When an arbitration panel issues a final award any challenge to that award faces an uphill battle. That is because under the Federal Arbitration Act (“FAA”) a final arbitration award must be confirmed (if requested) and can only be vacated for a very narrow set of reasons. Of the four grounds for vacatur under Section 10 of the FAA, subsection (a)(4) provides that an award may be vacated “where 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.” Where the arbitration award draws its essence from the parties’ contract, courts typically will not find that the arbitrators exceeded their powers even if their award interprets the contract differently than the court. But where the arbitrators mete out their own brand of industrial justice and read provisions out of the contract, a finding that the arbitrators have exceeded their powers is a likely outcome.
In a recent 9th Circuit non-insurance/reinsurance case, both the district court and the circuit court found that the arbitrator in a government contract-related dispute over termination exceeded his powers by issuing an award that essentially wrote out of the contracts essential terms required by the federal government for government contractors.