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Confirming an award issued in a baseball-style arbitration, a federal district court in Pennsylvania rejected the losing party’s argument that the arbitrator acted in “manifest disregard” of the law by basing his award on the amount of damages claimed by the prevailing party. As the Court noted, the losing party evidently overlooked the fact that baseball arbitration requires the arbitrator to choose one party’s valuation of the claim.
In U.S. Steel Mining Co. v. Wilson Downhole Services, No. 02:00CV1758, 2006 WL 2869535 (W.D. Pa. Oct. 5, 2006), there was dispute over the amount that U.S. Steel should pay Wilson for drilling services. The parties agreed to resolve the dispute in a baseball arbitration whereby each party would submit its final and best settlement offer to the arbitrator, and the arbitrator would choose one of the offers as his award. Wilson submitted an offer of $294,333.52, while U.S. Steel submitted an offer of $56,000.
The arbitrator chose Wilson’s offer. In issuing the award, he explained: “Had I been assigned the task to issue an award, as arbitrator after a full evidentiary hearing, I would have arrived at a lesser and different amount, but it would have approached the amount proposed by Wilson.”
After receiving the award, U.S. Steel sent a letter to the arbitrator asking him to provide the rationale for his decision. In a responsive letter, the arbitrator explained that while “normally I do not (and have not been asked to explain my selection in a baseball arbitration), I decided here to accede to your request.” The arbitrator proceeded to list “some” of the considerations underlying his decision.
U.S. Steel subsequently filed a motion to vacate the award, arguing that the arbitrator acted in “manifest disregard” of the law. Specifically, U.S. Steel argued that the arbitrator’s “reliance on the amount of Wilson Downhole’s claim in making his award [wa]s manifestly irrational and prejudicial.”
As the Court observed, in making that argument, U.S. Steel “seem[ed] to overlook the parties’ express agreement to resolution of th[e] matter by ‘baseball arbitration.’” The Court quoted at length from the arbitrator’s letter explaining that his “proscribed authority” would not permit him to make “an independent decision on the facts and law.”
Since U.S. Steel provided no evidence demonstrating “manifest disregard of the law,” the Court confirmed the award while noting that U.S. Steel’s “difference of opinion” with the arbitrator was not a legitimate basis for vacating the award.
As this case demonstrates, arbitration is a contractually driven proceeding that parties can shape to meet their needs and expectations. Baseball arbitration is one alternative. At the other end of the spectrum, parties can ensure legally sound, independently reasoned arbitration awards by adopting rules that require the arbitrator to follow the law. See, e.g., Rule 20D of the National Arbitration Forum Code of Procedure.
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