The Federal Arbitration Act (FAA) creates a body of substantive federal law. The FAA is constitutional, as it was enacted pursuant to Congress’s Commerce Clause and admiralty powers. It has also been found to have significant preemptive force over both state courts and state arbitral systems that restrict the enforceability of arbitration clauses.
The courts may enforce arbitration agreements according to their terms. The Court has also emphasized the importance of finality of an arbitrator’s decision and, accordingly, district courts should vacate an arbitrator’s award only in narrow circumstances. Additionally, the Court has established a liberal federal policy favoring the use of arbitration to resolve an increasingly broad array of disputes.
Congress has established narrow grounds for vacating arbitration awards under section 10 of the FAA:
- Where the award was procured by corruption, fraud, or undue means;
- Where there was evident partiality or corruption in the arbitrators, or either of them;
- Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; and
- Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
Awards in domestic commercial arbitration do not specify the factual and/or legal grounds on which they are based. This makes judicial review impractical and, at times, impossible. Accordingly, there are numerous examples where courts have upheld arbitral awards that appear contrary to law and fact. As arbitration grows in popularity as an alternative form of dispute resolution, the grounds for review of an arbitral award found in section 10 of the FAA have become the subject of increased debate.
According to 5 USCS § 581, notwithstanding any other provision of law, any person adversely affected or aggrieved by an award made in an arbitration proceeding conducted under 5 USCS §§ 571 (Administrative Dispute Resolution Act) may bring an action for review of such award only pursuant to the provisions of sections 9 through 13 of Federal Arbitration Act.
Furthermore, a decision by an agency to use or not to use a dispute resolution proceeding shall be committed to the discretion of the agency and shall not be subject to judicial review, except that arbitration shall be subject to judicial review under section 10(b) of Federal Arbitration Act i.e. on the grounds that the use of arbitration or the award is clearly inconsistent with the factors set forth in the Administrative Dispute Resolution Act.