Arbitrators and "Reasoned Awards" -
Smarter Tools, Inc. v. Chongqing SENCI Import & Export Trade Co
Commentary and analysis from Professor SI Strong, University of Missouri School of Law:
One of my students called the following case - Smarter Tools, Inc. v. Chongqing SENCI Import & Export Trade Co., 2019 U.S. Dist. LEXIS 50633 (S.D.N.Y. Mar. 26, 2019) – to my attention, and I thought some of you might be interested in it as well (I don’t believe I’ve seen it circulated here yet). The issue involved whether the arbitral award was sufficiently reasoned.
According to the court, reasoned awards are not required in arbitration, but if the parties contract for such an award, as they did here, they are entitled to receive such a document. Upon review, the court found that the arbitrator in this case provided the parties a "barely colorable justification" for his decision, leading the court to hold that the award did not meet the necessary standard.
According to the court, Second Circuit precedent indicates “that a ‘reasoned award’ requires ‘something more than a line or two of unexplained conclusions, but something less than full findings of fact and conclusions of law on each issue raised before the panel.’ Leeward Const. Co., Ltd. v. Am. Univ. of Antigua-College of Medicine, 826 F.3d 634, 640 (2d Cir. 2016). In other words, ‘[a] reasoned award sets forth the basic reasoning of the arbitral panel on the central issue or issues raised before it,’ but ‘need not delve into every argument made by the parties. Id.”
The court also noted that while an arbitrator is not obliged to discuss each piece of evidence presented, s/he must at a minimum provide some rationale for the rejection of arguments for liability. In this case, the arbitrator provided boilerplate language that was insufficient to meet the necessary standard. Indeed, the court specifically noted that, “[i]n dismissing STI's arguments, the arbitrator conclusorily states that ‘[h]aving heard all of the testimony, reviewed all of the documentary proofs and exhibits, [he does] not find support for STI's claims ....’ There is no reason given for this finding other than the negative credibility determination as to STI's expert witness, Zukerman. While this credibility determination does provide a rationale for rejecting STI's calculations of its lost profits and goodwill, it does not provide a basis for a dismissal of STI's claims in their totality.”
In terms of a remedy, the court did not vacate the award but instead remanded it to the arbitrator to supplement the award to the necessary standard. Of course, this is problematic as a matter of arbitral law, since the arbitrator is functus officio, but that issue was likely not argued to the court.
For the full decision (only ten pages), see here.