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.
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