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Posted: January 24, 2014

Arbitral Award Confirmed Because it Was Not Irrational

On January 23, 2014, the First Department issued a decision in Ingham v. Thompson, 2014 NY Slip Op. 00436, reversing a trial court order rejecting an arbitral award.

The First Department made clear the deferential standard by which a court should review an arbitral award, explaining:

Respondents’ arguments that plaintiff should have been disqualified from maintaining the arbitration proceeding . . . because she initially asserted individual claims alongside the derivative claims on behalf of the limited partnership, and settled with one of the defendants on behalf of herself and the limited partnership, are unavailing. Arbitrators are not bound by the principles of substantive law and, short of complete irrationality, they may craft an award to reach a just result. Even mistakes of fact and law do not warrant vacatur of an otherwise rational award. Here, the parties extensively briefed and argued the issue of whether plaintiff could maintain the proceeding before the three-member panel, which unanimously ruled that plaintiff had cured any defect by withdrawing her individual claims, which the panel also dismissed. Moreover, the panel approved the settlement, and conditioned the award on plaintiff’s turning over the settlement funds to the limited partnership. It cannot be said that the panel’s determination concerning plaintiff’s purported conflict of interest evinced complete or total irrationality, and hence, the award should be confirmed.

(Internal quotations and citations omitted) (emphasis added).

The great deference that courts must show to arbitral awards is not just a concern for litigators. Before agreeing to an arbitration provision in a contract, transactional counsel should consider the risks, as well as the benefits, of arbitration.

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