Bar News - October 15, 2014
Alternative Dispute Resolution: Mistakes of Law in Arbitration: A Different Standard of Review
By: Frank P. Spinella Jr.
New Hampshire law (RSA 542:8) authorizes the superior court to correct or modify an arbitral award “for plain mistake.”
The NH Supreme Court in 1996 held in Walsh v. Amica Mutual Insurance Co. that this can include both mistakes of fact and mistakes of law.
How does this standard differ from the general standard of appellate review where a mistake of law has been made by a trial court? Is it enough “that an arbitrator misapplied the law to the facts,” as the court states in Sherman v. Graciano (2005), or must more be shown?
What’s a Plain Mistake?
For purposes of the statute, a “plain” mistake is one that “is apparent on the face of the record and which would have been corrected had it been called to the arbitrator’s attention,” the court ruled in John A. Cookson Co. v. New Hampshire Ball Bearings Inc. (2001).
“An award may be set aside ‘on the ground that the arbitrators were mistaken in point of law’ if it is clear ‘that they would not have made such an award had they known what the law was,’” according to Walsh v. Amica Mut. Ins. Co. (1996) (quoting NH Ins. Co. v. Bell (1981)).
Contrast this “plain mistake” standard with the “plain error” rule in criminal cases, which allows discretionary appellate review of errors of law not raised before the trial court, if they are plain, affect substantial rights and seriously affect the fairness, integrity, or public reputation of judicial proceedings.
In the criminal context, plain is synonymous with “clear” or “obvious.” Thus, an error is plain if it was or should have been obvious in the sense that the governing law was clearly settled to the contrary. State v. Lopez, (2007). But in the arbitration context, even an arbitrator’s ruling on an unsettled legal matter can be overturned for legal error.
In New Hampshire Ins. Co. v. Bell (1981), the legal issue addressed by the arbitrators was whether intra-policy stacking of uninsured motorist benefits was permissible – an open question at the time because Grimes v. Concord General Mutual Insurance Co., (1980), had not yet been decided. By the time Bell came before the Supreme Court, however, Grimes was the law of the land, and that was enough to require reversal. The court ruled that:
“In this case, the only issue addressed by the arbitrators was whether intra-policy stacking of the uninsured motorist benefits was permissible under the policy issued to the defendant. This purely legal issue is ultimately for this court to determine… In these circumstances, we are satisfied that the arbitrators would not have awarded the defendant $60,000 had their decision been rendered after we decided Grimes v. Concord General Mutual Insurance Co., supra. Consequently, the award is subject to modification for plain mistake under RSA542:8.”
A Different Standard
It is tempting to conclude from all of this that garden-variety mistakes of law, if clear on the record, are as sufficient to overturn an arbitration award as a trial judge’s award. The temptation should be resisted.
Being mistaken on the law, despite an effort to get it right, as opposed to deliberately disregarding the law, is the key to reversal.
Piersons v. Hobbes (1856), tells us: “An award will not be set aside on the abstract ground that the arbitrators were mistaken in point of law, but the court must be clearly satisfied that they would not have made such an award had they known what the law was. It must appear that they undertook to decide according to law, and mistook it. If, knowing what the law is, or laying it entirely out of consideration, they make what they consider an equitable decision, it will form no objection to the award, that, as to some particular point, it is manifestly against law.”
The court echoed its sentiment in Sanborn v. Murphy (1870): “if arbitrators, under a general and unrestricted submission, either do not undertake to govern their action and decision by the rules and principles of law as applied in the courts; or, intending to decide in accordance with those rules and principles, but also intending, upon due consideration, to act and decide definitively upon the matters before them, without submitting their proceedings and judgment to the court for revision, their conclusions will not be disturbed, and their award will be sustained.”
Under this formulation, an error of law furnishes no ground for reversal if the arbitrator recognized that she was departing from settled precedent.
A measure of subjectivity is almost unavoidable here. Arbitrators aren’t questioned on appeal as to their reasoning, nor do they write opinions that confess to misapplication of the law; the reviewing court must guess at what the arbitrator had in mind.
In the end, a decision to reverse will turn on the court’s best guess as to what the arbitrator was trying to do: faithfully apply existing law (in which case her error is grounds for reversal) or apply the law as she deems it should be (in which case it is not).
This much is clear: no error will be “apparent on the face of the record” unless a sufficient record is presented on appeal. Tiberghein v. B. R. Jones Roofing Co. (2004).
Arbitrating parties generally have the option to hire a stenographic record and insist on a “reasoned” award setting forth the basis for the arbitrator’s decision. A failure to avail oneself of this option likely dooms any appeal, whatever the standard may be.
Frank Spinella has been a practicing trial attorney for 35 years. A 1979 graduate of Cornell Law School, he is a partner in the Concord firm of Hall, Morse, Anderson & Spinella.
|Frank P. Spinella Jr.