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A federal district court in New York has rejected an aggrieved party's efforts to vacate an arbitration award, holding that the arbitrator did not exceed his powers or manifestly disregard the law by dismissing a counterclaim.
In AmeriCredit Financial Services, Inc. v. Oxford Management Services, No. 07-CV-3948, 2008 WL 4371752 (E.D.N.Y. Sept. 18, 2008), AmeriCredit and Oxford Management Services (OMS) entered into a recovery services contract, with OMS performing collection activities on AmeriCredit accounts. AmeriCredit later exercised its option to terminate the OMS contract. After termination, AmeriCredit allegedly discovered that OMS continued to collect on some accounts and filed a demand for arbitration in accordance with the parties' agreement. OMS filed a counterclaim for a set-off of fees allegedly owing under the terminated contract.
The arbitrator made findings of fact that OMS employees had intentionally destroyed materials necessary for AmeriCredit to fully resolve its claims and did so with the intent to frustrate AmeriCredit's recovery efforts. The arbitrator accordingly weighed the available evidence and issued an award in favor of AmeriCredit and denied OMS's counterclaim.
AmeriCredit moved to confirm the award, and OMS moved to vacate it. OMS alleged that the arbitrator exceeded his powers and acted in manifest disregard of the law in dismissing its counterclaim and awarding damages to AmeriCredit.
As an initial matter, the Court noted that the validity of the manifest disregard ground for vacatur was most likely abrogated by the United States Supreme Court's decision in Hall St. Assocs., LLC v. Mattel, Inc., 128 S.Ct. 1396 (2008). However, it then proceeded "[i]n an abundance of caution" to analyze OMS's contentions as though manifest disregard were still a valid extra-statutory basis for vacatur.
OMS argued that the arbitrator engaged in manifest disregard of the law because he ignored “the plain meaning of the relevant provisions of the parties' contract." However, the Court could not discern anything in OMS's complaint suggesting that the arbitrator ignored any legal principle or express term of the agreement in coming to his decision.
Furthermore, even if the language of the contract was so ambiguous that it could support the interpretation of terms urged by OMS, the Court noted that "ambiguity is an insufficient basis for vacating an arbitration award on the grounds of manifest injustice." According to the Court, even "assuming arguendo that the language of the contract was ambiguous, the language of the [contract] could easily be interpreted as the arbitrator did in his Award."
Turning to OMS's argument that the arbitrator exceeded his powers, the Court first observed that nothing in the parties' agreement prohibited an arbitrator from dismissing any claim or counterclaim offered by the parties.
OMS argued that dismissal of its counterclaim amounted to a sanction that was not within the authority of the arbitrator under the express terms of the agreement. The Court refused to characterize dismissal as a sanction against OMS for intentional destruction of documents, rather than a determination that AmeriCredit was frustrated in completely resolving its claims by OMS's conduct. However, even if the arbitrator's actions did amount to a sanction, the Court found the agreement only prohibited assessment of punitive or exemplary damages, which were distinguishable from the alleged sanction imposed through dismissal.
Finding no basis for vacatur, the Court confirmed the award.
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