Arbitration is often viewed as a more efficient dispute resolution mechanism than litigation. As a result, mandatory arbitration clauses are common place in the construction industry. Generally speaking, it is true that arbitration will likely provide a faster pathway for dispute resolution as compared to traditional litigation. In addition, the proceedings can be kept confidential and the overall cost to the parties is generally less than a court filed case. These factors make arbitration attractive to many. But before agreeing to mandatory arbitration, one should consider whether they are willing to put their fate in the hands of an arbitrator who is afforded broad discretion to fashion a remedy that one may not view as strictly in accordance with applicable law.
Although counter-intuitive, an arbitrator is not necessarily bound to strictly apply what may appear to be applicable law when ruling on a dispute. Indeed, Rule 47 of the American Arbitration Association grants broad discretion to an arbitrator and provides the authority to “grant any remedy or relief that the arbitrator deems just and equitable...” Given this broad authority, an arbitrator will often fashion a “split-the-baby” type remedy that can be disappointing to all involved. To compound the issue, the avenues for challenging an arbitration award are extremely limited under both the AAA Rules and through the courts. Multiple courts have held that absent a “manifest disregard for the law” an arbitrator’s decision will not be disturbed. A recent decision from the Supreme Court of Nevada is illustrative.
In WPH Architecture, Inc. v. Vegas VP, LP
, 360 P.3d 1145 (Nev. 2015), Vegas VP hired WPH Architecture to perform architectural services for a condominium project. When a dispute arose between the parties, Vegas VP initiated an arbitration as required by the parties’ contract. Before the matter was heard, WPH submitted two offers of judgment pursuant to Nevada statutes providing that attorney fees be awarded when a party fails to improve upon a rejected statutory offer of judgment. Vegas VP did not accept either offer. The case proceeded to hearing, and the panel of arbitrators ruled in favor of WPH.
In post-award briefing, WPH sought an award of its fees. The request was denied. WPH then filed a motion in the district court to modify the arbitration award so that Vegas VP was required to pay WPH's attorney fees. The district court also denied WPH's motion and the issue was further appealed. Discussing the issue, the Nevada Supreme Court recognized that the parties’ contract contained a Nevada choice-of-law provision, stating that any arbitration arising from the contact would be substantively governed by Nevada law. Further, the court held that the offer of judgment statutes were substantive law. Because the statutes did not expressly apply to arbitration proceedings by their plain language, however, and in light of the broad discretion afforded to arbitrators, the Court held that there was no error in refusing to award WPH its fees.
In short, broad discretionary authority and a limited right to appeal are factors that must be weighed against other perceived advantages of choosing arbitration over litigation. The decision is often dependent on the size and scope of a particular project and Polsinelli is experienced counseling clients who are faced with making such a decision.