Arbitration Briefs – Procedure Fault is Grounds for Appeal

   

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But only if the moving party preserved its objections during the arbitration process

BROOK v. PEAK INTL., No. 01-50339 (5th Cir.., 6/13/02).

The underlying arbitration, which Mr. Brook lost, concerned an employment dispute over severance benefits. The Employment Agreement between the parties provided for a list of nine arbitrators to be nominated by the AAA. The Agreement’s selection process deviated from the normal “strike list” procedure at AAA by providing that each party would alternately remove an arbitrator from the list of nominees until only one was left. AAA failed to follow the contractual procedure and it evidently deviated from its own procedures by, among other things, making a staff appointment in the absence of a “mutual” choice by the parties on a candidate from the lists provided.

At one point, Mr. Brook objected that AAA did not follow its own selection rules, but he did not raise objection to the failure to follow the contractual procedure. Peak lodged that objection, but the parties ultimately acquiesced to the arbitrator who was appointed. Even when the opportunity arose at the start of the oral hearings, Mr. Brook did not raise objection to the method of selecting the appointee. Only after the Award issued and he pursued vacatur did the argument arise that the contractual selection process was not followed.

The district court accepted that failure as grounds for vacatur, but the Fifth Circuit reinstates the Award.

Section 5 of the FAA “expressly provides that where a method of appointment is set out in the arbitration agreement, the agreed upon method of appointment ‘shall be followed.’” Some courts have vacated Awards in reliance upon this provision and, generally speaking, courts will enforce selection clauses strictly. Mr. Brook could have raised objections with the AAA, the arbitrator and, even, with the courts under Section 5, if the arbitration procedure was not followed, but no action was taken.

“We do not hold that Brook had to exhaust all of the described avenues of objecting to the arbitrator selection process, but as was done in the cases on which he relies, he had to make plain and timely his exact objection….” Without such action, the objection must be deemed waived. (SAC Ed: The Court reserves a paragraph to criticize the AAA’s actions here, saying it “flouted the prescribed procedures and ignored complaints….” It seems clear the Court would have relied on the authority of Section 5 to vacate, had the objection not been waived.) (SAC Ref. No. 02-25-03)


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