11th Circuit Puts Arbitration "Poor Losers" On Notice

If we permit parties who lose in arbitration to freely relitigate their cases in court, arbitration will do nothing to reduce congestion in the judicial system; dispute resolution will be slower instead of faster; and reaching a final decision will cost more instead of less. This case is a good example of the poor loser problem and it provides us with an opportunity to discuss a potential solution.

So states the 11th Circuit's opinion today in B.L. Harbert Int'l, LLC v. Hercules Steel Co., No. 05-11153 (11th Cir., Feb. 28, 2006).

Responding to what it see as an increasing end around the arbitration process, the court suggested that it might be more willing in the future to use sanctions when losing parties appeal arbitration awards without any sound basis in law.

In this regard, the Court commented in this construction industry arbitration case:

This is a typical contractual dispute in which the parties disagree about the meaning of terms of their agreement. There are arguments to be made on both sides of the contractual interpretation issue, and they were made to the arbitrator before being made to the district court and then to us. Even if we were convinced that we would have decided this contractual dispute differently, that would not be nearly enough to set aside the award.

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The only manifest disregard of the law evident in this case is Harbert’s refusal to accept the law of this circuit which narrowly circumscribes judicial review of arbitration awards. By attacking the arbitration award in this case Harbert has shown at best an indifference to the law of our circuit governing the subject. Harbert’s refusal to accept that there is no basis in the law for attacking the award has come at a cost to the party with whom Harbert entered into the arbitration agreement and to the judicial system.

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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. A realistic threat of sanctions may discourage baseless litigation over arbitration awards and help fulfill the purposes of the pro-arbitration policy contained in the FAA. It is an idea worth considering.

All this being said, the Court decided not to award sanctions against Harbert because it had not been on notice, prior to this opinion "that this 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."

Parties to arbitrations subject to the FAA in the 11th Cir. (including arbitrations involving employment disputes) should now consider themselves so warned.

Hat Tip: Howard

PS