CaseWatch for Arbitrators: Be Specific When Asking for a ‘Reasoned Award’
What is a “reasoned award” in arbitration? As you can imagine, “reasoned,” like “reasonable,” can mean many things. The Fifth Circuit Court of Appeals recently provided some guidance in the case of Rain CII Carbon v. Conoco Phillips Co., No 11-30669 (March 9, 2012).
The parties in Rain had entered into a long-term supply agreement that included a complex formula for determining market price over the life of the contract. The contract permitted either party to challenge the accuracy of the current formula and, if the parties couldn’t agree on a new formula, they could submit the issue to “baseball” arbitration. (Baseball arbitration is a form of “final-offer arbitration,” in which the arbitrator must choose between the final offers submitted by each of the two opposing parties. The arbitrator cannot fashion a compromise award outside of the two offers. The parties agree to be bound by the arbitrator’s award.)
One party challenged the price formula, and the parties were unable to agree on a new formula. In submitting the issue to arbitration, the parties specified that the arbitrator must provide a “reasoned award.” At the arbitration, the arbitrator asked both sides to submit draft formats for the award.
In his eight-page award, the arbitrator summarized the contentions of each side. He then adopted the price formula that Rain had submitted, but followed the draft format submitted by Conoco. The award also included two paragraphs from Rain’s draft. Conoco challenged the inclusion of these two paragraphs. After a review, the arbitrator deleted the two Rain paragraphs as clerical errors under Rule 46 of the AAA Commercial Rules, but retained the Rain formula. Conoco then filed a motion to vacate the award. The District Court denied the motion, and Conoco appealed.
Conoco asserted on appeal that: 1) the arbitrator exceeded his powers by failing to select only one proposal from the baseball arbitration submissions; 2) the removal of the two Rain paragraphs was not clerical in nature; and 3) that the arbitrator had failed to render a “reasoned award.” The Fifth Circuit Court of Appeals looked to the bases to vacate an arbitration award set forth in Section 10 of the Federal Arbitration Act, specifically referencing Section 10 (a)(4) – “[w]here the arbitrators exceeded their powers.” The court indicated that the standard for vacatur under this provision was applicable where arbitrators “act contrary to the express contractual provisions.”
The court examined Conoco’s arguments on the first two challenges – that the arbitrator did not select only one proposal as required by the contract, and that the inclusion and subsequent removal of the two paragraphs was not clerical in nature. The court found that the arbitrator did select only one proposal – Rain’s – and noted that Conoco cited no authority to support its assertion that the clerical correction of the award was not genuine or credible. It denied the motion to vacate based on these challenges.
court considered the issue of a “reasoned award.” Noting that a reasoned
award is something short of “findings and conclusions but more than a
simple result,” the court said that the judiciary is reluctant to vacate
awards based on a challenge to form. Quoting from the Eleventh Circuit
opinion in Cat Charter, LLC v. Schurtenberger, 646 F. 3d 836 (11th
Cir. 2011), the court said:
We decline to narrowly interpret what constitutes a reasoned award to overturn an otherwise apparently seamless proceeding. The parties received precisely what they bargained for – a speedy, fair resolution of a discrete controversy by an impartial panel of arbitrators skilled in the relevant areas of the law. To vacate the Award and remand for an entirely new proceeding would insufficiently respect the value of arbitration and inject the courts further into the arbitration process than Congress has mandated. Id. at 846
could have asked for a fuller statement for the award by asking the
arbitrator to provide findings of fact and conclusions of law, the court
noted, but they chose not to:
[I]t is clear that, in eight pages, the arbitrator rendered more than a standard award, which would be a mere announcement of his decision. Thus, the remaining question is whether the arbitrator’s award is sufficiently more than a standard award so as to be a reasoned award. … [T]he award in this case is sufficient to withstand Conoco’s request for vacatur.
The court affirmed the judgment of the District Court.
Note to Georgia arbitrators: Where the parties have requested a “reasoned award,” the arbitrator does not have to write findings of fact and conclusions of law in order to survive a challenge to the form of the award. The arbitrator, however, must do something more than to just “announce” the award or to deliver a “simple result.” In this instance, the court found that in his award the arbitrator evaluated the parties’ contentions, including one side’s contention that the initial formula should remain in effect. It was not necessary, then, for the arbitrator to restate his reasoning when he adopted the initial formula. If the parties want something more than a simple announcement of an award or a reasoned award, then they should specifically request that the arbitrator provide findings of fact and conclusions of law.