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The Oklahoma Supreme Court has held that an arbitrator exceeded his powers by disregarding a contractual provision that required him to award attorney fees to the prevailing party. In affirming vacatur on this statutory basis, the Court avoided the question of whether "manifest disregard of the law" is a permissible basis for vacatur in Oklahoma.
In Sooner Builders & Investments, Inc. v. Nolan Hatcher Construction Services, LLC, No. 103167, 2007 WL 1752788 (Okla. June 19, 2007), Nolan Hatcher Construction (Hatcher) subcontracted construction work to Sooner Builders & Investments (Sooner) under six separate contracts.
Following construction, Sooner initiated arbitration, claiming that Hatcher failed to pay for the subcontracting work. The arbitrator awarded Sooner $67,438.85 but denied its request for attorney fees. Sooner filed a motion to vacate the award denying its request for attorney fees. The trial court granted the motion and issued an order awarding Sooner attorney fees.
On appeal, Hatcher cited the deferential review of arbitration awards in arguing that the trial court had no authority to vacate the award. In addressing this argument, the Court first examined the contractual provision for attorney fees and determined that it was "clear and unambiguous" in requiring the arbitrator to award attorney fees to the prevailing party.
According to Hatcher, even if the contracts required the arbitrator to award attorney fees to the prevailing party, the award should still be upheld because the arbitrator denied Sooner's request for attorney fees on the premise that Sooner only prevailed on some of its claims. In rejecting this argument, which it labeled "nothing more than a guess," the Court pointed out that "[a]t the end of the arbitrator's detailed accounting of the merits of the controversy, Sooner was the winner."
Having determined that the contracts entitled Sooner, as the prevailing party, to recover its attorney fees, the Court turned to the question of whether the Oklahoma Uniform Arbitration Act gave the trial court authority to vacate the award. On this question, the Court held that the award was properly vacated because the arbitrator exceeded his powers by disregarding the contractual mandate to award attorney fees to the prevailing party.
By affirming vacatur on the statutory basis that the arbitrator exceeded his powers, the Court expressly avoided the question of whether "manifest disregard of the law" is a permissible basis for vacatur in Oklahoma. Manifest disregard of the law is widely regarded as a common law basis for vacatur, though some jurisdictions treat it as an instance of an arbitrator exceeding their powers. See Wise v. Wachovia Securities, LLC, 450 F.3d 265, 268 (7th Cir. 2006) ("[W]e have defined 'manifest disregard of the law' so narrowly that it fits comfortably under the first clause of the fourth statutory ground – 'where the arbitrators exceeded their powers.'"); U.S. ex rel. Watkins v. AIT Worldwide Logistics, Inc., 441 F.Supp.2d 762 (E.D. Va. 2006).
Some jurisdictions refuse to recognize manifest disregard of the law as a basis for vacatur on the premise that the statutory bases for vacatur are exclusive. See, e.g., SIGNAL Corp. v. Keane Federal Systems, Inc., 574 S.E.2d 253, 257 (Va. 2003). In those jurisdictions, if the arbitrator completely disregards the law in issuing an award, the aggrieved party would have no recourse unless the parties had chosen arbitration rules that required the arbitrator to follow the law. See, e.g., Rule 20(D) of the National Arbitration Forum Code of Procedure.
Where parties have chosen arbitration rules that require the arbitrator to follow the law, and the arbitrator nevertheless disregards the law, the award would be subject to vacatur on the basis the arbitrator exceeded their powers because, as the Court explained in this case, "[w]hen the arbitrator's award manifests an infidelity to the parties' agreement, the courts must refuse to enforce the award." See also KeyClick Outsourcing, Inc. v. Ochsner Health Plan, Inc., 946 So.2d 174 (La. Ct. App. 2006) (finding that arbitrator exceeded his powers by misapplying the law where the arbitration agreement provided that "[t]he arbitrator shall have no authority to make material errors of law").
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