Florida Bar Journal

Legal Challenges to Arbitration Awards: Part II

Part I of this article discussed the considerations that are taken into account where there is a contention of a flawed award in a proceeding governed by the Federal Arbitration Act (FAA, 9 U.S.C. §§1-14). In this part, I explore factors that are considered when the enforcement of an award is claimed to violate public policy. In addition, I review the authority of the arbitrator in a proceeding governed by the Taft Hartley Act. Finally, I discuss suggestions for counsel who question the foundations of an unfavorable award.

Challenges to Awards Based on the Argument that Enforcement Would Violate Public Policy

In W.R. Grace and Company v. Local Union 759, International Union of the United Rubber, Cork, Linoleum and Plastic Workers of America, 461 U.S. 757 (1983), the Court declined to nullify an award that upheld two employees’ grievances for back pay. The employer admittedly laid them off in violation of the employees’ rights under a collective bargaining agreement. The employer based the right to lay them off on a conciliation agreement the employer had entered into with the EEOC. The conciliation agreement provided that in the event of layoffs, the company would maintain the existing proportion of women in the bargaining unit.^[1] The Court found that the company had entered into conflicting contractual commitments, both of which were binding on it.^[2] Enforcing the employer’s commitment to the union did not violate public policy as it merely required the payment of money.^[3] It did not violate either of the company’s inconsistent commitments. The Court stated:

If the contract as interpreted by [Arbitrator] Barrett violates some explicit public policy, we are obliged to refrain from enforcing it. Hurd v. Hodge, 334 U.S. at 35.^[4] Such a public policy, however, must be well defined and dominant, and is to be ascertained ‘by reference to the laws and legal precedents and not from general considerations of supposed public interests.’ Muschany v. United States,^[5] 324 U.S. 49, 66 (1945).^[6]

The grievant in United Paperworkers International Union, AFL-CIO v. Misco, Inc., 484 U.S. 29 (1987), was discharged for violation of the employer’s rule prohibiting bringing controlled substances, in this case marijuana, on the company premises. The arbitrator ordered the grievant reinstated with back pay based on his finding that the company failed to prove the grievant possessed marijuana in the workplace. The Supreme Court reversed the appellate court ruling, which had affirmed the district court’s order vacating the arbitration award. The Court rejected the employer’s argument that reinstating the grievant to his safety sensitive job operating machinery would violate public policy. The Court, citing Muschany v. United States, 324 U.S. 49, 66 (1945), observed that “such a public policy must be ascertained by reference to the laws and legal precedents and not from general considerations of supposed policy interests” and that the legal precedents must be shown to establish a “well defined and dominant” policy.^[7] The Court ruled that no precedents were shown establishing a “policy against the operation of dangerous machinery while under the influence of drugs.”^[8]

The case of Eastern Associated Coal Company v. United Mineworkers of America, Dist. 17, 531 U.S. 57 (2000), involved an employer’s contesting an arbitration award reinstating to employment one of its truck drivers who had twice tested positive for marijuana. The award had several conditions, including that the employee be given a 30-day unpaid suspension, that the employee continue to participate in a substance abuse program and that he sign a letter of resignation to take effect if he tested positive within the next five years. Affirming the lower courts’ upholding the award, the Court found that the Department of Treasury regulations, which included a requirement for employers of safety-sensitive drivers to provide employees who tested positive to pass a return-to-duty drug test before resuming duties, did not create a public policy barring reinstatement to a safety-sensitive position under the terms of the award.

W.R. Grace, Misco, and Eastern Associated Coal were all cases involving unions and presumably not covered by the FAA. Accordingly, Hall Street would not limit violation of public policy as a basis to deny enforcement of an award in cases such as those.

Challenges to Arbitration Awards Conducted Under the Authority of §301 of The Labor Management Relations Act of 1947

In Textile Workers Unions of America v. Lincoln Mills of Alabama, 353 U.S. 448 (1957), the Court established that agreements to arbitrate labor disputes are valid and enforceable under 29 U.S.C. §185(a) (§301 of the Taft Hartley Act). The Court stated that “[p]lainly the agreement to arbitrate grievance disputes is the quid pro quo for an agreement not to strike.”^[9]

• Limits on Courts’ Authority to Vacate or Modify Arbitration Awards — Section 301 (a) and (b) provide as follows:

(a) Venue, amount

Any labor organization which represents employees in an industry affecting commerce as defined in this chapter and any employer whose activities affect commerce as defined in this chapter shall be bound by the acts of its agents. Any such labor organization may sue or be sued as an entity and on behalf of the employees whom it represents in the courts of the United States. Any money judgment against a labor organization in a district court of the United States shall be enforceable only against the organization as an entity and against its assets, and shall not be enforceable against any individual member or his assets.

(b) Responsibility for acts of agent; entity for purposes of suit; enforcement of money judgments

Suits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce as defined in this chapter, or between any such labor organizations, may be brought in any district court of the United States having jurisdiction of the parties, without respect to the amount in controversy or without regard to the citizenship of the parties.^[10]

A court will not tamper with awards rendered by a duly appointed arbitration tribunal except under very limited circumstances. The basis for this disinclination of courts was pronounced in United Steelworkers of America v. Enterprise Wheel and Car Corp., 363 U.S. 593, 599 (1960).^[11] The Court stated that “it is the arbitrator’s construction which was bargained for; and so far as the arbitrator’s decision concerns construction of the contract, the courts have no business overruling him because their interpretation of the contract is different from his.”^[12]

[A]n arbitrator is confined to interpretation and application of the collective bargaining agreement; he does not sit to dispense his own brand of industrial justice. He may of course look for guidance from many sources, yet his award is legitimate only so long as it draws its essence from the collective bargaining agreement. When the arbitrator’s words manifest an infidelity to this obligation, courts have no choice but to refuse enforcement of the award.”^[13]

The Supreme Court affirmed this view in United Paperworkers International Union v. Misco, Inc., 484 U.S. 29 (1987), stating, “the arbitrator’s award settling a dispute with respect to the interpretation or application of a labor agreement must draw its essence from the contract and cannot simply reflect the arbitrator’s own notion of industrial justice.”^[14]

The Supreme Court has made it clear that courts have minimal authority to set aside awards in cases involving arbitrations under collective bargaining agreements (CBAs) covered by §301. In United Steelworkers of America v. American Manufacturing Co, 363 U.S. 564, 567-68 (1960),^[15] the Court observed: “The function of the court is very limited when the parties have agreed to submit questions of contract interpretation to the arbitrator.” The Court proclaimed that courts “have no business weighing the merits of the grievance, considering whether there is equity in a particular claim, or determining whether there is particular language in the instrument which will support the claim.”^[16]

• Application of FAA Standards to Awards Decided in §301 Arbitrations — As I have earlier reviewed, the FAA provides specific standards for setting aside or modifying awards covered by that statutory scheme. However, §301 has no such defined standards to apply when an award entered in a §301 case is challenged. The FAA may provide suggestions to a court in which an award is challenged, but it is not mandatory for a court to apply the provisions of the FAA to §301 cases.

For instance, the Second Circuit declined to apply §16(b)(2) of the FAA to allow an interlocutory appeal from a district court order denying Coca-Cola’s motion for summary judgement and ordering the parties to arbitrate their dispute in The Coca-Cola Bottling Co. of New York v. Soft Drink and Brewery Workers Union Local 812, IBT, 242 F.3d 52 (2d Cir. 2001). Coca-Cola asserted that the appellate court had no jurisdiction as the FAA in §16(b)(2) bars interlocutory appeals. In affirming the lower court’s order, the appellate court ruled that the FAA was inapplicable to actions brought pursuant to §301. The court observed that although §301

contains no substantive rules, the Supreme Court has held that it does more than confer jurisdiction, [citing Lincoln Mills, supra, at p. 455] and is a source of federal “substantive law”…which the courts must fashion from the policy of our national labor laws. Coca-Cola’s action is thus based on a body of federal law analytically distinct from the FAA. It may be, of course, that the body of law developed under Section 301 will at times draw upon provisions of the FAA, but by way of guidance alone.^[17]

In United Steel, Paper and Forestry, Rubber, Manufacturing, etc. v. Wise Alloys, LLC, 642 F.3d 1344 (11th Cir. 2011), the employer’s motion to vacate an arbitration award was denied by the district court as untimely where it was served beyond the three-month period allowed by the FAA to challenge an award. In affirming the district court’s decision, the appellate court pointed out that “[§]301 does not contain an independent statute of limitations; consequently; courts considering requests to vacate an arbitrator’s award…have had to choose between applying the applicable state statute of limitations or the most analogous federal statute of limitations — in this case the Federal Arbitration Act….”^[18] The court went on to hold: “[W]e make it explicit today that a three-month limitation period applies to a motion to vacate an arbitration award arising out of a collective bargaining agreements.”^[19] Thus, the applicable FAA three-month period was applied rather than the 90-day period prescribed by the Florida Arbitration Code (FAC) in F.S. §682.13(2).

• Application of FAA Standards to Awards Decided in Arbitrations Governed by F.S. §682.13, et seq. — The FAC is modeled after the Florida Arbitration Act (FAA). It follows that decisions in cases challenging the validity of arbitration awards where the FAA governs should apply the same interpretive principals as those applied by courts in similar cases governed by the FAA. When both or either statute may be applicable, the FAC is limited by the provisions of the FAA. As the Florida Supreme Court stated in Shotts v. OP Winter Haven, Inc., 86 So. 3d 456, 463-64 (Fla. 2011), “In Florida, an arbitration clause in a contract involving interstate commerce is subject to the Florida Arbitration Code to the extent the FAC is not in conflict with the FAA.”^[20]

In Episcopal Diocese of Central Florida v. Prudential Securities, Inc., 925 So. 2d 1112 (Fla. 5th DCA 2006), the Fifth Circuit reversed the district court’s confirmation of an arbitration award in a matter in which the Episcopal Diocese claimed a breach of fiduciary duty. The loss claimed by the diocese consisted of funds the diocese invested in securities purchased through Prudential. The court pointed out that the parties’ arbitration agreement required arbitration of “all controversies that may arise between us concerning any transaction or the construction, performance or breach of this or any agreement between us….” The appellate court reasoned that “the factual allegations in the diocese’ complaint do not rely on the agreements between the diocese and Prudential and the resolution of this dispute is not dependent on the construction of those agreements.”^[21] The subject arbitration agreement “did not compel arbitration of tort claims alleging breach of fiduciary duty, fraud, and conspiracy.”^[22] Although the court did not specifically assert that the arbitration panel exceeded its jurisdiction, the opinion in fact seems to incorporate that view.^[23]

In Visiting Nurse Assn. of Florida, Inc. v. Jupiter Medical Center, Inc., 154 So. 3d 1115 (Fla. 2014), the Florida Supreme Court followed the ruling in Hall Street, that the only reasons for vacating an arbitration award where the FAC is applicable are those set out in F.S. §682.13. The fact that an award issued when the parties’ contract violated statutes or regulations will not itself be grounds for vacating an award.^[24] The court held that “[l]ike the [federal] Fifth, Seventh, Eighth, and [11th] circuit courts of appeals, we are of the view that the FAA bases for vacating or modifying an arbitral award cannot be supplemented judicially or contractually after Hall Street.”^[25]

In Davenport v. Dimitrijevic, 857 So. 2d 957 (Fla. 4th DCA 2003), the district court had declined to set aside an arbitration panel’s award which found the appellant, Dimitrijevic, did not untruthfully testify as to his alleged drinking behavior and spousal abuse. The appellee contended that Dimitrijevic had committed fraud by his perjured testimony. The motion was supported with an affidavit from a former girlfriend describing abusive behavior to her and alcohol abuse by Dimitrijevic. In affirming the lower court’s decision, the Fourth District pointed to the limited role of courts in reviewing arbitration proceedings and the conclusiveness of arbitration awards,^[26] and concluded that the only bases for setting aside arbitration awards governed by the FAC are those set forth in F.S. §682.13(1).

Florida courts have been diligent in requiring arbitration panels to act within their prescribed powers. In Felger v. Mock, 65 So. 3d 625 (Fla. 1st DCA 2011), the arbitration award in a medical malpractice case found for the physicians. The arbitration panel reasoned, “none of the witnesses could say with certainty how the injury [to Ms. Mock] occurred.”^[27] The appellate court reversed the lower court’s order, which had remanded the matter for a rehearing before a new arbitration panel. The lower court had found that the panel exceeded its powers in violation of F.S. §682.13(3) by requiring an incorrect burden of proof. However, the First District ruled that this was not one of the permissible bases for vacating an award provided in F.S. §682.13(1).

In another recent Fourth District case, Managed Care Insurance Consultants, Inc. v. United Healthcare Insurance Company, 228 So. 3d 588 (Fla. 4th DCA 2017),^[28] the court found no conflict that would be a basis for vacating an arbitration award where the husband of the chair of a three-arbitrator panel was a physician who at times treated patients who were insured by United Healthcare. In affirming the lower court’s refusal to vacate the award, the Forth District focused on the fact that the arbitration panel chair was unaware of any possible conflict after conducting an appropriate investigation. She had shown her husband the parties’ witness lists and received a negative reply when she asked him if he had any relationship with United Healthcare from which he was compensated by that company. The court found no evident partiality on the part of the arbitrator as proscribed by F.S. §682.13(1). The court found that the arbitrator had performed her obligation to investigate to determine whether there was any potential conflict.^[29] Although the court made no reference to Commonwealth Coatings, the reasoning of the court is more like that of Justice Marshall in that case than the plurality opinion of Justice Black.

The reasoning of the court in Boardwalk Properties Management, Inc. v. Emerald Clinton, LLC., 234 So. 3d 786 (Fla. 4th DCA 2017), is also persuasive. Boardwalk and Emerald Clinton were combined owners of a rental property who disagreed on whether to sell the property. The parties submitted the question of whether the parties should sell the property to arbitration pursuant to an arbitration clause in their operating agreement. Boardwalk’s motion to vacate the award in which the arbitrator determined the percentage of each party’s ownership of the property in question was denied by the trial court. Boardwalk argued that the parties’ percentages of ownership had not been submitted for determination. The Fourth DCA reversed the portion of the trial court’s award that upheld the determination of the percentages of ownership. In so doing, the appellate court noted:

[N]othing in the operating agreement indicated that either party intended to include percentage of ownership interests within the scope of the arbitration provision. Boardwalk’s percentage of ownership interest in the property was “not pertinent to the resolution of the issue submitted to arbitration,” that being whether to sell the property. Since the operating agreement required the parties’ unanimous consent, whether Boardwalk had a 50 [percent], a 10 [percent], or even a 1 [percent] interest would be of no matter since if Boardwalk disagreed with the sale, the parties would not be in unanimity. Without unanimous consent, there could be no sale, and that issue — whether to sell or not — was explicitly agreed to in the operating agreement as one of the grounds within the jurisdiction of the arbitrator. Therefore, because the amount of ownership interest was not pertinent to the decision whether to sell the property, the issues were not “inextricably intertwined.^[30]

The Florida Supreme Court ruled in Seifert v. U.S. Homes, 750 So. 2d 633 (Fla. 1999), that under the FAC and FAA, an agreement to arbitrate in a contract for the purchase of a home does not require the parties to arbitrate a wrongful death action. A purchaser in a contract for the construction of a home was asphyxiated after he left his car running in an attached garage. The court considered the parties’ contract, which required the arbitration of “any controversy arising under or related to this agreement or the property….”^[31] The court reasoned that “the tort claim filed in this case neither relies on the agreement nor refers to any provision of the agreement.”^[32]

In Saunders v. St. Cloud 192 Pet Doc Hospital, LLC, 224 So. 3d 336 (Fla. 5th DCA 2017), Florida’s Fifth District reversed the trial court’s order to compel Dr. Saunders to arbitrate her claims for sexual harassment, negligent hiring, negligent training, and negligent supervision. The appellate court reasoned that a clause in her employment contract requiring arbitration of “any claim or controversy that arises out of or relates to this agreement or the breach of it….” did not mandate the arbitration of Dr. Saunder’s claims, which were for intentional and negligence torts.^[33]

Considerations When Deciding to Seek Vacatur of an Arbitration Award

The foregoing is intended as a guide for parties who are subject to an arbitration award on the prospects of prevailing on a motion to vacate the award, and what arguments may support such a motion. The following is a summary of many of the arguments that would flow from the statutory and decisional law reviewed in this article, and the author’s views on the possibility that they will be persuasive.

1) The parties, and the arbitrator as well, should do more than a perfunctory search for potential conflicts, or in the case of expert witnesses, the quality of their credentials. If either party seeks to invalidate an award on the basis of conflict or lack of expertise, it must demonstrate that the conflict would not have been revealed by a thorough search.

2) If a party wishes to contest the refusal of the panel to postpone a hearing, it must provide substantial evidence of the prejudice it will suffer by being denied the postponement.

3) A party who wishes to appeal the refusal to admit evidence must show that evidence is not cumulative and how it would bear on the outcome of the proceeding.

4) Closely peruse the arbitration clause that is the basis for the proceeding as well as the language of the grievance or other submission to arbitration. These are the bases for the arbitrator’s jurisdiction. If an essential question exists as to whether these provisions embrace an essential element of the controversy the award is vulnerable.

5) If attacking a ruling that occurs after the initial award, determine whether the panel has retained jurisdiction over the subject. If the panel has not retained jurisdiction, a further ruling would be barred by the doctrine of functus officio.

6) Give careful scrutiny to whether the basis for a motion to vacate an award is within the grounds permitted by the FAA or adopted by courts for §301 cases.

7) Determine whether the applicable law is the FAA or any possible difference in state law.

8) Examine whether the panel’s decision is grounded in the applicable documents and the evidence and not on its own views of industrial justice.

Armed with the overview provided in this article, the author hopes practitioners will be able to effectively argue their respective positions in disputes wherein the underlying validity of an arbitral ruling is at issue.

This column is submitted on behalf of the Labor and Employment Law Section, Cathleen A. Scott, chair, and Robert Eschenfelder, editor.