Arbitration can be an attractive alternative to the courtroom for any number of reasons. But practitioners should know that arbitration is not the courtroom; parties must be prepared to accept the final award of an arbitrator, even if a court would decide the case differently. As reiterated in the Manhattan Commercial Division’s recent decision, Light & Wonder, Inc., v Mohawk Gaming Enters. LLC, courts will give an arbitrator’s award extreme deference and will not vacate such an award unless presented with extraordinary circumstances.
Background
Light & Wonder, Inc. and LNW Gaming, INC (collectively “LNW”) executed a contract with Mohawk Gaming Enterprises LLC (“Mohawk”) to govern the sale of card shufflers and other gaming equipment (the “Mohawk Agreement”). The Mohawk Agreement provided that all disputes between the parties be submitted to arbitration.
In 2020, Mohawk commenced an arbitration against LNW for violation of the Sherman Act, alleging anti-competitive conduct. The first major dispute for the arbitration was whether Mohawk could bring its antitrust claims as a class arbitration, which the Arbitrator concluded that Mohawk could.
The second major dispute was whether Mohawk could properly certify a class. LNW argued that class certification was not contemplated under the parties’ agreement and thus inappropriate, particularly relying on the U.S. Supreme Court’s 2019 decision in Lamps Plus v. Varela, which held that consent to submit a dispute to a class arbitration must be discerned from the plain terms of a parties’ agreement to arbitrate, and that such consent cannot be inferred from silence or ambiguity. LNW argued that many class members did not have the same broad language in their own agreements and that a clause-by-clause analysis would be required to determine whether agreements of the “absent class members” allowed for class wide arbitration. The Arbitrator wasn’t persuaded and certified Mohawk’s class, expressly rejecting LNW’s reliance on Lamps Plus and finding that it was unnecessary to perform a clause-by-clause analysis of each class member’s agreement to certify the class. LNW promptly moved to vacate the decision.
Commercial Division’s Analysis
The court in Light & Wonder began its analysis by noting that its ability to vacate an arbitrator’s decision was “extremely limited,” and that courts must be deferential to arbitrator decisions even when they offer “a barely colorable justification for the outcome reached.” The court cautioned that vacatur should only occur when the award “violates a strong public policy, is totally irrational, or clearly exceeds a specifically limitation on the arbitrator’s power.” Vacatur of an arbitrator’s award, held the court, is appropriate only: (1) “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made;” or (2) if the arbitrator’s award was based upon a “manifest disregard of the law.”
The court first analyzed whether the Arbitrator’s decision was a “manifest disregard of the law” – i.e., whether the Arbitrator manifestly ignored the US Supreme Court’s decisions in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp and Lamps Plus. The crucial inquiry was whether these cases governed the “issue of consent to class arbitration in the context of certifying a class for arbitration.” If so, there could be an avenue for vacatur.
After a detailed analysis, the court concluded that sections in the SCOTUS cases did not explicitly address the consent issue. Due to this “notable lack of clearly defined and explicitly applicable law to guide the Arbitrator’s class certification analysis,” the court gave the Arbitrator significant deference in how he analyzed the issue. By doing so, the court clarified that it was not ruling on whether the Arbitrator’s analysis was correct, but rather that the Arbitrator did not ignore “well defined, explicit, and clearly applicable case law so as to constitute a manifest disregard of the law.”
The court then analyzed whether the Arbitrator exceeded his powers in granting class certification. Again, the court reiterated the heavy burden in overturning an arbitrator. It is not enough to show that an arbitrator committed an error, no matter how serious the error; the arbitrator must be shown to have “strayed from his delegated task of interpreting a contract.” The court found that the Arbitrator did not so stray and denied LNW’s motion to vacate the Arbitrator’s award of class certification.
Upshot
Light & Wonder reiterates the high deference needed to overturn an arbitrator’s award. Even if a court may decide a case differently, courts will hesitate to disrupt an arbitrator’s decision unless necessary.
[View source.]
