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A Louisiana Court of Appeals has affirmed a ruling that an arbitrator exceeded his powers by committing legal error because the arbitration agreement expressly prohibited arbitrators from making errors of law.
In KeyClick Outsourcing, Inc. v. Ochsner Health Plan, Inc., No. 06-CA-359, 2006 WL 3094077 (La. Ct. App. Oct. 31, 2006), Ochsner Health Plan (Ochsner) contracted American Medical Systems (AMS) to provide data entry services. KeyClick Outsourcing (KeyClick) later provided those services as AMS’ successor.
When a payment dispute arose, KeyClick initiated arbitration pursuant to a clause in Ochsner’s contract with AMS. Ochsner opposed arbitration on the ground that KeyClick was not a party to the contract. Ochsner sought a court order enjoining the arbitration, but the trial court denied Ochsner’s request for injunctive relief. On appeal, the Court affirmed the trial court’s ruling, holding that AMS’ contract with Ochsner applied to KeyClick’s relationship with Ochsner.
While the case was on appeal, the arbitrator rendered his decision, finding there was no agreement between KeyClick and Ochsner. Nevertheless, the arbitrator resolved the payment dispute by reference to the formula set forth in the agreement between AMS and Ochsner.
Both KeyClick and Ochsner challenged the award – KeyClick seeking vacatur, and Ochsner seeking modification. The trial court vacated the award on the ground that “the arbitrator was operating under a mistake of law” because he found no agreement between the parties when the Court later held that there was an agreement between the parties.
On appeal, Ochsner argued that the trial court erred in vacating the arbitrator’s decision on the basis of legal error. The Court rejected this argument because the arbitration clause in the underlying contract provided that “[t]he arbitrator shall have no authority to make material errors of law.” This provision triggered a statutory basis for vacating the award, namely, that the arbitrator exceeded his powers because he “had no authority to make material errors of law.”
As this case demonstrates, parties can ensure an arbitration award free from legal error by agreeing that the arbitrator must follow the law, either in the arbitration agreement itself or by incorporating arbitration rules that require the arbitrator to follow the law. See, e.g., Rule 20D of the National Arbitration Forum Code of Procedure; see also Gueyffier v. Ann Summers, Ltd., No. B186996, 2006 WL 3028272, *15 (Cal. Ct. App. Oct. 26, 2006) (noting that restrictions on an arbitrator’s authority may be found “in the arbitration agreement, the submission or the rules of arbitration”).
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