trilogy . . . to settings where collective bargaining does not take place would be to divorce the Court's doctrine from its underlying justification.").
301. E.g., Robert A. Gorman, The Gilmer Decision and the Private Arbitration of Public-Law Disputes, 3 U. ILL. L. REV. 635 (1995); Lewis Maltby, Paradise Lost - How the Gilmer Court Lost the Opportunity for Alternative Dispute Resolution to Improve Civil Rights, 12 N.Y.L. SCH. J. HUM. RTS. 1 (1994); Patrick D. Smith, Arbitration - The Court Opens Door to Arbitration of Employment Disputes: Gilmer v. Interstate/Johnson Lane Corp., 17 J. CORP. L. 865 (1992). See also Samuel Estreicher, Arbitration of Employment Disputes without Unions, 66 CHI.-KENT L. REV. 753, 758 (1990) ("To extend the special status that arbitration enjoys under the Trilogy . . . to settings where collective bargaining does not take place would be to divorce the Court's doctrine from its underlying justification.").
302. S. 63, 105th Cong. (1997).
303. Report and Recommendations, Commission on the Future of Worker-Management Relations, Dec. 1994, at 30-31.
304. A Due Process Protocol for Mediation and Arbitration of Statutory Disputes Arising Out of the Employment Relationship, May 1995.
305. See George Nicolau, The Future of Labor Arbitration, 51 DISP. RES. J. 74, 80 (Apr.-Sept. 1996).
306. Id.
307. This task force consisted of representatives from groups such as the AAA, Federal Mediation & Conciliation Service, the National Employment Lawyer's Association, American Civil Liberties Union, Society of Professionals in Dispute Resolution, the Arbitration Committee of the Labor & Employment Section of the ABA, and the International Ladies Garment Workers Union.
308. Nicolau, supra note 284, at 80.
309. AAA, National Rules for the Resolution of Employment Disputes (effective June 1, 1996) [hereinafter National Rules].
310. Id. at 3-4.
311. See supra notes 35-39 and accompanying text.
312. National Rules, supra note 288, at § 32(c).
313. See supra text accompanying notes 85-98.
314. National Rules, supra note 288, at § 4(b)(i)(1).
315. Id. at § 8.
316. See supra text accompanying notes 45-48.
317. National Rules, supra note 288, at § 11(a)(i).
318. Id. at § 11(c).
319. Andrea Gerlin & Margaret A. Jacobs, JAMS/Endispute Policy, WALL ST. J., Feb. 21, 1996, at B9. Both the AAA and JAMS/Endispute were under pressure from the National Employment Lawyers Association, a 2,000 member group of lawyers, who called for a boycott of private justice providers who were involved in hearing involuntary employment arbitration cases. Margaret A. Jacobs, Firms With Policies Requiring Arbitration Are Facing Obstacles, WALL ST. J. Oct. 16, 1995, at B6.
320. Andrea Gerlin & Margaret A. Jacobs, JAMS/Endispute Policy, WALL ST. J., Feb. 21, 1996, at B9. Both the AAA and JAMS/Endispute were under pressure from the National Employment Lawyers Association, a 2,000 member group of lawyers, who called for a boycott of private justice providers who were involved in hearing involuntary employment arbitration cases. Margaret A. Jacobs, Firms With Policies Requiring Arbitration Are Facing Obstacles, WALL ST. J. Oct. 16, 1995, at B6.
321. Voluntary Arbitration In Worker Disputes Endorsed by 2 Groups, WALL ST. J., June 20, 1997, at B13. This article also reported "the American Arbitration Association, which until recently had remained neutral on this issue, now says that employment arbitration 'is most effective' when the parties 'knowingly and voluntarily' agree to use it."
322. See Sternlight, supra note 272, at 675-77.
323. See Edward Brunet, Arbitration and Constitutional Rights, 71 N.C. L. REV. 81 (1992). As a threshold matter the constitutional challenge is dependent on sufficient state action. Professor Brunet argues that state action is present in the aggressive judicial enforcement of arbitration, but acknowledges the recent contraction of the state action doctrine. Id. at 111-13. See also Thomas E. Carbonneau, Arbitral Justice: The Demise of Due Process in American Law, 70 TUL. L. REV. 1945 (1996) (asserting that in the interest of reducing the judicial caseload, the courts have essentially surrendered arbitrants' rights).
324. See Edward Brunet, Arbitration and Constitutional Rights, 71 N.C. L. REV. 81 (1992). As a threshold matter the constitutional challenge is dependent on sufficient state action. Professor Brunet argues that state action is present in the aggressive judicial enforcement of arbitration, but acknowledges the recent contraction of the state action doctrine. Id. at 111-13. See also Thomas E. Carbonneau, Arbitral Justice: The Demise of Due Process in American Law, 70 TUL. L. REV. 1945 (1996) (asserting that in the interest of reducing the judicial caseload, the courts have essentially surrendered arbitrants' rights).
325. 499 U.S. 585 (1991).
326. Cf. Sherk v. Alberto-Culver Co., 417 U.S. 506, 519 (1974) ("An agreement to arbitrate . . . is, in effect, a specialized kind of forum-selection clause.").
327. 499 U.S. at 589-90.
328. 513 U.S. 265 (1995).
329. 513 U.S. at 280 (responding to amicus brief).
330. Id. at 280-81 (referring to H.R. REP. No. 542, 97th Cong., at 13 (1982)).
331. Id. at 281. The FAA explicitly provides that arbitration agreements may be voided on "such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2 (1994). Some legal commentators have expressed a very different view that traditional contract law is inadequate. See, e.g., Mark E. Budnitz, Arbitration of Disputes Between Consumers and Financial Institutions: A Serious Threat to Consumer Protection, 10 OHIO ST. J. ON DISP. RESOL. 267 (1995).
332. See Brunet, supra note 301, at 108.
333. Some particular arbitration clauses have been found substantively offensive. E.g., Graham v. Scissor-Tail, Inc., 623 P.2d 165, 176 (Cal. 1981) (finding an adhesion contract prepared by the American Federation of Musicians calling for use of an American Federation of Musicians arbitrator failed to meet "minimum levels of integrity"); Hope v. Superior Ct., 175 Cal. Rptr. 851, 856 (Cal. Ct. App. 1981) (finding adhesive and unconscionable a contract to arbitrate an employment dispute); Wheeler v. St. Joseph Hosp., 133 Cal. Rptr. 775, 783 (Cal. Ct. App. 1976) (refusing to enforce arbitration clause in hospital admission agreement signed by patient suffering from coronary insufficiency); Emerald Texas, Inc. v. Peel, 920 S.W. 2d 398, 401 (Tex. Ct. App. 1996) (refusing to enforce arbitration clause because of fraud and unconscionability).
334. See, e.g., Brookwood v. Bank of America, 53 Cal. Rptr. 2d 515, 519 (Cal. Ct. App. 1996) (ruling that employee's challenge that her 'unilateral lack of understanding' constituted grounds for contract revocation was not sufficient basis for court to refuse to enforce arbitration clause).
335. See, e.g., David L. Threlkeld & Co. v. Metallgesellschaft, Ltd., 923 F.2d 245, 248 (2d Cir. 1991); Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282 (9th Cir. 1988); Benoay v. E.F. Hutton & Co., 699 F. Supp. 1523 (S.D. Fla. 1988). See also MACNEIL ET AL., FEDERAL ARBITRATION LAW: AGREEMENTS, AWARDS AND REMEDIES UNDER THE FEDERAL ARBITRATION ACT § 19.2.1 (1994) (asserting that contract law challenges to arbitration clauses "hardly ever" prevail). Cole v. Burns Int'l. Sec. Servs., 105 F.3d 1465 (D.C. Cir. 1997), is a thought provoking illustration of judicial treatment of an adhesive and arguably unconscionable arbitration agreement. The District of Columbia Circuit Court rejected an unconscionability challenge to enforcement of employer mandated arbitration, but ruled that in such situations employee arbitrants cannot be required to pay arbitrator fees. The court expressed that current opportunities for judicial review based on the FAA, manifest disregard of the law, and public policy afforded sufficient protection of legal rights. Id. at 1486-87. An employee should not, however, have "to pay an arbitrator's compensation in order to secure the resolution of statutory claims under Title VII any more than an employee can be made to pay a judge's salary." Id. at 1468. It is amazing that the court can show such concern for the effects of requiring employees to pay arbitration fees and be blind or dispassionate to the absence of a meaningful review process and the consequences for decision-making standards.
336. RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187, cmt. b, e (1971). But see Carnival Cruise Lines v. Shute, 499 U.S. 585 (1991).
337. 43 F.3d 1244 (9th Cir. 1994), cert. denied, Arco Prods. Co. v. Graham Oil Co., 116 S.Ct. 275 (1995).
338. 43 F.3d at 1249.
339. Four days after the Graham Oil decision, the Ninth Circuit Court also ruled in a sexual harassment case that an arbitration clause should be enforced only if the employees knowingly and voluntarily elected arbitration. Prudential Ins. Co. of Am. v. Lai, 42 F.3d 1299 (9th Cir. 1994). But see Hall v. Metlife Resources, 1995 U.S. Dist. LEXIS 5812 (S.D.N.Y. 1995) (finding the very same securities industry employment agreement used in Prudential enforceable because one who signs a contract is presumed to understand its terms). Cf., Board of Educ. of Carlsbad Mun. Schs. v. Harrell, 882 P.2d 511 (N.M. 1994) (ruling that statutory compulsory arbitration of a school superintendent's wrongful discharge claim violated the constitutional right to a fair hearing because of the limited right of appeal of arbitration).
340. Lambdin v. Levi, 903 P.2d 1126 (Colo. 1995).
341. E.g., MO. REV. STAT. § 435.460 (1992); MONT. CODE ANN. § 27-5-114(4) (1995); S.C. CODE ANN. § 15-48-10 (Law. Co-op. Supp. 1996); VT. STAT. ANN. tit. 12, § 5652(b) (Supp. 1996).
342. See, e.g., CAL. CIV. PROC. CODE §§ 1295, 1298 (West Supp. 1997); MO. REV. STAT. § 435.460 (1992).
343. See, e.g., ALA. STAT. § 09.55.535 (1994); COLO. REV. STAT. ANN. § 13-64-403 (West Supp. 1996); MONT. CODE ANN. § 27-5-114 (1995).
344. VT. STAT. ANN. tit. 12, § 5652 (Supp. 1996).
345. ALA. STAT. § 09.55.535 (1996).
346. IOWA CODE ANN. § 679A.1(2)(a)(1996).
347. 116 S.Ct. 1652 (1996).
348. 886 P.2d 931 (1994).
349. 116 S.Ct. at 1656 (quoting from Scherk v. Alberto-Culver Co., 417 U.S. 506, 511 (1974)).
350. See also Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. at 282 (O'Connor concurring opinion).
351. Rule 21(f), NASD Rules of Fair Practice (1989). The Securities Industry Conference on Arbitration's suggestion that customers separately initial the highlighted statement has not been adopted by the securities industry self-regulatory organizations. Securities Arbitration Reform, Report of the Arbitration Policy Task Force, at 14 n.15, January 1996 [hereinafter The Ruder Report].
352. The Ruder Report, supra note 328, at 14-21. The Task Force rejected proposals that the arbitration agreement be set forth in a separate document or that the section of the agreement containing the arbitration clause be separately initialed. The commission explained that this would require burdensome additional paperwork that would not further advance the customer's awareness or understanding. Id. at 20.
353. This notion finds support in the Mastrobuono decision where the Supreme Court expressed a reluctance to recognize an intent to give up important rights simply by signing a standard form agreement to arbitrate. See supra text accompanying note 77.
354. See, e.g., Rostad & Rostad v. Investment Mgmt. & Res., 923 F.2d 694 (9th Cir. 1991). Judge Noonan quipped that the appeal of the arbitration award by the brokerage firm "is a kind of man bites dog case. . . . Having enthusiastically welcomed the enforcement of agreements to arbitrate, the securities industry might be expected not to encourage retrial of a case in federal court. But when a broker loses an arbitration it is hard for the disappointed litigant to realize that the rules now permit only a restricted review of what arbitrators have decided." Id. at 697.
355. 500 U.S. at 26 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 628 (1985)).
356. Id. at 28 (quoting Mitsubishi, 473 U.S. at 637 (1985)).
357. 105 F.3d 1465 (D.C. Cir. 1997).
358. Id. at 1482. For additional discussion of the Cole case see supra notes 268 and 312.
359. See supra text accompanying notes 33-53.
360. See Perini, 610 A.2d at 384 (Wilentz, C. J., concurring).
361. See supra notes 131-42 and 157 and accompanying text.
362. See supra note 281 and accompanying text.
363. One of the major purposes of the FAA "was to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts . . . ." Gilmer, 500 U.S. at 24. For a historical perspective on the enforceability of business arbitration agreements, see Philip G. Phillips, The Paradox in Arbitration Law: Compulsion as Applied to a Voluntary Proceeding, 46 HARV. L. REV. 1258 (1933).
364. This would be a more probing evaluation than the traditional contract law assessment of fraud, duress or unconscionability. See supra notes 306-12 and accompanying text. For a discussion of evidence supporting the view that the original intent of the drafters of the FAA was that the courts should only enforce arbitration agreements that are voluntary and the product of bargaining among relative equals in arms length transactions and that the FAA was intended to apply only in federal courts, see Sternlight, supra note 272, at 647-51.
365. See supra notes 319-23 and accompanying text.
366. See supra notes 324-27 and accompanying text.
367. One may look to the securities industry for guidance. Functioning under the influence of several self regulatory organizations, and the watchful eye of the Securities and Exchange Commission, the securities industry has made major advances in improving arbitration clause language. See supra notes 328-30 and accompanying text. Clauses now in use in the industry have evolved to include language such as the following: ARBITRATION DISCLOSURES: ARBITRATION IS FINAL AND BINDING ON THE PARTIES. THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO JURY TRIAL. PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT FROM COURT PROCEEDINGS. THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO SEEK MODIFICATION OF RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED. THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY. Agreement of Pershing, Division of Donaldson, Lufkin & Jenrette Securities Corporation, 1996 (emphasis in original). This language is essentially dictated by Rule 21(f), NASD Rules of Fair Practice (1989). See also The Ruder Report, supra note 328, at 14-15. It is interesting to note that the Pershing statement which includes the above arbitration disclosures and the arbitration agreement and a number of other "Terms and Conditions" also includes the following statement: "If any of the above Terms and Conditions are unacceptable to you, please notify Pershing immediately in writing by certified mail to Pershing . . . (address) Attention: Compliance Department." From this, it appears that some of these terms of agreement may be negotiable. If that is the case, this represents a step in the direction that this author is advocating.
368. James J. White, Machiavelli and the Bar: Ethical Limitations On Lying In Negotiation, AM. B. FOUND. RES. J. 926, 931-32 (1980).
369. See supra notes 87-100 and accompanying text.
370. GOLDBERG ET AL., supra note 5, at 200.
371. Id. (emphasis added).