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When Arbitrators' Disregard of the Law Won't Matter in NY


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11/12/2018
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Where New York State and Federal Law Are Aligned Regarding Arbitration Awards

In most respects, New York State law and Federal law mirror each other with respect to the rules governing arbitration. More specifically, both NY Civil Practice Law and Rule Article 75 and the Federal Arbitration Act [9 U.S.C.A. Section 10] provide that an arbitration award may be vacated under the following circumstances:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made [9 USC § 10 [a]].

One Noteworthy Area Where the FAA Differs from New York State Arbitration Law 

That said, there is a fascinating distinction between New York State and Federal law when it comes to grounds for vacating an arbitration award:

When the arbitrators have shown manifest disregard of the law.

While Federal law agrees that this would constitute a valid basis to vacate an arbitrator's award, New York State does not.

What is "Manifest Disregard of the Law?"

Fortunately, in Wilko v. Swan, the United States Supreme Court defined the standard for us, stating that an arbitrator's award may be vacated if:

 “(1) the arbitrator knew of a governing legal principle yet refused to apply it or ignored it all together, and (2) the law ignored by the arbitrators was well defined, explicit and clearly applicable to the case.”

On the other hand, the Court also made clear that this doctrine was very limited in scope and applicability, stating:

“[I]nterpretations of the law by…arbitrators in contrast to manifest disregard are not subject…to judicial review for error in interpretation.”

Why This May Often Prove to be a Distinction Without a Difference

Truth be told, there are two (2) reasons why this apparent disparity between the FAA and New York State law is largely immaterial:

(1) First, New York allows parties to seek vacatur of an arbitration award where an award is "contrary to public policy," i.e., where “there is any statutory, constitutional or public policy prohibition against arbitration of the grievance, or where a court can conclude “that the granting of any relief would violate public policy.” See, e.g., Matter of City of Johnstown, 99 N.Y.2d 273, 278 (2002).

As a practical matter, there are very few cases that could fit into the "manifest disregard of the law" category that wouldn't also fall within the ambit of the "contrary to public policy" category as well; and,

(2) Second, just as with the manifest disregard limitations set forth above, the courts have made it abundantly clear that satisfying either of these criteria is exceedingly difficult.



Category: Business Litigation

Jonathan Cooper
Non-Compete, Trade Secret and School Negligence Lawyer

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