Arbitration awards may only be vacated in certain limited circumstances.
A recent decision by the Supreme Court of Georgia is a reminder of the standard required to overturn an arbitration award. In Adventure Motorsports Reinsurance Ltd. v interstate National Dealer Services, Nos. S21G0008, S21G0015, 2021 WL 5893247, — S.E.2d —- (Dec. 14, 2021), Interstate National Dealer Services (“INDS”) underwrote and administered motorsport vehicle service contracts that a dealer, Southern Mountain Adventures, LLC (“Dealer”), offered to its retail customers. A dispute arose over the amount that INDS remitted to an INDS-affiliated reinsurer, Adventure Motorsports Reinsurance Ltd. (“Reinsurer”).
The arbitrator found in favor of the Dealer and Reinsurer. In doing so, the arbitrator observed that under the reinsurance agreement, Reinsurer would pay no ceding fee to INDS as the administrator of the service contracts reinsured by Reinsurer. The arbitrator also found that INDS’ periodic operating statements failed to specify the charges and fees it retained before ceding the claims reserves to the Reinsurer. Premised on a “quantum meruit” calculation based on testimony of INDS’ former president about industry averages, the arbitrator made an award to the Dealer and Reinsurer. But that was not the last word.
The trial court confirmed the arbitration award. But neither was that the last word.
The Court of Appeals reversed the award, ruling that the arbitrator’s “explicit rejection” of the rate card information “as the contracted-for pricing ignores the express contractual language.” Still not the last word.
The Supreme Court, observing that trial courts are “severely limited in vacating an arbitration award so as not to frustrate the legislative purpose of avoiding litigation by resort to arbitration.” reversed the Court of Appeals’ decision. The Supreme Court agreed with the Dealer and Reinsurer that “controlling precedent requires a showing of concrete evidence that the arbitrator intentionally and knowingly chose to ignore the law applicable to the parties’ dispute.”
The Supreme Court noted that the Georgia Arbitration code enumerates the grounds by which a court may vacate an arbitration award, and excludes from those grounds is “[t]he fact that the relief was such that it could not or would not be granted by a court of law or equity[.]” Among the five enumerated grounds is if the party seeking vacatur can demonstrate that “the arbitrator manifestly disregarded the proper law applicable to the case before him. This disregard must be both evident and intentional.” The Supreme Court acknowledged that this showing is “an extremely difficult one to make” and observed that an arbitrator that “incorrectly interprets the law does not disregard it.”
The Supreme Court also observed that the “arbitrator fashioned a remedy that he deemed just and equitable within the scope of the agreements of the parties to determine a fair compensation. Not only the arbitration clause the parties executed before the dispute arose, but also the Arbitration Agreement and the case management orders the parties executed after the dispute arose, expressly authorized the arbitrator to fashion such a remedy.” (emphasis added.) The Supreme Court held that “a failure by the arbitrator does not amount to concrete evidence of a deliberate decision not to apply the applicable law in making the arbitration award.”
This case presents a reminder as to the narrow grounds by which an arbitration award may be vacated.
AND THAT WAS THE LAST WORD.
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