Thanks to Sarah Cole for pointing out a recent decision of the Ohio Supreme Court addressing the thorny question of when a court may vacate an arbitral award on the grounds that the arbitrators exceeded their powers by interpreting the underlying contract to allow a remedy not normally allowed under state law.
Cedar Fair, LLP v. Falfas involved an employment dispute in which the employee, Falfas, claimed in arbitration that he had been terminated without cause, while Cedar Fair claimed he had resigned. Having found that Falfas had been terminated without cause, the arbitration panel considered the appropriate remedy. The arbitration clause in the employment contract authorized the arbitration panel to grant “any remedy or relief that an Ohio or federal court in Ohio could grant.” But the agreement also included specific remedies for termination without cause, specifically base salary for one year plus certain other benefits. The panel ordered him reinstated, and Cedar Fair moved to vacate, arguing that the panel had exceeded its powers under a provision in Ohio’s arbitration act functionally equivalent to FAA section 10(a)(4).
The Ohio Supreme Court agreed with Cedar Fair. As interpreted by the courts of Ohio, the vacatur provision empowers courts to vacate an award where “(1) the award conflicts with the express terms of the agreement, and/or (2) the award is without rational support or cannot be rationally derived from the terms of the agreement.” After an extensive legal analysis, the Ohio Supreme Court found that under Ohio law, reinstatement is normally not available as a remedy for breach of an employment agreement absent clear and unambiguous language in the contract providing for specific performance, and that the panel exceeded its authority by granting reinstatement. In the Court’s words, “We simply cannot hold that the arbitration panel acted within its authority in disregarding the general rule against reinstatement when the employment agreement here lacks the ‘clear and unambiguous terms’ authorizing reinstatement.”
Although couched in the familiar terms of FAA section 10(a)(4), the Ohio Supreme Court’s holding comes perilously close to a finding that the arbitration panel erred as a matter of law. The language in the arbitration agreement allowing for “any relief” that an Ohio court could grant would appear to create at least some ambiguity in the remedies available under the contract. Under standard arbitration jurisprudence, arbitrators have nearly unreviewable power to interpret ambiguous contract language. In vacating the award, the Court effectively held that the panel had misinterpreted Ohio law to allow for reinstatement where the contractual language was ambiguous. The case is thus an unusual example of a court interfering with an arbitral award because the panel interpreted the agreement contrary to a rule of state law. Does it open the door, at least in Ohio, to arguments that the “exceeding powers” ground for relief from an award could encompass errors of law?