NJ Lawyer Magazine - Bressler, Amery & Ross

Vacating and Confirming Arbitration Decisions
Under the New Jersey Arbitration Act of 2003
by Brian J. Ellis
Arbitration continues to replace
litigation as a means for dispute
resolution. Increasingly, commercial
agreements include arbitration
provisions, which courts continue to
interpret broadly. 1 Indeed, it is “the
long-standing policy” of New Jersey
courts “to favor arbitration as a speedy
and efficient approach to dispute
resolution.” 2
Arbitration provisions typically include language
ostensibly covering “all transactions”
or “any dispute arising from” the parties’
relationship. A party contesting the validity
of an arbitration provision faces a formidable
challenge. In close cases, courts are to err
on the side of ordering arbitration. 3
This article is written for attorneys and clients who are
emerging from arbitration, in receipt of an award (either good
or bad), and wondering what to do next. The discussion
below considers the processes of both confirming and appealing
arbitration decisions under the New Jersey Arbitration Act
of 2003. 4
Arbitration: Background
Pursuant to prior contractual agreements, parties may be
required to submit their disputes to arbitration forums such as
the American Arbitration Association (AAA), Judiciary Arbitration
and Mediation Services (JAMS), and the Financial Industry
Regulatory Authority (FINRA). Each forum has its own
procedural rules and interpretive guidance. By submitting a
dispute to a particular forum, parties agree to abide by that
forum’s procedural rules. However, in certain circumstances,
parties may agree to modify the procedural rules.
Typically, parties select an arbitrator from a pool of individuals
with varied experience, education, and expertise. Arbitrators
are generally compensated neutrals who need not be
judges or attorneys. They need only satisfy the forum’s
requirements to serve as an arbitrator. Once chosen and confirmed,
the arbitrator’s decisions will be final and binding.
The arbitration process can seem foreign to some. Attorneys
may be unfamiliar with the procedural rules, and may
find certain informalities of the arbitration process frustrating.
Clients may not understand the process. When the matter
has concluded, some may be perplexed by the arbitrator’s
decision, which may not include any written explanation or
reasoning.
The Award
The arbitration award represents the end result of a dispute
resolution process that is designed to be inexpensive, efficient,
and final. As a counterbalance to the increased efficiency,
parties contractually agree to waive the right to a jury trial
and must operate under procedural rules that may permit
only limited discovery or motion practice.
An arbitration award may be a single page containing
nothing more than an order directing one party to pay the
other. Arbitrators are not bound by legal precedent and need
not provide a written opinion or rationale for their decision.
An arbitrator’s misapplication of the law or violation of the
rules of evidence will not generally rise to the level of appealable
error.
In cases where no rationale is given for an award, a court
reviews the award only to determine if there is a rational basis
for it. “Monetary awards will be upheld as long as such awards
bear a logical relationship to the evidence or as long as there
is a rational basis therefore.” 5 As one federal appellate court
stated, “[t]he onus is on the party requesting the vacatur...to
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efute every rational basis upon which
the arbitrator could have relied.” 6
Vacating the Award
The Process
Courts will not disturb an arbitrator’s
decision unless a contestant can show
that certain statutory grounds for
vacatur exist. A party may seek vacatur
by filing a summary action in the superior
court for the county in which the
arbitration proceeding was conducted.
A party has 120 days from the date of
notice of the award to initiate an action
to vacate the award. 7 A party alleging
the award was procured by fraud or corruption
must file within 120 days from
the date the movant knew or should
have known of the fraud. 8
The Standard
Judicial review of an arbitrator’s decision
is “extremely narrow.” 9 The arbitrator’s
decision “will not be set aside
merely because the court would have
decided the facts or construed the law
differently.” 10 Indeed, the burden is
heavy for the party seeking to appeal
from an arbitrator’s decision. Appellants
should be cautioned because courts
have sanctioned parties for appealing
arbitration awards without reasonable
grounds for doing so. 11
Potential Sanctions for Frivolous
Vacatur Motions
Federal and state courts have exhibited
intolerance toward vacatur actions
filed without a reasonable basis. In B.L.
Harbert International, LLC v. Hercules Steel
Co., 12 the 11th Circuit issued the following
warning:
When a party who loses an arbitration...drags
the dispute through the
court system without an objectively
reasonable belief it will prevail, the
promise of arbitration is broken. Arbitration’s
allure is dependent upon the
arbitrator being the last decision
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maker in all but the most unusual
cases....[T]he parties must be able to
trust that the arbitrator’s decision will
be honored sooner instead of later.
Courts cannot prevent parties from
trying to convert arbitration losses into
court victories, but it may be that we
can and should insist that if a party on
the short end of an arbitration award
attacks that award in court without
any real legal basis for doing so, that
party should pay sanctions.
[T]his Court is exasperated by those
who attempt to salvage arbitration
losses through litigation that has no
sound basis in the law applicable to
arbitration awards. The warning this
opinion provides is that in order to further
the purposes of the [Federal Arbitration
Act] and to protect arbitration
as a remedy we are ready, willing, and
able to consider imposing sanctions in
appropriate cases.
Pennsylvania’s highest court recently
condemned a pro se plaintiff’s vacatur
motion, holding that the motion was an
attempt “to unreasonably extend” the
proceedings and to “advance frivolous
arguments.” 13 The Court sanctioned the
pro se plaintiff, ordering that he pay the
defendant’s attorney’s fees, costs, and
damages. 14 There is no reason why New
Jersey courts could not interpret N.J.S.A.
2A:15-59 and Rule 1:4-8 to provide for
the imposition of sanctions for frivolous
attempts to vacate an arbitration award. 15
Grounds for Vacatur
The New Jersey Arbitration Act of 2003
In 2003, the state of New Jersey
enacted the New Jersey Arbitration Act
(NJAA). 16 The NJAA “recognizes the contractual
nature of the arbitration remedy
and sets forth the details of the arbitration
procedure that will apply unless
varied or waived by contract.” 17
“The NJAA precludes judicial interference
with an arbitrator’s award
except in extremely limited circum-
stances.” 18 Under the NJAA, a court will
vacate an arbitration award only if:
(1) the award was procured by corruption,
fraud, or other undue means;
(2) the court finds evident partiality
by an arbitrator; corruption by an arbitrator;
or misconduct by an arbitrator
prejudicing the rights of a party to the
arbitration proceeding;
(3) an arbitrator refused to postpone
the hearing upon showing of
sufficient cause for postponement,
refused to consider evidence material
to the controversy, or otherwise conducted
the hearing contrary to section
15 of this act, so as to substantially
prejudice the rights of a party to the
arbitration proceeding;
(4) an arbitrator exceeded the arbitrator’s
powers;
(5) there was no agreement to arbitrate,
unless the person participated in
the arbitration proceeding without
raising the objection pursuant to subsection
c. of section 15 of this act not
later than the beginning of the arbitration
hearing; or
(6) the arbitration was conducted
without proper notice of the initiation
of an arbitration as required in section
9 of this act so as to substantially prejudice
the rights of a party to the arbitration
proceeding. 19
A modification of the award may be
ordered by the court if:
(1) there was an evident mathematical
miscalculation or an evident mistake in
the description of a person, thing,
or property referred to in the award;
(2) the arbitrator made an award on a
claim not submitted to the arbitrator
and the award may be corrected without
affecting the merits of the decision
upon the claims submitted; or
(3) the award is imperfect in a matter
of form not affecting the merits of the
decision on the claims submitted. 20
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Manifest Disregard of the Law
As stated, arbitrators are not bound
by legal precedent, nor must they adhere
to state or federal evidentiary rules.
However, where a party can demonstrate
the arbitrator knowingly misapplied or
disregarded the law, a party may attempt
to seek vacatur under the manifest disregard
of the law doctrine.
While the doctrine has not generally
been recognized by New Jersey courts, 21
it provides compelling grounds for
invalidating an arbitrator’s decision in
appropriate cases. The manifest disregard
of the law doctrine is comprised of
two elements. As one Law Division
court explained:
One element looks to the result
reached in arbitration and evaluates
whether it is clearly consistent or inconsistent
with controlling law. For this
element to be satisfied, a reviewing
court must conclude that the arbitrator
misapplied the relevant law touching
upon the dispute before her in a manner
that constitutes something akin to
a blatant, gross error of law that is
apparent on the face of the award.
The other element of the “manifest
disregard of the law” standard
requires a reviewing court to evaluate
the arbitrator’s knowledge of the relevant
law. Even if a reviewing court
finds a clear error of law, vacatur is
warranted under the “manifest disregard
of the law” ground only if the
court is able to conclude that the arbitrator
knew the correct law but nevertheless
“made a conscious decision” to
ignore it in fashioning the award. 22
While not prevalent in New Jersey,
New York courts have demonstrated a
willingness to vacate arbitration awards
under the manifest disregard of the law
doctrine. 23 One would expect that, given
an appropriate case, New Jersey courts
may find occasion to apply the doctrine.
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Confirming the Award
Confirmation of an arbitration award
transforms it into an enforceable judgment.
In most cases, a party in receipt of
a monetary award must seek confirmation
in order to enforce the award
against the other party. For arbitrations
conducted in New Jersey, parties may
seek confirmation by initiating a summary
action in the superior court for the
county in which the arbitration was
conducted. An arbitration award will
also be confirmed where an action to
vacate the award fails. 24
Concluding Thoughts: Preserve the
Record
When considering an appeal from an
arbitration award, a court will review
the record of the arbitration proceedings.
Therefore, parties should be diligent
to create and preserve the record of
the arbitration proceeding throughout
the arbitration process. When applicable,
a party should request a certified
transcription of the arbitration hearing
and keep track of all documents, correspondence,
pleadings, filings, and
exhibits related to the arbitration.
Courts have rejected vacatur motions
where no record or transcript was available.
25 The Appellate Division recently
reversed an order vacating an arbitration
decision where no record of the arbitration
proceeding was available for
review. 26 The court noted that the arbitration
“was conducted without being
formally recorded,” and that there was
no transcript. 27 The court stated that, in
arriving at its decision to reverse the
vacatur order, it did not consider “representations
in the briefs for which there is
no record support.” 28 Instead, the court
“only considered the documentary
record set forth in the appendices.” 29
Where grounds for vacatur are present,
diligence in preserving the record of
the arbitration proceedings may be critical
to a successful appeal.
Endnotes
1. See, e.g., Garfinkel v. Morristown
Obstetrics & Gynecology Assocs., P.A.,
168 N.J. 124, 137 (2001)(“As a general
rule, courts have construed broadly
worded arbitration clauses to
encompass[ ] tort, as well as contract
claims”); EPIX Holdings Corp. v. Marsh
& McLennan Companies, Inc., 410 N.J.
Super. 453, 477 (App. Div. 2009)
(“[W]hen phrases such as ‘arising
under’ and ‘arising out of’ appear in
arbitration provisions, they are normally
given broad construction, and
are generally construed to encompass
claims going to the formation of
the underlying agreements.”).
2. Malik v. Ruttenberg, 398 N.J. Super.
489, 494-495 (App. Div. 2008); see
also Fawzy v. Fawzy, 199 N.J. 456,
468 (2009) (“Our courts have long
noted our public policy that encourages
the use of arbitration proceedings
as an alternative forum.”).
3. See Moses H. Cone Memorial Hospital v.
Mercury Construction Corp. 460 U.S. 1,
24-25 (1983) (“[A]s a matter of federal
law, any doubts concerning the
scope of arbitrable issues should be
resolved in favor of arbitration,
whether the problem at hand is the
construction of the contract language
itself or an allegation of waiver, delay,
or a like defense to arbitrability”); see
also Yale Materials Handling Corp. v.
White Storage & Retrieval Systems, 240
N.J. Super. 370, 375 (App. Div. 1990)
(“New Jersey law [is] consonant with
federal law which liberally enforces
arbitration agreements.”).
4. N.J.S.A. 2A:23b-1 et seq.
5. McHugh Inc. v. Soldo Const. Co., Inc.,
238 N.J. Super. 141, 147 (App. Div.
1990) (citing Benjamin F. Shaw Co. v.
Cincinnati Gas & Elect. Co., 633 F.
Supp. 841, 843 (S.D.Oh. 1986)).
6. Brown v. Rauscher Pierce Refsnes, Inc.,
994 F.2d 775, 779 (11th Cir. 1993).
7. N.J.S.A. 2A:23B-23(b).
8. Id.
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9. Korshalla v. Liberty Mutual Ins. Co.,
154 N.J. Super. 235, 240 (Law Div.
1977).
10. Carpenter v. Bloomer, 54 N.J. Super.
157, 168 (App. Div. 1959).
11. See infra notes 12-14 and accompanying
text.
12. 441 F.3d 905, 913-14 (11th Cir.
2006) (regarding motions to vacate
arbitration awards under the Federal
Arbitration Act (9 U.S.C. § 1 et seq.)).
13. U.S. Claims, Inc. v. Dougherty, 914 A.2d
874, 879-80 (Pa. Super. Ct. 2006).
14. Id.
15. N.J.S.A. 2A:15-59.1 (frivolous causes
of action) and R. 1:4-8 (frivolous litigation)
provide for the imposition
of sanctions, including reasonable
litigation costs and attorneys’ fees.
16. The focus of this article is limited to
proceedings conducted under the
provisions of the NJAA. Arbitration
of disputes arising from a collective
bargaining agreement or a collectively
negotiated agreement continues
to proceed under N.J.S.A. 2A:24-
1 et seq., which is not the purview of
this article.
17. Fawzy v. Fawzy, 199 N.J. 456, 470
(2009).
18. Malik v. Ruttenberg, 398 N.J. Super.
72 NEW JERSEY LAWYER | April 2011
489, 495 (App. Div. 2008).
19. Fawzy, 199 N.J. at 470 (citing N.J.S.A.
2A:23B-23(a)).
20. Id. (citing N.J.S.A. 2A:23B-4).
21. At least one New Jersey court has
concluded that “a manifest disregard
of the law does not provide a
basis to vacate or modify an arbitration
award.” 700 Gotham, LLC v. J.
Manheimer, Inc., No. BER-L-673-05,
2005 WL 1017593, at *2 n.3 (N.J.
Super. Law Div. March 24, 2005).
22. Liberty Mut. Ins. Co. v. Open MRI of
Morris & Essex, L.P., 356 N.J. Super.
567, 582-84 (Law Div. 2002) (internal
citations omitted).
23. See Barclays Capital Inc. v. Shen, No.
111720/07, 2008 NY Slip Op 28146
(N.Y. Sup. Ct. 2008) (“It is beyond
dispute that the panel was familiar
with the Rosenberg II decision. The
decision and its impact on the pending
arbitration had been vigorously
argued before the panel in both oral
and written motions by petitioner....Thus,
the court holds that this is
one of those rare cases where the
panel, aware of the applicable law
and attendant public policy considerations,
chose to ignore it. The two
prongs of the manifest disregard
doctrine are satisfied in this case.”).
24. N.J.S.A. 2A:23B-23d (“If the court
denies an application to vacate an
award, it shall confirm the award
unless an application to modify or
correct the award is pending.”).
25. The Appellate Division has rejected
attempts to vacate awards even where
the record of the underlying arbitration
had not been provided. See, e.g.,
Riccio v. Riccio, Docket: A-2805-05T2 at
*5 (Feb. 27, 2007) (rejecting vacatur
motion where none of a moving
party’s contentions “could possibly
have warranted vacation of the arbitration
award under NJSA 2A:23B-23”).
26. Preferred Warranties, Inc. v. Fialkowski,
No. A-1508-06T5, 2007 N.J.
Super. Unpub. LEXIS 2253 (App.
Div. Dec. 7, 2007).
27. Id. at *1 n. 1.
28. Id.
29. Id.
Brian Ellis is an associate in the securities
litigation and regulatory practice group in
the Florham Park office of Bressler, Amery &
Ross, P.C. His practice includes multi-state
advocacy on behalf of organizations and
individuals before arbitration panels, regulatory
bodies, and state and federal courts.
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This article was originally published in the April 2011 issue of New Jersey Lawyer Magazine, a
publication of the New Jersey State Bar Association, and is reprinted here with permission.
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