On September 17, 2020, the U.S. Court of Appeals for the Eleventh Circuit held that arbitrators did not exceed their powers by awarding millions of dollars in damages to a former Citigroup broker, despite there being questions of “serious interpretive error” in the underlying award. The opinion reinforces the strong presumption of confirming an arbitration award so long as the parties agreed to arbitrate the claims at issue.
Background:
Christian Gherardi was a broker and Investment Advisor for Citigroup Global Markets (“Citi”) for almost 20 years. In June 2015, Citi issued Gherardi a final warning based on inappropriate behavior towards a colleague. Five months later, Gherardi sent an email to Citi threatening to challenge the final warning in arbitration. He was fired three days after his email.
Gherardi subsequently initiated a FINRA arbitration against Citi, asserting claims for defamation, wrongful termination, and tortious interference. At the conclusion of the hearing, the arbitration panel awarded damages against Citi for nearly $4 million. Despite the fact that Gherardi and Citi were parties to multiple agreements that defined Gherardi as an at-will employee, the award included approximately $3.5 million in compensatory damages for wrongful termination. Gherardi moved to confirm the award in federal court and Citi filed a cross motion to vacate.
Gherardi argued that Citi’s Arbitration Policy created an exception to the rule of at-will employment. The district court rejected that argument and granted Citi’s motion to vacate with respect to the wrongful termination portion of the award. Specifically, the district court found that wrongful termination was not an available form of relief for at-will employees under applicable law and that the arbitrators had exceeded their powers under section 10(a)(4) of the Federal Arbitration Act (“FAA”).
Appellate Decision:
The Eleventh Circuit reversed the district court’s order, finding it was based on the legal merits of the dispute, which “were the arbitrators’ concern, not the district court’s[.]”
The Eleventh Circuit identified the very narrow circumstances in which courts have the authority to vacate an arbitration award under the FAA, noting that “[j]udicial review of arbitration decisions is ‘among the narrowest known to the law.’” The court explained that even “serious interpretive error” does not exceed an arbitrator’s powers under section 10(a)(4) and held that vacatur is only permitted when an arbitrator “strays from interpretation and application of the agreement and effectively dispenses his own brand of industrial justice.” The “sole question” is whether the arbitrators arguably interpreted the parties’ agreement, not whether they interpreted it correctly. “In short, if an agreement assigns a dispute to arbitration, the arbitrators do not exceed their authority when they resolve that dispute—regardless of the outcome.” Because Gherardi’s claims were validly submitted to the arbitrators, the district court had “no power to rule on the ‘merits of the underlying claim’ for wrongful termination unless [the arbitrators] strayed from interpretation of the contract.’”
While a strong dissent argued that the parties’ agreements defined Gherardi as an at-will employee and removed the arbitrators’ ability to modify his employment status, employers should heed the majority’s warning that in arbitration, “the parties opt out of the public courts and delegate judgment to a private third party” and they must “live with the results.”