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Alternative Dispute Resolution (ADR) allows two or more parties in conflict to take their case before a neutral third party outside of the court system. This often has the benefit of sparing them the expense of litigation and to avoid a trial. Many contracts now include clauses requiring the submission of disputes to arbitration which is a type of ADR that resembles a trial. If the parties have agreed in advance, the arbitrator’s award will be binding on them. In fact, federal and state laws have encouraged the arbitration of disputes and have established procedures for enforcing binding arbitration awards.
What Is Binding Arbitration?
An arbitration is similar in many ways to a courtroom trial. A trained and certified arbitrator, or a panel of arbitrators, conducts a “trial” in which both sides present their claims, defenses, and evidence. The arbitrator then makes a decision and issues an award.
This award is only binding on both parties if they have agreed in writing. If an arbitration agreement does not specify that the award will be binding, either party is free to disregard it and seek other means of redress.
Federal and California Arbitration Laws
In California, the Federal Arbitration Act (FAA) and California Arbitration Act (CAA) govern most arbitration proceedings. In fact, both statutes establish that arbitration agreements are “valid, irrevocable, and enforceable” unless they are invalid under contract law.
Enforcing a Binding Arbitration Award
If the parties to an arbitration proceeding have agreed that the award will be binding, both statutes state clearly that a court with jurisdiction over the parties or the dispute “shall” confirm the award and enter it as an order. The use of the word “shall” indicates that courts have no discretion to modify or vacate an arbitration award except as the statutes specifically allow. Unless a party to the arbitration proceeding can show grounds for vacating or modifying the award within the narrow parameters set by state or federal law, the courts have no choice but to confirm the award.
Vacating or Modifying a Binding Arbitration Award
The requirements for vacating an arbitration award are almost identical under federal and state law. A party seeking to vacate an award must show that either:
1. The award resulted from corruption, fraud, or undue means;
2. One or more arbitrators was influenced by corruption or evident partiality;
3. One or more arbitrators committed misconduct such as refusing to postpone a hearing for good cause; or
4. The arbitrators exceeded their authority.
If a court vacates an arbitration award, then it can order the parties to submit to arbitration again, either in front of the same or different arbitrators.
The courts can only modify or correct an arbitration award if a party establishes one of the following:
1. An “evident miscalculation” or mistake that affects the substance of the award such as a calculation of damages or a description of a person or property;
2. The arbitrators exceeded their authority in a way that does not affect the substance of the award; or
3. The award is otherwise “imperfect in matter of form” in a way that does not affect its substance.
Salar Atrizadeh, Esq. is an arbitration attorney who has advocated for his clients’ interests in-and-out of the courtrooms for more than a decade. Please contact us online or by calling our law firm to schedule a confidential consultation.