The essential purpose of arbitration is to resolve disputes straightaway. For this reason, many people that enter into contracts require a provision in the contract that requires disputes to be resolved through arbitration as opposed to filing a lawsuit. By streamlining the dispute resolution process in this way, the parties are able to avoid time consuming and expensive litigation.
However, the goal of streamlining the dispute resolution process through arbitration would become unattainable if the arbitration process was constantly subject to judicial review. For this reason, federal and state arbitration laws limit the judicial review that is allowed during arbitration. Accordingly, Michigan and Federal arbitration laws contemplate only two stages at which courts may become involved in arbitration proceedings. The first is at the outset of the dispute to determine whether the parties have a valid arbitration agreement at all, and the second is at the conclusion of the arbitration proceeding after a final award is determined.
The Sixth Circuit Court of Appeals made clear in its recent opinion in Savers Property and Casualty Insurance Co. v. National Union Fire Insurance Company, that judicial review during any other stage of arbitration should not normally be undertaken.
In Savers Property and Casualty Insurance Co. v. National Union Fire Insurance Company, the two parties had entered into a contract that included a provision requiring arbitration of disputes by a three-member arbitration panel. After the arbitration was underway, but before the final award was determined, one of the parties (Meadowbrook) filed a complaint claiming that two of the arbitrators exceeded their authority and displayed evident partiality. In addition, Meadowbrook requested that the arbitration be stayed while the party challenged the fundamental fairness of the proceeding. The district court granted injunctive relief to Meadowbrook and stayed the arbitration proceeding so that it could determine the issue raised regarding the concerns over the arbitrators and the fairness of the arbitration. The district court acknowledged that courts are generally prohibited from reviewing arbitration proceedings until a final award has been issued, but determined that it had authority to review the claim as a “breach of contract” claim.
The Court of Appeals disagreed with the district court, and reversed the district court’s grant of injunctive relief finding that the district court’s decision to review the party’s claims at that point in the arbitration was equivalent to interjecting itself in a private dispute. In addition, the Court of Appeals noted the policy reasons that are supported by disallowing judicial review before a final arbitration award has been issued, specifically that it allows the process to remain streamlined. The Court of Appeals, however, made sure to note at the end of its opinion that Meadowbrook is not without remedy and the arbitrator’s decision is not forever protected from judicial review, but the timing of that review in this case was inappropriate.
The full opinion of the Court of Appeals can be accessed below:
http://www.ca6.uscourts.gov/opinions.pdf/14a0067p-06.pdf
If you have any questions, please contact the attorneys at Demorest Law Firm.
