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Limits on Arbitrator's Remedial Powers - What are your thoughts?

Arbitrators may relief that a court may not. What limits should there be on the arbitrator's remedial powers? Please provide your thoughts/comments below.

Comments (7)

Arbitrators have the latitude and the power to fashion remedial orders that direct counsel to meet and confer, and agree on a course of action that preserves the parties' rights to own the process, and move it forward..

Lawrence C. Root:

Arbitration is a creature of contract. As such, our first "stop" will be the contract(s) involved in any particular matter. If the Parties have contracted for a process governed by the laws, procedural and/or substantive, of a particular jurisdiction I believe the Arbitrator's powers are limited accordingly. There may be some "wriggle room" in the laws, particularly case law, of varying jurisdictions as to the scope of arbitral remedial powers as compared to the jurisdiction's judicial remedial powers. If the governing contract is silent on governing law the Arbitrator may have more remedial flexibility.

I suggest opening the issue for discussion with Counsel and, in certain cases, with sophisticated Parties. The caricature of a "loose-cannon" arbitrator has become one of the criticisms of arbitration, but in some circles such "flexibility" is considered an advantage. I believe it is incumbent on the Arbitrator to determine the wishes of the Parties and, if necessary, seek their expectations in written form, even to the point of amending the contract to eliminate later criticism.

My background is nearly three decades on a state trial bench, so my thoughts are naturally colored by that experience. It has been my experience that Parties who have selected a former judge for their arbitrator are likely to be looking for a process that is more court-like. On the other hand, if the Parties have chosen an arbitrator who has not been a judge their expectations may not be as clear and, thus, in need of discussion.

It may be advisable to have the actual Parties themselves be part of this discussion in some cases. All too often the drafters of the contracts are scriveners rather than adjudicators. It is generally in the drafting process that the expectations of speed and economy are most likely going to be injected into the mix of expectations. While we rely on the terms of the contract to govern the process, once a matter gets into the hands of litigators they have their own expectations, and they live and work in a more litigation-based environment, sometimes seeming to be working independent of contract specifications that are not part of their sense of priorities (hence motions, discovery, etc.). Particularly in cases of "high value" I submit it is incumbent on us to make sure everyone is "on the same page" regarding their expectations on what their arbitration experience will be.

Finally, I further submit that we need to calm the Parties with a reality-based sense of repose that they will not experience an arbitrator "going rouge", deciding a case on a nebulous sense of fairness rather than that the contract specifies and/or what the Parties have a right to expect.

AAA Commercial Rule 47(a) states that "the arbitrator may grant any remedy or relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties, including, but not limited to, specific performance of a contract."

In New York, for example, even apart from the AAA Commercial rules:

"absent provision in the arbitration clause itself, an arbitrator . . .may do justice as he sees it, applying his own sense of law and equity to the facts as he finds them to be and making an award reflecting the spirit rather than the letter of the agreement, even though the award exceeds the remedy requested by the parties."

Silverman v. Benmor Coats, Inc., 461 N.E.2d 1261, 1266 (N.Y. 1984). See also Sperry Int'l Trade, Inc. v. Gov't of Israel, 689 F.2d 301, 306 (2d Cir. 1982) ("Under New York law arbitrators have power to fashion relief that a court might not properly grant.")There is "a powerful presumption that the arbitral body acted within its powers" ( Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier (RAKTA), 508 F.2d 969, 976 (2d Cir. 1974).)

Therefore, assuming a general and broad arbitration clause, the arbitrator's power is plenary (Advanced Aerofoil Techs., AG v. Todaro, 2014 WL 1512118, at *3 (S.D.N.Y. Apr. 16, 2014), aff'd, 588 F. App'x 51 (2d Cir. 2014)) and the arbitrator can impose any remedy that is just and equitable.

Parties wishing to constrain the arbitrator's remedial powers should expressly state any limitation in the arbitration clause.

Finally, an interesting case before the Second Circuit (PDV Sweeny, Inc. v. ConocoPhillips Co.) will test whether the arbitrator's powers are constrained by public policy.

I agree with the caution recommend by Lawrence Root. A number of business arbitration users are shying away from arbitration based upon a number of factors, but lack of predictability about the process and the outcome are two of the most important. On the other hand, it is the responsibility of users, when and if they have the opportunity, to ensure that clauses are drafted with the process and outcome they have in mind, something also alluded to by Mr. Root and Steve Skulnik. Two of my current arbitrations are based upon clauses that require that I follow the law and place other clear limitations on my remedial power. The agreement of the parties is the key.

Agreement of the parties is key to deciding remedies available to the arbitrator. If the agreement is silent, then the rules empower the arbitrator to do equity under the AAA rules, as Jim Rhodes points out above. That being said, as an arbitrator, I exercise caution in awarding equitable relief, always taking guidance from the parties in terms of what they believe is appropriate and needed. While, of course, one side will argue against such equitable relief, I usually limit myself to relief that at least one party has requested. I also do not take my authority to grant equitable relief as latitude to "split the baby." Despite that popular myth about arbitration, an arbitrator's remedial powers are not a substitute for the arbitrator thoughtfully considering the rights and obligations of the parties. Instead, broad remedial powers are appropriate only when necessary for effectuating the intent of the parties under their contractual relationship.

Stephen F. Ruffino:

Even though arbitrators in New York have broad authority to fashion a remedy that does justice, I would hesitate to alter the parties' contractual rights. Sometimes a party makes a bad deal ... and must live with the consequences. The only time I would consider applying discretion in the remedy is when a party or counsel has egregiously abused the process (before or during arbitration) to gain an unfair advantage.

In contracts I draft, where I want to limit an arbitrator's authority, I use the following text: "The arbitrators are not authorized to ... award any damages, remedy or relief that is not expressly authorized by this Agreement, ... or apply any inherent equitable powers to fashion an order or award that is in any way inconsistent with the express provisions of this Agreement ...."

I agree with the prior comments. The contract frequently limits remedies and prohibits departing from what a court could do. Even if it does not, being too free wheeling in my opinion jeopardizes the Award. Some agreements specifically allow the arbitrator to act ex aequo et bono. Others exist so that interests, rather than claims can be arbitrated. But most parties do not agree to arbitration with the expectation an arbitrator can help them, or hurt them, more than a court could. And most contracts don't really say that.

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