Can an Arbitration Award Be Appealed or Vacated? What Business Owners Need to Know
One of the defining features of commercial arbitration — and one that surprises many business owners who have gone through the process — is the finality of the award. Unlike a court judgment, which can be appealed to a higher court on legal or factual grounds, an arbitration award is subject to review only on a narrow set of statutory grounds. Understanding the limits of that review before entering into an arbitration clause is important for business owners evaluating their dispute resolution options.
The Federal Arbitration Act and Finality
For arbitration agreements that involve interstate commerce — which covers most commercial contracts — the Federal Arbitration Act (FAA) governs the enforcement and review of awards. Under the FAA, a court may vacate an arbitration award only on four narrow grounds: the award was procured by corruption, fraud, or undue means; there was evident partiality or corruption by the arbitrator; the arbitrator was guilty of misconduct in refusing to postpone the hearing or in refusing to hear pertinent evidence; or the arbitrators exceeded their powers or so imperfectly executed them that a mutual, final, and definite award was not made.
Critically, the FAA does not permit a court to vacate an award simply because the arbitrator made a legal error or reached a factual conclusion the losing party disagrees with. An arbitrator who applies the wrong legal standard, misinterprets a contract, or awards more or less than a court might have awarded is not subject to reversal on those grounds alone. This is a deliberate feature of the arbitration system — the parties agreed to have their dispute decided by the arbitrator, and the courts give effect to that agreement.
New Jersey and New York Law
New Jersey and New York both have state arbitration statutes that provide grounds for vacatur similar to the FAA. New York’s CPLR Article 75 and New Jersey’s Arbitration Act set out the grounds on which a New York or New Jersey court may vacate, modify, or correct an arbitration award. These grounds are similarly narrow and similarly focused on procedural integrity — corruption, fraud, arbitrator misconduct, and excess of authority — rather than substantive review of the merits.
New York courts have consistently held that the courts play a limited role in reviewing arbitration awards and that the policy favoring enforcement of awards is strong. The losing party in arbitration cannot obtain a second bite at the apple by arguing to a court that the arbitrator got it wrong.
Confirmation of the Award
When the prevailing party seeks to enforce an AAA arbitration award, it files a petition to confirm the award in court. If the losing party does not move to vacate the award within the applicable statute of limitations — which is short, typically 90 days to one year depending on the jurisdiction and statute — the court will confirm the award and enter a judgment. That judgment is enforceable by all available enforcement mechanisms: bank levies, liens on real property, garnishment of accounts receivable, and other collection tools.
The American Arbitration Association’s 2024 data shows that 44 percent of commercial cases settled before an award was issued — which means that in many cases the confirmation and enforcement question never arises, because the dispute resolved through settlement during the arbitration process. But when a final award is issued, understanding the enforcement pathway is important for both the prevailing and losing parties.
Contractual Appeal Mechanisms
Some arbitration clauses include contractual appeal mechanisms — agreed-upon procedures by which the parties can seek review of an award by a second arbitration panel. The AAA has optional appellate arbitration rules that can be incorporated into an arbitration clause for parties who want a more robust review process while still maintaining privacy and speed advantages over court litigation. These optional appellate procedures come with additional cost and time but provide a structured appeal pathway that the FAA alone does not.
Business owners who are considering whether to include an arbitration clause in their contracts — and how to address the finality of awards — should consult with a business attorney to understand the implications and options for their specific situation.
Disclaimer
The legal and business issues discussed in this post vary depending on the specific facts and circumstances of each situation. This post is for informational purposes only and does not constitute legal advice. It is not an offer for Russo Law LLC to represent any party, nor does it create an attorney-client relationship. No action or inaction should be taken based on the information provided without seeking professional legal counsel. This post is intended for businesses in New York and New Jersey and may not reflect laws in other jurisdictions.
Do not send confidential or sensitive information through this website or in response to this blog post. Unsolicited information does not create an attorney-client relationship and should not be treated as privileged or confidential.