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In affirming confirmation of an arbitration award, the New Mexico Court of Appeals held that the Uniform Arbitration Act (UAA) does not permit a court to vacate an arbitration award on public policy grounds.
In K.R. Swerdfeger Construction, Inc. v. Board of Regents, No. 25,085, 2006 WL 2742316 (N.M. Ct. App. July 28, 2006), the University of New Mexico (the University) and K.R. Swerdfeger Construction (KRSC) entered into a contract for the construction of a new water-line loop on the University campus. The contract contained an arbitration clause.
The construction required excavation in areas with several underground facilities. In New Mexico, excavation involving underground facilities is governed by the “One-Call Statute,” which requires the owners and operators of underground facilities to mark the location of their facilities prior to excavation.
The University and KRSC disagreed over who was responsible for marking the underground facilities. According to the University, the contract required KRSC to mark the facilities. KRSC maintained that under the One-Call Statute, the University had a non-delegable duty to mark the facilities.
The parties submitted the dispute to arbitration. The arbitrator determined that the One-Call Statute allowed the University to delegate responsibility for marking the facilities. KRSC moved to vacate the award, arguing that a contract delegating the duty to mark underground facilities is void as contrary to public policy. The trial court denied the motion and confirmed the award.
On appeal, the Court started its analysis by observing that the question of whether an arbitration award may be vacated for violating public policy presented a case of first impression. KRSC raised two arguments in support of a public policy exception.
First, KRSC argued that by issuing an award which violates public policy, arbitrators have “exceeded their powers,” which is a statutory basis for vacating an award. The Court rejected this argument because RSC failed to convince the Court “that anything in the UAA permits a court to vacate an arbitration award on public policy grounds.” Moreover, the Court refused to find that the arbitrator exceeded his powers in deciding an issue submitted to him by the parties.
Alternatively, KRSC argued that the Court should recognize the public policy exception as a judicial creature. The Court rejected this argument without clearly resolving the existence of a public policy exception. The decision contains a heading stating that the Court declines to adopt a judicially created public policy exception, but the Court did not affirm this conclusion in the body of the opinion. Instead, the Court held that “even if” there were a public policy exception, KRSC failed to establish that the award “violated an explicit public policy expressed in a statute or judicial decision.”
This case highlights an emerging question: Are there any common law, nonstatutory grounds for vacating an arbitration award? Most courts have recognized some common law grounds for vacating an award (e.g., manifest disregard of the law), even though the language of the Federal Arbitration Act indicates that an arbitration award must be confirmed unless there is a statutory basis for vacating or modifying the award. See 9 U.S.C.A. § 9 (providing that a court must grant a motion to confirm an arbitration award “unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title”).
The case of Patten v. Signator Insurance Agency, Inc., 441 F.3d 230 (4th Cir. 2006) may resolve the question. In that case, the insurance company has petitioned the United States Supreme Court for a writ of certiorari, identifying one of the questions presented as “[w]hether an arbitral award may be vacated on nonstatutory, merits-based grounds.”
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