Arbitration clauses for dispute resolution are a common component of all manner of contracts. While the pros and cons of arbitrating in lieu of litigating are hotly debated, the finality of arbitrators’ decisions is often cited favorably. A reduced chance of future appeals generally keeps costs down.
That finality can prove to be a bit too harsh, for some. Massachusetts courts have consistently refused to vacate arbitration awards even for errors of law or fact. In an effort to minimize the probability of such a result, the parties negotiating a certain arbitration clause included language addressing it. The clause stated, in part, that a judge could overturn the award in the event of an arbitrator’s “material, gross and flagrant error.”
As luck would have it, the parties ended up taking various disputes to arbitration. Not surprisingly, the losing party sought relief it court for what it argued, among other things, was such an arbitrator’s error.
This week the Supreme Judicial Court of Massachusetts issued a decision, Katz, Nannis & Solomon, P.C., & Others v. Bruce C. Levine & Another, in which it denied that request for relief.
The court reasoned that the state statute governing arbitrations, M.G.L. 251, does not allow for alteration of the standards for judicial review. Specifically, Section 11 mandates “the court shall confirm an award” except in the specific situations listed in other sections of the statute. Katz, citing M.G.L. c. 251, s. 11. Since the language in the parties’ arbitration clause differed from the limited statutory exceptions, the court refused to apply it.
Contracting parties in Massachusetts should use caution in selecting the right arbitrators. Arbitrators’ mistakes can still be binding, even when all parties agree they should not be.
