The U.S. District Court for the Northern District of California denied a petitioner's motion to vacate an arbitration award on the grounds of the award being "irrational and illogical," erroneous, and that the arbitrator manifestly disregarded the law and engaged in prejudicial misconduct.
The Court found the arbitration award was not irrational or erroneous because the parties' agreement provided authority for the arbitrator's decision to order petitioner to pay money to a third-party (which was an affiliate of the respondent). With respect to the argument that the arbitration award was erroneous, the Court noted that "neither erroneous legal conclusions nor unsubstantiated factual findings justify federal court review of an arbitral award under the [Federal Arbitration Act] statute, which is unambiguous in this regard."
The Court also found the arbitrator did not manifestly disregard the law, as petitioner did "not cite any clear and established law that prohibits arbitrators from issuing awards that benefit third parties. Moreover, even if there were an applicable law prohibiting arbitration awards to third parties, [petitioner] does not show that the arbitrator 'recognized' and 'ignored' that law."
Lastly, the Court found the arbitrator did not engage in prejudicial misconduct or misbehavior, finding that the parties received a fundamentally fair hearing. While petitioner argued that it was prejudiced because it did not have notice of the third-party claims against it for unpaid premiums, the Court noted that petitioner did "not identify any other evidence it would have attempted to introduce, or other arguments it would have made, had it known that the arbitrator contemplated ordering [petitioner] to pay [the third-party] for the outstanding premiums. In essence, [petitioner] takes issue with the arbitrator's factual findings and legal conclusions, and not the fairness of the proceeding."
American, Etc., Inc., v. Applied Underwriters Captive Risk Assurance Company, Inc., No. 17-cv-03660-DMR (USDC N.D. Cal. Dec. 28, 2017)
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