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Arbitration: the finality of arbitration awards

Maryland courts favor the use of arbitration as an alternative way for parties to resolve their disputes outside the court system through the use of an impartial private tribunal.  When an arbitration agreement is clear and precise, Maryland courts will uphold the agreement and require the parties to arbitrate all controversies arising under the agreement in accordance with the arbitration provisions contained therein. 

Once arbitration has been completed and an award made, it is very rare that a party will be successful on a motion to have the arbitration award vacated.  Judicial review of an arbitrator’s decision is one of the narrowest standards in law.  Three S. Del., Inc. v. DataQuick Info., Sys., 492 F. 3d 520, 527 (4th Cir. 2007).  This is mainly to ensure that the purpose of arbitration, to provide a faster and less costly resolution than would be achieved through litigation, is not frustrated.   Under Maryland law, reviewing courts will generally defer to the arbitrator's findings of fact and applications of law. Board of Education v. Prince George's Co. Educators' Assn., 309 Md. at 85, 98–99 (1987).

The Maryland Arbitration Act mirrors the Federal Arbitration Act. Both acts indicate that a court may enter an order vacating an arbitration award where the arbitrators “exceeded their powers.” Maryland courts have interpreted this phrase to mean what is known as a “manifest disregard of the law” standard.   A manifest disregard of the law requires more than an error in the law or failure on the part of the arbitrator to understand and apply the law.  What is necessary to prove a manifest disregard of the law is a showing that the arbitrator understood and correctly stated the law, but purposefully chose to disregard it. McR of Am. V. Green  148 MD. App. 91, 120 (2002). If a court disagrees with an arbitrator’s interpretation of a contract, it will still uphold the decision so long as the arbitrator arguably construed the contract.  As for an arbitrator’s interpretation of the law, an award will not be vacated even if the award resulted from a misinterpretation of law or faulty legal reasoning on the part of the arbitrator.  Upshur Coals Copr. v. United Mine Workers, Dist. 31, 933 F.2d 225, 229 (4th Cir. 1991).

The fact that arbitrators are not required to explain their decisions can contribute to the difficulty in meeting the manifest disregard of the law standard.  Without an explanation or written decision, it can be impossible to determine the full basis for an arbitrator’s decision. In cases where arbitration awards have been vacated, it has been clear that the arbitrator’s decision was based upon his or her own personal bias. See Raymond James Fin. Servs. V. Bishop, 596 F.3d 183 (4th Cir. 2010) and Sharp v. Downey, 197 Md.App. 123, cert. granted, 419 Md. 646 (2011), reversed 428 Md. 249, as examples.

In situations where there appears to improper conduct on the part of an arbitrator, those objections must be raised during the course of arbitration.  In addition, a party should seek clarification of an award before raising an appeal.  Graceman v. Goldstein, 93 Md. App. 658, 671 (1992). Parties to an arbitration proceeding are deemed to have waived their objections to arbitrator bias or other improper conduct if those objections are not made prior to the arbitration award.   Parties also waive the right so seek judicial clarification of arbitration awards if they don’t first petition the arbitrator to provide clarification. Id. By both making objections to bias and/or improper arbitrator conduct, and seeking clarification of an arbitration award, a party may help its case should it need show manifest disregard of the law in situations where there is no written decision or explanation of award rendered by the arbitrator.

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