Saturday, July 26, 2008

Grounds for vacating arbitration award under the FAA

POINT OF LAW FROM THE 5TH COURT OF APPEALS Vacatur under § 10(a)(4) of the FAA “Under the FAA, the validity of an arbitration award is subject to attack only on grounds listed in sections 10 and 11 of the Act.” Thomas James Assocs., Inc. v. Owens, 1 S.W.3d 315, 319-20 (Tex. App.-Dallas 1999, no pet.). A court may vacate an arbitration award “where the arbitrators exceeded their powers.” 9 U.S.C.A. § 10(a)(4) (West Supp. 2007). One way that a panel of arbitrators can exceed its powers under the FAA is by failing to follow the parties' agreement regarding the composition of the panel. For example, a panel of two arbitrators exceeds its powers by deciding a case if the parties' agreement requires arbitration before a panel of at least three arbitrators. Szuts v. Dean Witter Reynolds, Inc., 931 F.2d 830, 831-32 (11th Cir. 1991). Roehrs and McGrath argue that the arbitrators exceeded their powers in this case because the panel was not constituted in accordance with the arbitration agreement. They contend that the Agreement gave them an exclusive right to select one of the three arbitrators, and that the AAA had no power to disqualify their selected arbitrator on grounds of partiality. Thus, they argue, the AAA's disqualification of their selection, Mark Shank, violated the terms of the arbitration agreement and deprived the panel as later constituted of any authority to render a binding award against them. Alternatively, they argue that the AAA misapplied its own rules regarding disqualification of arbitrators for partiality. We reject their contentions and affirm FSI's traditional summary judgment on this counterclaim based on two conclusions. First, the evidence conclusively establishes that appellants did agree to abide by the AAA's standards regarding the impartiality of party-selected arbitrators. Second, the evidence establishes that the AAA's disqualification of Shank was not so irrational or in such manifest disregard of its own rules as to permit vacatur under the FAA. Roehrs v. FSI Holdings, Inc., No. 05-06-01432-CV, 246 SW3d 796 (Tex.App.- Dallas, Feb. 26, 2008, pet. denied by the Tex. Sup. Ct. June 20, 2008)

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