Fifth Circuit Considers Arbitrator’s Authority to Issue Discovery-Related Sanctions

The United States Fifth Circuit Court of Appeals has held that a district court improperly reduced an arbitrator’s award. In Hamstein Cumberland Music Group v. Estate of Williams, No. 05-51666 (5th Cir. May 10, 2013), a royalty dispute between a company that publishes songwriters and recording artists, Hamstein Cumberland Music Group (Hamstein), and the estate of a deceased songwriter and performer, Jerry Lynn Williams (Williams),was submitted to arbitration. Throughout arbitral proceedings, Williams reportedly refused to produce a number of documents or respond to the arbitrator’s discovery requests. During the course of arbitration, both parties moved for sanctions against one another.

Following arbitration, Hamstein was awarded approximately $1.1 million which included $500,000 in sanctions imposed against Williams. When Hamstein sought to confirm the award in a district court, however, the court stated the arbitrator exceeded his authority by awarding sanctions and about $76,000 in prejudgment interest on the sanctions. As a result, the district court confirmed the arbitral award only after it was reduced to approximately $564,000. Both Hamstein and Williams appealed the court’s decision.

Initially, the Fifth Circuit examined Williams’ claim that the arbitrator exceeded his authority under the Federal Arbitration Act by issuing sanctions. According to the court, arbitrators are permitted to “fashion appropriate remedies” necessary to police the arbitration process. Additionally, the appeals court stated Williams could not ask for sanctions and also argue that the arbitrator had no authority to issue them. The Fifth Circuit said,

The scope of an arbitrator’s authority is a function of both the arbitration agreement and the parties’ submissions, which include both formal, written submission agreements and merely asking the arbitrator to decide an issue.

The court continued,

If the parties are permitted to modify the scope of their contractual agreement by submitting additional issues to the arbitrator, then surely the parties may, jointly, empower the arbitrator to issue certain sanctions. Therefore, even assuming that the arbitrator lacked the authority to issue sanctions based solely on the Settlement and his inherent authority to police the arbitration process, the parties’ decision to move for sanctions against one another—in fact, Williams reasoned that he was entitled to “death penalty” sanctions because of Hamstein’s failure to respond to requested discovery—reveals that both parties sought to confer that power on the arbitrator. Accordingly, we conclude that the arbitrator did not exceed his authority in sanctioning Williams.

Next, the appeals court discussed Hamstein’s argument that the district court committed error when it refused to confirm the arbitrator’s award in its entirety. The court agreed and stated,

Given that §§ 10 and 11 of the FAA provide the exclusive means to modify or vacate an arbitration award, id. at 578, the district court, faced with Hamstein’s motion to confirm the award, was required to grant an order of confirmation absent recourse to one of the seven, narrow grounds for modification or vacatur found in §§ 10 and 11.

Because the arbitrator did not exceed his authority and the district court erroneously reduced the arbitrator’s award, the Fifth Circuit Court of Appeals vacated the lower court’s order and remanded the case for, “judgment confirming the arbitrator’s award in its entirety with post-judgment interest…”