A federal court in New York held that a party cannot overturn an arbitration award under contractually expanded judicial review for "error of law" where the arbitrator's determination of whether a party used "best efforts" to market the opposing party's product was essentially a factual determination.

In Mofet Etzion Ltd. v. General Dynamics Land Systems, Inc., No. 07 Civ. 4566(LAP), 2008 WL 344725 (S.D.N.Y. Feb. 04, 2008), Mofet, a ceramic armor manufacturer, entered into an agreement with GDLS, a developer and marketer of armored vehicles which grant exclusive marketing and sales rights of Mofet's products to GDLS.

The parties' agreement provided that GDLS would use its best effort to expand the U.S. market for Mofet's product. Mofet invoked the arbitration clause in the agreement after it became unsatisfied with GDLS's performance.

An arbitrator issued an award in favor of GDLS, determining that Mofet had not made an adequate showing that GDLS had failed to use its best effort.

Mofet moved to vacate the arbitral award, on grounds that it was "an error of law," also arguing that the parties had contracted for this standard of review, as opposed to the "manifest disregard of the law" standard of review generally reserved for review of arbitral awards.

This Court, assuming arguendo that it was proper to apply the error of law standard of review, determined that the arbitrator had not committed an error of law.

First, although the arbitrator announced a "bad faith" interpretation of what constituted lack of "best efforts," the arbitrator ruled in the alternative from that standard.

He held that Mofet did not adequately demonstrate GDLS's non-compliance with "its contractual obligations under any interpretation of the best efforts language that was valid under New York law." (emphasis added).

Further, even if the Court were to apply the bad faith standard initially outlined by the arbitrator, the arbitrator's determinations show that Mofet did not adequately present grounds that GDLS had failed to perform under any other valid standard.

Accordingly, the arbitrator's alternative holding was not made in error of law, but was a "fair reading of the Award as a whole."

Notably, the arbitrator considered the facts "in the context of the circumstances of this case-i.e., [sic] the market and industrial setting in which the obligation was made." Thus, the determination of the arbitrator was not reviewable by this Court under the allegedly contracted for standard of review, as it was "clear that the arbitrator's finding on this question was a factual, not legal one."

For the foregoing reasons, the Court denied Mofet's motion to vacate and confirmed the award.