United States: Judges Clash In Overturning Arbitration Awards

Last Updated: August 8 2016
Article by Stephen M. Proctor

The debate about arbitration vs. litigation goes on, with partisans both for and against. One argument used by both sides is the finality of arbitration. For those favoring arbitration, finality avoids costs and delays of endless appeals. For those favoring litigation, finality means no ability to challenge the arbitration award.

There was an interesting juxtaposition of cases that we reported on in June, 2013. In one case, out of the 6th Circuit Court of Appeals, an arbitration award was successfully challenged due to the bias of the arbitrator, the misconduct of counsel for the winning side, and the overall conduct of the arbitration. We called it "The Arbitration from Hell" and it was a pretty glaring case of an arbitration award that should not have stood. ( http://www.masudafunai.com/showarticle.aspx?Show=7624 )

But a 7th Circuit Court of Appeals decision issued around the same time had a different result. The loser in the arbitration unsuccessfully challenged the award. The court was clearly annoyed at what it considered not even a close case. The court even went so far as to suggest it would have imposed sanctions on the loser for challenging the arbitration award except for the fact that the loser was required to pay attorneys' fees anyway by agreement. ( http://www.masudafunai.com/showarticle.aspx?Show=7631 )

These cases perhaps represent the extremes – one case where the arbitration was clearly improperly conducted and the other where the "sore loser" had no basis to challenge an award except for the fact the loser was not happy.

Now comes the 7th Circuit with a case between these two extremes. Judge Posner overturned the arbitration award, but in the face of a vigorous dissent from Judge Sykes. ( Bankers Life & Casualty Insurance Co. v. CBRE, Inc., 7th Circuit Court of Appeals No. 15-1471, decided July 29, 2016)

Bankers leased office space in Chicago's West Loop. Its lease was set to expire in 2018. But Bankers had the good fortune of sharing the building with Groupon, at the time a high-flying e-commerce company. Groupon was in expansion mode. As a result, CBRE approached Bankers about subleasing its space to Groupon and relocating elsewhere. CBRE and Bankers signed a Listing Agreement which contained the following provisions, which Judge Posner noted were required by Illinois law:

  • CBRE would "accept delivery of and present [to Bankers] all offers and counteroffers to buy, sell, or lease . . . property" of Bankers;
  • CBRE "would assist [Bankers] in developing, communicating, negotiating, and presenting offers, counteroffers, and notices"; and
  • CBRE would "answer [Bankers'] questions relating to the offers, counteroffers, notices, and contingencies."

But Bankers wanted more than the minimum legal requirements. Bankers told CBRE that it wanted to profit by at least $7 million, representing the additional amount it would receive from the Groupon sublease compared to what it would pay the lessor of its replacement space.

CBRE presented Bankers with several cost-benefit analyses (CBAs). One of these presented in May 2011 showed Bankers saving $6.9 million by relocating to another location in Chicago's Loop. Although just short of the $7 million target, it was close enough to Bankers, which then subleased its space to Groupon and leased the replacement space.

But CBRE made a major blunder in its CBA. It omitted Bankers' promise, as part of the deal with Groupon, to give Groupon a $3.1 million tenant improvement allowance. Bankers claimed, without dispute by CBRE, that it would not have done these deals if would only profit by $3.8 million, not the $6.9 million projected in CBRE's CBA. Judge Posner also noted that CBRE received $4.5 million in commissions in arranging these back-to-back deals.

The parties arbitrated their dispute in a proceeding conducted by Judicial Arbitration and Mediation Services (JAMS), a respected alternative dispute resolution organization. Bankers wanted the $3.1 million that was not included in the CBA. It also wanted to avoid paying the $4.5 million in commissions to CBRE. Bankers claimed that CBRE a) violated the Listing Agreement by failing to provide accurate information and b) committed the tort of negligent misrepresentation.

In February 2014, the arbitration panel issued its award in favor of CBRE. The panel acknowledged that CBRE had blundered in preparing its CBA. But, it concluded, CBRE did not violate the Listing Agreement because the Listing Agreement "did not explicitly require CBRE to furnish Bankers with a correct CBA, and CBRE had not violated its obligations to assist Bankers 'in developing, communicating, negotiating and presenting offers, counteroffers, notices and contingencies.' " Judge Posner was stunned, noting, "It's hard to imagine what else the mistake might be."

Bankers filed a motion for reconsideration by the arbitration panel. In response, in June 2014, the arbitration panel pivoted slightly, but still found for CBRE. The panel acknowledged that the Listing Agreement obligated CBRE to answer questions accurately. CBRE covered itself by putting on the CBAs a disclaimer that provided that CBRE was not guaranteeing that there were no errors contained in the CBA. So CBRE was not responsible for errors in the CBA.

Then in July 2014, to add insult to Bankers' injury, the panel awarded costs to CBRE. Bankers' challenged the award but failed at the district court level. Bankers appealed to the 7th Circuit.

Judge Posner was scathing in his treatment of the arbitration panel. "The panel exceeded its authority. . .. . The panel's reliance on the disclaimer was . . . unjustified. The disclaimer is not part of the Listing Agreement. . . . [R]esponses to Bankers' questions . . . were inaccurate . . . not responsive, and thus violated the Listing Agreement."

Apparently, no other judge on the three judge panel of the 7th Circuit disagreed with Judge Posner on this point. But this was probably the easy part. Recall, this was a challenge to an arbitration award. There was no allegation of bias or improper conduct of the arbitrators. It just seemed that their award was not correct, to Judge Posner grossly so. Should it be overturned?

Judge Posner recited the familiar standards applied in reviewing an arbitration award. Judge Posner cited Illinois decisions holding that "errors in judgment or mistakes of law" are not sufficient to overturn an arbitration award unless "gross errors of judgment in law or a gross mistake of fact" are "apparent upon the face of the award." To Judge Posner, this award counted as one containing "gross" errors and mistakes apparent on the face of the award. The arbitrators' authority is limited to the unambiguous contract language and arbitrators do not have the authority to ignore the plain language of the contract and to alter the agreement.

Judge Posner cited a case in which arbitrators made a miscalculation of figures. The arbitrators did not miscalculate in this case, but they endorsed a $3.1 million miscalculation.

Judge Posner then added an interesting historical side argument. It used to be that most arbitration awards contained no reasoning because judges hostile to arbitration would use the reasons to overturn the awards. More recently, judges and the law look more favorably on arbitration. Parties are asking for "reasoned awards." JAMS, the arbitration organization in this case, requires a concise statement of the reasons for the award, unless the parties choose otherwise. So, concluded Judge Posner, the reasoning should be part of the "face of the award" and should also be reviewed for "gross" errors and mistakes, which, in this case, the court found.

As noted, Judge Sykes dissented. Not surprisingly, he cited the same language and the same Illinois cases that Judge Posner cited in overturning the award. He quoted one Illinois case, also cited by Judge Posner:

"The fact that arbitrators have made an erroneous decision will not vitiate their award. If they have acted in good faith, the award is conclusive upon the parties; and neither party is permitted to avoid it [ ] by showing that the arbitrators erred in their judgment, either respecting the law or the facts."

According to Judge Sykes, the parties chose to resolve their dispute in arbitration. Overturning the award deprives the parties of that choice. Judge Sykes also noted, as did Judge Posner, that calculation errors may lead to reversal of arbitration awards. But this case was not a calculation error by the arbitrators.

"On plenary review I might agree with my colleagues that the arbitrators mistakenly read the disclaimer and the agreement together. But the limited judicial review that the [Illinois Uniform Arbitration Act] permits requires us to uphold an arbitration decision that 'draws its essence from the parties' contract,' as this one does."

Is Judge Posner creating a new standard of judicial review of arbitration awards? Clearly, he is not doing so explicitly. He cited favorably the standard of review of arbitration awards. But he may have deftly expanded the range of what would be considered "gross" errors and mistakes and the range of what could be reviewed by including the reasons in a "reasoned award" as part of the review.

It is also interesting to speculate whether Judge Posner or Judge Sykes are more partial to arbitration. Of course, it is possible, even likely, that their personal views on arbitration were not factors in their opinions. But it certainly would appear that Judge Sykes favors arbitration and wants courts to avoid interfering in the arbitration process. It would also appear Judge Posner is less favorable and more willing to review arbitration awards.

But maybe Judge Sykes is telling parties to an arbitration that they have to live with the result, no matter how egregious it may seem, while Judge Posner is reassuring these same parties that the courts will not let gross errors stand, so parties may feel more comfortable with arbitration.

Clearly this case did not, and probably no case could, put an end to challenges to arbitration awards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Smith, Currie & Hancock LLP
Wilson Elser Moskowitz Edelman & Dicker LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Smith, Currie & Hancock LLP
Wilson Elser Moskowitz Edelman & Dicker LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions