The Tenth Circuit Court of Appeals held that the "extremely broad discretion" granted an arbitrator doomed post-award attempts to vacate the resulting award for exceeding his powers where the arbitrator potentially relied on personal background experience with the matters in dispute to resolve the claims.

In Youngs v. American Nutrition, Inc., No. 06-4203, 2008 WL 3126145 (10th Cir. Aug. 7, 2008), Youngs and other minority shareholders of ANI filed suit against ANI after a failed attempt to mediate a dispute regarding transfers of ANI to separate entities wholly owned by the majority shareholders. The dispute was submitted to arbitration in accordance with the parties’ agreement.

The arbitrator had been a former director of ANI, but the parties waived any objection to the arbitrator’s neutrality on this basis. The arbitrator issued an award in favor of the minority shareholders, setting a value of over $7.5 million to their share of the corporation’s assets, including the rental value of transferred property.

ANI moved to vacate the award, claiming that the arbitrator exceeded his powers by not deciding a controversy which was subject to arbitration and also by including the rental value of the property in valuation of the minority shareholders’ property.

The Court held that ANI did not meet its heavy burden of proving that the award covered areas not contemplated by the parties’ agreement nor of proving that the award had no basis.

First, ANI provided no information on which to base its claims that the arbitrator had failed to resolve a controversy between Youngs and the majority shareholders, and a reasoned award was not required. Even though the award was silent on this issue, the arbitrator could have resolved this controversy based on his own knowledge of the company.

Second, the Court rejected ANI’s argument that the arbitrator exceeded his powers by not resolving underlying issues and only assessing the value of the minority shareholders’ interest in ANI. Even if the arbitrator considered the value of the rent from transferred real property instead of considering the inflation of that property, the parties’ agreement purported to give the arbitrator authority to resolve claims which "were or may have been raised in litigation." Again, the arbitrator may have based his decision on his past experience with ANI.

Since ANI failed to prove the arbitrator exceeded the "extremely broad discretion" that was granted him, the Court confirmed the award.