Know the rules: Vacating an arbitration award

In Ohio, and most other jurisdictions, when you go to court and lose in the trial court, you have a right to appeal to a court of appeals. This is not so when you lose in arbitration. Lawyers and clients who regularly adjudicate disputes in arbitration are well aware that there is no right to appeal from an arbitration award. For those who rarely arbitrate, this can come as a surprise. Surprises are only good when there is reason to celebrate.    

Rather than have a right to appeal, a party can seek to vacate an arbitration award. But there are limited grounds for doing so. Be sure you know what they are before you arbitrate, so you can advise your client accordingly. Being on the losing end is often bad enough. You don’t want your client to find out for the first time that it cannot appeal and has only limited recourse to overturn an adverse arbitration award only after it has been issued.

To vacate an arbitration award, a party must file a motion (or application) in the trial court. In Ohio, R.C. 2711.10 governs the decision of a trial court ruling on a motion to vacate an arbitration award. This statute provides:

In any of the following cases, the court of common pleas shall make an order vacating the award upon application of any party to the arbitration if:

(A) The award was procured by corruption, fraud or undue means.

(B) Evident partiality or corruption on the part of the arbitrators, or any of them.

(C) 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.

(D) 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. 

Generally speaking, these criteria for vacating an arbitration award are not broadly construed and are difficult to prove. And, the party moving to vacate the arbitration award has the burden of proof.     

Today, we focus on R.C. 2711.10(B): “evident partiality or corruption on the part of the arbitrators.” An arbitrator’s disclosures are paramount to vacating a decision on this ground. Does an arbitrator need to disclose third-party employment or affiliation with an outside entity? What about a relationship with a nonparty who has a substantial nexus to the arbitration? Failure to disclose these matters can cause an arbitration award to be vacated, but a strong case, based on evidence, needs to be made. Ohio case law makes clear that “evident partiality” must be more than a mere suspicion or appearance of partiality.

A recent case, City of Mason v. Mason Professional Firefighters, IAFF Local 4049,  2016-Ohio-7194 (12^th Dist.), illustrates the point. The arbitrator found that the city had not conducted a fair, objective investigation and ordered the city to reinstate the union employee with back pay and benefits. After issuing the decision, the arbitrator sent an invoice via email and for the first time his signature on the email disclosed that he is the executive director of a statewide advocacy organization. One of the purposes of the organization is to advocate for employees and causes supported by organized labor. He previously never disclosed any affiliation with this organization, and his position with it was not referenced on his curriculum vitae. The city moved to vacate the arbitration award for “evident partiality.” 

A magistrate held a hearing and denied the motion to vacate. The trial court overruled the objections to the magistrate’s decision and affirmed it, stating that “nondisclosure of peripheral matters unrelated to an arbitration [...] do not meet the high standard set forth in R.C. 2711.10 to vacate the arbitration award.”       

The court of appeals reversed and found evident partiality. The court of appeals noted the record establishes that the arbitrator’s involvement with the organization is not indirect or trivial but quite the opposite. He held a position of influence and was paid for leading the organization. The record also established that a number of positions supported by the organization would be unacceptable to the management side of an arbitration. While not every involvement in an organization needs to be disclosed, this one should have been and the failure to disclose it caused prejudice to the city, resulting in an order vacating the arbitration award.