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Friday, October 28, 2005

Non-Appealability Clause in Arbitration Agreement is Enforceable

In a case of first impression, the Tenth Circuit recently held that an agreement which forecloses judicial review of an arbitration award beyond the district court level is enforceable, so long as it is clear and unequivocal.

In a contract dispute concerning the payment of royalties for a patented invention, an arbitrator awarded the defendant $4.5 million.  The plaintiff filed an application in the District Court for the District of Colorado to vacate the arbitration award pursuant to the Federal Arbitration Act (FAA).  The District Court denied the application, and the plaintiff sought to appeal the District Court decision.  The Tenth Circuit dismissed the appeal, holding that it lacked jurisdiction over the appeal because of a non-appealability clause in the parties’ arbitration agreement.

In a previous case, Bowen, the court refused to enforce an arbitration agreement that permitted judicial review of the arbitrator’s award based on sufficiency of the evidence. Bowen held that the clause impermissibly expanded the right to judicial review under the FAA. The court reasoned that “[b]y agreeing to arbitrate, a party trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration." 

With Bowen holding that private expansion of judicial review is unenforceable, the court had to reconcile its acceptance of private restrictions on judicial review.  It held that the two views were both consistent with the underlying purpose of the FAA to reduce litigation costs by providing a more efficient forum.

Mactec v. Gorelick, (10th Cir. Oct. 25, 2005).

[Meredith R. Miller]

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