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The North Carolina Court of Appeals held that a trial court erred in modifying an arbitration award on the basis that the arbitrator exceeded his powers by awarding $2,629,224 to a claimant who paid the filing fee for a claim not exceeding $1,000,000. As the Court noted, where an arbitrator exceed his powers, there is a basis for vacating, not modifying, the award.
In Carroll v. Ferro, No. COA05-1420, 2006 WL 2528735 (N.C. Ct. App. Sep. 5, 2006), Caroll filed an arbitration claim against Ferro in connection with a dispute over several manufactured home communities. Carroll filed his complaint with the American Arbitration Association, which requires parties to pay filing fees based on the amount of the alleged damages. Carroll paid his filing fee based on estimated damages of $1,000,000.
The arbitrator awarded Carroll $2,629,224. Ferro filed a motion to modify the award, arguing that the arbitrator exceeded his powers in awarding that amount where the filing fee was based on damages totaling $1,000,000. The trial court agreed and modified the award by reducing it to $1,000,000. Carroll appealed.
On appeal, the Court explained that an arbitrator exceeding his powers is a basis for vacating an award, not modifying it. The Court expressed no opinion on whether the arbitrator exceeded his powers in awarding in excess of $1,000,000. Instead, the Court remanded the case to the trial court “with instructions to either make findings of fact and conclusions of law in support of any modification of the arbitrator’s award . . . or otherwise act consistent with this opinion and the law."
An arbitrator’s authority derives exclusively from the parties’ arbitration agreement. By clearly defining that authority in their agreement or designated rules, parties can shape the proceedings to meet their needs and expectations. For example, parties can ensure a legally sound award by requiring the arbitrator to follow the law. See, e.g., National Arbitration Forum Code of Procedure Rule 20D. With such a rule in place, if the arbitrator disregards the law in issuing an award, the award may be vacated on the ground that the arbitrator exceeded her powers.
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