The Federal Arbitration Act (the "FAA" or the "Act"), 9 U.S.C. § 1 et seq., provides for expedited and limited judicial review of arbitration awards, id. §§ 9-11. Section 10(a) of the Act delineates four grounds that permit a court to vacate an award. The question here is whether arbitrators "exceeded their powers"—thereby justifying vacatur of their award under § 10(a)(4)—when they purportedly failed to provide a "reasoned award" as agreed to by the parties. The district court held that they had and therefore vacated the award. We respectfully disagree and reverse.
This case arises out of a dispute over the construction of a yacht. Daniel and Patricia Ryan are Massachusetts citizens who, in anticipation of retirement and with an eye toward the construction of a vessel, formed a Delaware limited liability corporation, Cat Charter, LLC ("Cat Charter"). The Ryans, through Cat Charter (collectively, the "Plaintiffs"), agreed to pay Multihull Technologies, Inc. ("MTI"), a Florida business owned solely by Walter Schurtenberger (collectively, the "Defendants"), to construct a vessel to be known as the Magic.
But relations between the parties soured, and the Defendants never delivered the Magic, despite receiving roughly $2 million from the Plaintiffs. As a result, the parties entered into binding arbitration pursuant to their written agreement.
The Plaintiffs filed their initial Statement of Claim with the American Arbitration Association (the "AAA") on October 23, 2008. On April 15, 2009, the Plaintiffs submitted an Amended Statement of Claim,
The Defendants answered on April 30, 2009, denying the Plaintiffs' claims and arguing that the construction of the Magic had proceeded according to the terms of the "cost plus" contract entered into in
The arbitration proceeded under the Commercial Arbitration Rules of the AAA (the "Arbitration Rules") before a panel of three arbitrators (the "Panel").
Following discovery, a five-day hearing, and post-trial briefing, the Panel issued a unanimous arbitration award (the "Award") on December 7, 2009. The Award stated, in pertinent part:
The Panel then ordered the Defendants to "jointly and severally pay" the Plaintiffs more than $2 million in damages, fees, costs, and interest. The Panel also granted the Plaintiffs a first lien on the Magic.
On December 31, 2009, the Plaintiffs filed a motion to confirm the Award in the District Court for the Southern District of Florida.
The Defendants responded on January 19, 2009, with a motion to vacate the Award on the ground that the Panel exceeded its authority by failing to issue a reasoned award as required by the parties' agreement. The Defendants never complained to the Panel regarding the form of the Award or requested a modification of the Award after it was delivered; they first raised their concern over the lack of reasons provided by the Panel in their motion to vacate.
We review the district court's findings of fact for clear error and its conclusions of law de novo. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 947-48, 115 S.Ct. 1920, 1926, 131 L.Ed.2d 985 (1995) (holding that a circuit court reviewing a district court's disposition of an arbitration award should apply "ordinary, not special, standards.").
As the district court recognized, the FAA "`imposes a heavy presumption in favor of confirming arbitration awards'"; therefore, "`a court's confirmation of an arbitration award is usually routine or summary.'" Cat Charter LLC v. Schurtenberger, 691 F.Supp.2d 1339, 1342 (S.D.Fla.2010) (quoting Riccard v. Prudential Ins. Co., 307 F.3d 1277, 1288 (11th Cir.2002)). But § 10(a) of the FAA provides for vacatur of an arbitration award in four scenarios, one of which is relevant to this case.
As the Act makes clear, arbitration is a creature of contract. Parties must agree to arbitrate in the first instance, and may contractually limit or alter the issues to be presented to the arbitrators, the scope of the award, and, as here, the form of the award. The FAA "requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms." Volt Info. Scis., Inc. v. Bd. of Trustees, 489 U.S. 468, 478, 109 S.Ct. 1248, 1255, 103 L.Ed.2d 488 (1989). Ultimately, arbitrators derive their powers from the parties' agreement.
We recognize, then, that arbitrators may exceed their power within the meaning of § 10(a)(4) if they fail to comply with mutually agreed-upon contractual provisions in an agreement to arbitrate.
An arbitrator may also exceed her authority by failing to provide an award in the form required by an arbitration agreement.
We affirm the contractual nature of arbitration and do not disturb the notion that arbitrators are bound to perform their contractual duties.
To determine whether the Panel in this case exceeded its powers, then, we must first decipher what constitutes a "reasoned award," a somewhat ambiguous term left undefined by the FAA, the Arbitration Rules, and the parties' contract. As a result, we must rely on common sense and scarce precedent to illuminate this critical term.
Logically, the varying forms of awards may be considered along a "spectrum of increasingly reasoned awards," with a "standard award" requiring the least explanation and "findings of fact and conclusions of law" requiring the most. Id. In this light, therefore, a "reasoned award is something short of findings and conclusions but more than a simple result." Sarofim v. Trust Co. of the W., 440 F.3d 213, 215 n. 1 (5th Cir.2006) (citations and internal quotation marks omitted).
Our recognition of this spectrum, however, is still insufficient to fully evaluate the Award as handed down by the Panel. We thus require further guidance regarding the key term. Webster's defines "reasoned" as "based on or marked by reasoning," and "provided with or marked by the detailed listing or mention of reasons." Webster's Third New Int'l Dictionary: Unabridged 1892 (1993). Relatedly, "reason"—as used in this context—is defined as "an expression or statement offered as an explanation of a belief or assertion or as a justification of an act or procedure." Id. at 1891. Strictly speaking, then, a "reasoned" award is an award that is provided with or marked by the detailed listing or mention of expressions or statements offered as a justification of an act—the "act" here being, of course, the decision of the Panel.
With these considerations in mind, we now turn to the ultimate question of whether the Panel exceeded its authority when it handed down the Award as quoted above.
We hold that the Panel's actions survive scrutiny under § 10(a)(4). The Defendants argue that the Panel's statements that the Plaintiffs proved their claims "by the greater weight of the evidence" add no explanatory value to the Award and "work[] no transformative alchemy on what is most certainly a `bare' or `standard' award." Appellee's Answer Br. 15-16.
The context of the Panel's statements and the fact that the Award provides detailed reasons regarding one claim, however, lead us to disagree with the Defendants. Put simply, the controversy here turned primarily upon credibility determinations made by the Panel. Either the transaction proceeded along the lines of a duly executed contract—the Defendants' story—or the transaction surrounding construction of the Magic was punctuated by misrepresentations and dubious behavior on the Defendants' part—the Plaintiffs' story. The statement that "[o]n the claim of the Claimants . . . for breach of contract. . . we find that Claimant . . . has proven its claim against MTI by the greater weight of the evidence" is easily understood to mean that, in the swearing match between the Plaintiffs and the Defendants,
To be sure, the Panel could have provided more. But again, had the parties wished for a greater explanation, they could have requested that the Panel provide findings of fact and conclusions of law;
Further, the Panel provided a detailed explanation for the only conclusion that truly required it—the determination of the prevailing party for each claim and the concomitant award of attorney's fees. The Panel rejected the Plaintiffs' claim for civil theft, but nonetheless declined to award the Defendants attorney's fees on that claim, even though they would appear to be the substantially prevailing party. To clarify, the Panel wrote that the Plaintiffs "raised a claim that had substantial fact and legal support" and that, "[m]ore specifically, we find the issues relating to missing resin and the cost of the skiff presented substantial fact issues raised by Claimants, justifying denial of any attorney's fees for" the Defendants. These statements clearly provide more than a simple result, and give ample justification for the decision of the Panel. In short, the Award was a reasoned one.
Our conclusion today holds consistent with the general review principles embodied in the FAA. The Supreme Court has read §§ 9-11 of the FAA
Hall Street Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 588, 128 S.Ct. 1396, 1405, 170 L.Ed.2d 254 (2008) (citations and internal quotation marks omitted).
In the present case, three validly-appointed arbitrators oversaw a five-day
For the foregoing reasons, the ruling of the district court is REVERSED and REMANDED for reinstatement of the Award.
SO ORDERED.
We do not belabor the specific details of the failed transaction, because our task here is to evaluate the vacatur of the arbitration award, not the underlying merits. For more background on the transaction, see Cat Charter LLC v. Schurtenberger, 691 F.Supp.2d 1339, 1341 (S.D.Fla.2010).
The parties in the present case did not request a reasoned award "prior to the appointment of the arbitrator," because there was no such request prior to the preliminary hearing. Despite this fact, the Defendants contended—and the district court held—that the parties properly modified their agreement to require the Panel to render a reasoned award under Arbitration Rule R-1(a). Rule R-1(a) provides that "[t]he parties, by written agreement, may vary the procedures set forth in these rules. After appointment of the arbitrator, such modifications may be made only with the consent of the arbitrator." Id. R-1(a).
Given the deference we accord arbitrators in determining arbitral procedures, we are not entirely convinced that the parties' agreement bound the Panel to deliver a reasoned award. Nevertheless, we will interpret the Panel's indication that "[t]he form of the award also will be determined by agreement of the parties" to be sufficient "consent" within the meaning of Arbitration Rule R-1(a), and assume that the parties validly altered the procedures to require a reasoned award when they subsequently communicated with the Panel.
We have authority to review the vacatur decision under 9 U.S.C. § 16(a)(1)(E), which allows an appeal to be taken from an order "modifying, correcting, or vacating an award."
This exchange reveals that the parties knew full well that they could request the Panel to produce "findings of fact and conclusions of law" but consciously opted for a less-demanding standard.
