Vacatur Under the FAA – It Isn’t Easy

• Posted on: May 22 2024

By: Jeffrey M. Haber

This Blog has posted numerous articles concerning vacatur of an arbitration award under Article 75 of the Civil Practice Law and Rules (“CPLR”). E.g., here, here, and here. On occasion, we have posted articles concerning vacatur under the Federal Arbitration Action (“FAA”). Today, we revisit vacatur under the FAA through our examination of Matter of Patel v. Macy’s Inc., 2024 N.Y. Slip Op. 02782 (1st Dept. May 21, 2024) (here).

Patel involved a petition to vacate an arbitration award (the “Award”) denying petitioner’s claims that respondents discriminated against him based upon his race and national origin and retaliated against him for engaging in protected activity in violation of New York City Human Rights Law (“NYCHRL”).

In denying the claims, the arbitrator concluded that there was insufficient evidence to prove that discrimination was one of the motivating factors supporting petitioner’s termination. He also found insufficient evidence of disparate treatment and discriminatory animus.  

Petitioner moved to vacate the Award. Respondents filed a counterclaim to confirm the Award. The motion court denied petitioner’s motion and granted respondents’ motion to confirm the Award. 

Petitioner appealed, claiming that the arbitrator manifestly disregarded the law with respect to his claims for, inter alia, discrimination and retaliation, and in so doing exceeded his authority. The Appellate Division, First Department affirmed.

It is well settled that “courts may vacate an arbitrator’s decision ‘only in very unusual circumstances.’”¹ These circumstances are generally found in Section 10 of the FAA. 

Under Section 10 of the FAA, an arbitration award may be vacated:

(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.² 

The grounds set forth above are the exclusive bases for seeking to vacate an arbitral award under the FAA.³ 

“A party seeking to vacate an award pursuant to 9 USC § 10(a)(4) ‘bears a heavy burden. [Therefore,] [i]t is not enough … to show that the [arbitrator] committed an error—or even a serious error.’”⁴ 

Courts “‘consistently accord[] the narrowest of readings’ to this provision of law.”⁵ Thus, “[a] court’s ‘inquiry under § 10(a)(4) … focuses on whether the arbitrator[] had the power, based on the parties’ submissions or the arbitration agreement, to reach a certain issue, not whether the arbitrator[] correctly decided that issue.”⁶ 

Additionally, an “arbitration award may … be vacated under the FAA if it exhibited a ‘manifest disregard’ of the law.”⁷ The manifest disregard of law doctrine is, however, is a ‘severely limited’ doctrine.⁸ “It is a doctrine of last resort limited to the rare occurrences of apparent ‘egregious impropriety’ on the part of the arbitrators, ‘where none of the provisions of the FAA apply.’”⁹ 

The Second Circuit has indicated that the doctrine requires “more than a simple error in law or a failure by the arbitrators to understand or apply it; and, it is more than an erroneous interpretation of the law.”¹⁰ “The showing required to avoid summary confirmation of an arbitration award is[, therefore,] high, and a party moving to vacate the award has the burden of proof.”¹¹ 

To modify or vacate an award on the ground of manifest disregard of the law, a court must find both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case.¹² 

 “The arbitrators’ interpretation of the issues and the scope of their authority is accorded substantial deference,” and as such, courts “will not overturn the decision unless there is no support at all justifying the decision.”¹³ 

[Eds. Note: this Blog examined the manifest disregard of the law doctrine here. This Blog examined vacatur under Section 10 of the FAA here and here.]

Against the foregoing principles, the First Department affirmed.

The Court rejected “Petitioner’s arguments to the effect that the arbitrator did not give sufficient weight to certain evidence ….”¹⁴ The Court found that the “arbitrator analyzed the evidence submitted during the hearing in a detailed award and applied the proper standard in assessing petitioner’s claims of employment discrimination and retaliation under [NYCHRL], including its mandate to construe its protections as liberally as reasonably possible to accomplish its broad and remedial purposes.”¹⁵ “This analysis,” said the Court, “meets the requirement that there be at least ‘a barely colorable justification for the outcome reached.’”¹⁶ 

The Court further held that vacatur was not “warranted based on the arbitrator’s omission of the ‘cat’s paw’ theory of discrimination from his discussion.”¹⁷ “Even if that theory were clearly applicable,” said the Court, “[t]here [was] no explicit evidence in the record that … the arbitrator[] believed that [it] applied,” or “any deliberateness or willfulness exhibited within the award that show[ed] the arbitrator[’s] intent to flout the law.”¹⁸ “In any event,” noted the Court, “the arbitrator found that petitioner’s immediate supervisor exhibited no discriminatory or retaliatory animus, which [was] consistent with his implicit rejection of petitioner’s cat’s paw theory premised on such animus.”¹⁹ 

The Court also held that “Petitioner’s arguments as to his retaliation claim … fail[ed] to meet the high bar for vacatur.”²⁰ The Court explained that “[a]lthough there was evidence from which the arbitrator could have concluded that petitioner intended to assert a protected right in an internal complaint, the arbitrator concluded that respondents ‘did not understand’ petitioner’s complaints to be protected activity, and, even assuming this conclusion was erroneous, there [was] no evidence that the arbitrator deliberately ‘refused to apply’ a legal principle ‘or ignored it altogether.”²¹ 

Finally, the Court rejected petitioner’s arguments that the arbitrator’s credibility determinations were erroneous and, therefore, a basis for vacatur: “To the extent petitioner asserts that the arbitrator should have credited his testimony, rather than that of respondents’ witnesses, his ‘disagreements with the arbitrator’s credibility determinations … [do] not provide a sufficient basis for overturning the award.’”²² 

Takeaway

The First Department’s analysis in Matter of Patel underscores the difficulties a party faces trying to vacate an arbitration award on any of the enumerated grounds under the FAA and the manifest disregard of the law doctrine. The result is not surprising. In order to promote the arbitral forum and its benefits, judicial review of an arbitration award is limited. For this reason, the FAA not only establishes a high hurdle for vacatur, but through judicial interpretation makes that hurdle very difficult to overcome. Thus, so long as the arbitrator acts within the scope of his/her contractually delegated authority, his/her interpretation of the parties’ contract, including the law and facts related thereto, will prevail even if the court has a better one.

Footnotes

1. Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 568 (2013) (citations omitted).
2. 9 U.S.C. § 10(a).
3. 9 U.S.C. § 10; Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 586 (2008).
4. Matter of Nexia Health Techs., Inc. v. Miratech, Inc., 176 A.D.3d 589, 591 (1st Dept. 2019) (citing Oxford Health Plans, 569 U.S. at 569). This Blog wrote about Nexia Health here.
5. Salus Capital Partners, LLC v. Moser, 289 F. Supp. 3d 468, 477 (S.D.N.Y. 2018).
6. Id. at 477 (quoting DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 824 (2d Cir. 1997)); see also Matter of Nexia Health Techs., 176 A.D.3d at 591.
7. McQueen-Starling v. UnitedHealth Grp., Inc., 654 F. Supp. 2d 154, 161 (S.D.N.Y. 2009).
8. Matter of Arbitration No. AAA13-161-0511-85 Under Grain Arbitration Rules, 867 F.2d 130, 133 (2d Cir. 1989).
9. Duferco Intl. Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 389 (2d Cir. 2003).
10. Duferco, 333 F3d at 389. The Second Circuit has clarified, in light of Hall Street Assocs., supra, that it regards the doctrine of manifest disregard of the law as “a judicial gloss on the specific grounds for vacatur enumerated in section 10 of the FAA,” rather than as “a ground for vacatur entirely separate from those enumerated in the FAA.” Stolt-Nielsen SA v. AnimalFeeds Intl. Corp., 548 F.3d 85, 94 (2d Cir. 2008], rev’d on other grounds, 559 U.S. 662 (2010)).
11. Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997) (internal citations omitted).
12. Wallace v. Buttar, 378 F.3d 182, 189 (2d Cir. 2004) (quoting Banco de Seguros del Estado v. Mutual Mar. Off., Inc., 344 F.3d 255, 263 (2d Cir. 2003)).
13. Roffler v. Spear, Leeds & Kellogg, 13 A.D.3d 308, 310 (1st Dept. 2004) (internal citations omitted) (emphasis added).
14. Slip Op. at *1 (citing Matter of Daesang Corp. v. NutraSweet Co., 167 A.D.3d 1, 20 (1st Dept. 2018), lv. denied, 32 N.Y.3d 915 (2019)).
15. Id. (citing Albunio v. City of New York, 16 N.Y.3d 472, 477-478 (2011)).
16. Id. (quoting Matter of Daesang, 167 A.D.3d at 19 (quoting Wien & Malkin LLP v. Helmsley-Spear, Inc., 6 N.Y.3d 471, 479 (2006)) (internal quotation marks omitted).
17. Id. Under the cat’s paw theory, “an employee is fired or subjected to some other adverse employment action by a supervisor who himself has no discriminatory motive, but who has been manipulated by a subordinate who does have such a motive and intended to bring about the adverse employment action….” Vasquez v. Empress Ambulance Serv., 835 F.3d 267, 272 (2d Cir. 2016).
18. Id. (quoting Wien, 6 N.Y.3d at 484) (internal quotation marks omitted).
19. Id. (citing Vasquez, 835 F.3d at 272).
20. Id.
21. Id. at *1-*2 (quoting Wien, 6 N.Y.3d at 481).
22. Id. at *2 (quoting Matter of Jackson v. Main St. Am. Group., 210 A.D.3d 501, 501 (1st Dept. 2022)).

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.