Construction contracts have often included arbitration clauses and they can serve a good purpose of expediting resolution. But, what happens if the arbitrator gets it wrong? Your options are limited, and as one court stated:
the parties bargained for an arbitrator’s decision; if the arbitrator got it wrong, then that was part of the bargain
A recent case out of the Eight Circuit Court of Appeals (covering Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) reviewed an arbitrator’s decision. The underlying case involved a steel fabrication contract that contained a limitation of liability clause limiting the fabricator’s liability to the contract sum of $700,000.00. The steel fabricator provided the steel, which was rejected by the owner and the owner refused to pay for the steel. The steel fabricator initiated an arbitration proceeding seeking $500,000. The owner counterclaimed for $2.3 million.
The arbitrator found in favor of the owner but limited the owner’s award to the liability cap of $700,000.00. The arbitrator then awarded the owner its attorney’s fees, above and beyond the cap, in the amount of $916,000.00. Ouch.
The steel fabricator challenged the arbitrator’s award and directed the court to state law that said that a limitation of liability provision should limit all damages, including attorney’s fees. The court was not convinced and stated:
If the arbitrator mistakenly overlooked [state law] decisions that favored a contrary result, then he might have made an error of law in applying the law to the contract, but such an error of law does not justify vacating the award. The parties bargained for the arbitrator’s decision; if the arbitrator got it wrong, then that was part of the bargain.
Take Away: Arbitration is a great way to resolve a dispute, but know that your options to challenge the arbitrator’s decision are very limited.