Eleventh Circuit Court of Appeals Reinforces the Limited Nature of a Federal Court’s Review of Arbitration Decisions

Whether to include an arbitration agreement in a contract is a key consideration for contracting parties. The impact of that decision is underscored by the September 17, 2020 Eleventh Circuit Court of Appeals decision in Gherardi v. Citigroup Global Markets Inc., 1:18-cv-20969-UU (11th Cir. Sept. 17, 2020), which contained the following powerful conclusion:

In valid arbitration agreements, the parties opt out of the public courts and delegate judgement to a private third party. The resulting decision binds all parties equally—employers and employees, plaintiffs and defendants, winners and losers. [One party] chose to sign an arbitration agreement with [the other]. It must now live with the results.

Through that conclusion, a divided three-judge panel reinforced that federal courts evaluate very limited grounds in deciding whether to overturn an arbitration award, even where the arbitrators wrongly apply the law or misinterpret the scope of arbitrable claims.

Under the Federal Arbitration Act (“FAA”), a party to an arbitration may apply to the District Court in the district wherein the arbitration award was made for an order vacating the arbitration award based on limited grounds:

(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.

9 U.S.C. § 10(a). The United States Supreme Court has described these grounds as “egregious departures from the parties’ agreed-upon arbitration.” Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576, 586 (2008). As such, the Eleventh Circuit has interpreted them “very narrowly.”  

In Gherardi, the Eleventh Circuit reversed a Southern District of Florida decision finding that the arbitrators “exceeded their powers” in awarding Gherardi nearly $4 million for wrongful termination notwithstanding that he was an at-will employee. The Eleventh Circuit stated that the only question for the federal court reviewing whether the arbitrators exceeded their powers is “whether the arbitrator (even arguably) interpreted the parties’ contract, not whether she got its meaning right or wrong.” “In short, if an agreement assigns a dispute to arbitration, the arbitrators do not exceed their authority when they resolve that dispute—regardless of the outcome.” Because the arbitrators adjudicated an employment-related claim that was subject to the parties’ arbitration agreement, the Eleventh Circuit held that it could not vacate the arbitration award.

Judge Martin dissented from the Panel’s decision and would have held that the District Court was right to find the arbitration panel exceeded the authority given to them by the agreements at issue by ignoring the “plain language of the contract.” Judge Martin explained that the arbitrators “substituted their own judgment on the scope of their authority for the plain words of [the arbitration agreement],” and that the “Federal Arbitration Act calls for courts to step in when this happens.”

The Gherardi decision reinforces the gravity of a decision to include an arbitration clause in a contract. The lawyers at Parker Hudson are well versed in arbitration-related issues and stand ready to advise as to all aspects of arbitration and drafting arbitration agreements.