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In upholding an arbitrator's decision to hear a dispute in California, a Federal District Court in Indiana noted that lacking fraud or manifest disregard of the law, an examination of the logic of an arbitrator's decision was beyond the scope of judicial review.
In Conestoga Title Insurance Co. v. Acoustic Home Loans, LLC, No. 1:06-cv-1636-RLY-WTL, 2007 WL 1058228 (S.D. Ind. April 05, 2007), Conestoga had sold title insurance to Acoustic. After an Acoustic claim went unsettled for more than a year, Acoustic filed for arbitration, and requested a California venue.
Conestoga objected to the requested locale. Following the American Arbitration Association (AAA) rules under which the parties had agreed to operate, both sides submitted arguments on the issue; ultimately, Acoustic prevailed.
In moving to contest the validity of the agreement, or at least to get the hearing moved to Indiana, Conestoga charged, first, that the arbitrator's decision reflected a "manifest disregard of the law," and second, that the decision was not logical, as it required so much more travel on the part of one party than on the part of the other.
Regarding the first claim, the Court noted that in Indiana, "manifest disregard" required that the arbitrator must "direct the parties to violate the law." This, the arbitrator had not done, so Conestoga's claim failed.
Regarding the second claim of an "illogical" decision, the Court noted that such a review was beyond the scope appropriate for the Court to examine.
Quoting the 7th Circuit Court of Appeals, the Court concluded that the question before it was "not whether the arbitrator erred…, clearly erred…, (or) grossly erred in interpreting the contract; it is, whether (the arbitrator) interpreted the contract." In this case, the arbitrator did interpret the contract, and the Court's review ended with an order to compel arbitration in California.
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