Co-authored by Joseph E. Gallo.
The United States District Court for the District of Idaho held that, under Ninth Circuit law, an arbitration award is judicially reviewable under the Federal Arbitration Act even where the arbitration agreement at issue contained language describing the arbitrator’s award as “final and binding” and not subject to appeal.
The arbitration award in this case arose out of a real estate dispute between investors and a real estate investment company known as DBSI, Inc. Subsequent to some initial court filings, the District Court ordered the parties to commence binding arbitration in accordance with an agreement between the parties requiring that all disputes be arbitrated pursuant to the rules and procedures of the American Arbitration Association. The arbitrator conducted an evidentiary hearing and issued a damages award in favor of the investors. The investors moved to confirm the award, while DBSI filed a motion to vacate.
The investors argued that DBSI waived its right to judicial review of the arbitration award. In particular, the investors pointed to language in the parties’ contract providing that “[a[ny award rendered…shall be final and binding on each and all of the parties” and that the parties were “waiving their judicial rights to discovery and appeals.”
The District Court first observed that while the Second and Eleventh Circuit had held that parties could not contractually agree to foreclose all judicial review of an arbitration award, the law in the Ninth Circuit was less clear. In particular, the Court noted that at least one Ninth Circuit case in dicta indicated that parties’ could contractually agree to eliminate all judicial review if such an intent was clear from the terms of the arbitration agreement.
In the present case, the District Court held that the “final and binding” language and appellate waiver were not sufficiently clear to permit the arbitration award to escape all judicial review (e.g. for an arbitrator’s abuse of authority, bias or manifest disregard of the law).
To eliminate all judicial review, the Court suggested the parties use language making clear that the arbitrator’s decision shall be “non-reviewable” or “final and unreviewable for error of law or legal reasoning of any kind.”
Swenson, et. al. v. Bushman Investment Properties, et. al., No. 10-cv-00175-ELJ, 2012 WL 1488346 (D. Idaho Apr. 27, 2012).