Another Motion to Vacate an Arbitration Award Denied

In 2009, Microsoft and Yahoo entered into a Search and Advertising Services and Sales Agreement (the “Agreement”).  That Agreement contained an arbitration provision.  Under the Agreement, Yahoo would migrate its search and advertising services from its Panama system to Microsoft’s Bing Ads system.  Migration of the Taiwan and Hong Kong markets was to be completed by 2011.  They later agreed to finalize the subject transition by the end of October 2013.  Microsoft contended that Yahoo breached the agreement by informing Microsoft that it would not proceed with the migration until early 2014.  Microsoft initiated arbitration under the arbitration provision of the Agreement.  The arbitrator issued an award in which he denied Microsoft’s request for specific performance, but granted its request for injunctive relief.

On October 15, 2013, Yahoo filed a motion in the United State District Court Southern District of New York to vacate the arbitration award.  The Court denied the motion to vacate, demonstrating once again how hard it is to have an arbitration award vacated.

In its decision, the Court made reference to numerous cases and pointed out that the Federal Arbitration Act established a strong federal policy in favor are arbitration, requiring courts to rigorously enforce agreements to arbitrate.  However, the FAA does authorize a district court to vacate an arbitral award where the arbitrators exceeded their powers.  If an arbitrator goes beyond that self-limiting agreement between consenting parties, he acts inherently without power, and an award ordered under such circumstances must be vacated.  However, the Court further pointed out that in order to vacate an award on this ground, it is not enough for petitioners to show that the Arbitrator committed an error – or even a serious error.  Rather it is only when an arbitrator strays from interpretation and application of the agreement and effectively dispensed his own brand of industrial justice that his decision may be unenforceable.  If the parties agreed to submit their dispute to arbitration, as the parties did in the instant case, a court will uphold a challenged award as long as the arbitrator offers a barely colorable justification for the outcome reached.  Finally, an arbitration award may not be vacated because of disagreement with the arbitrators’ evaluation of the evidence.

The Court also stated that it considered the fact that courts in the Second Circuit have vacated arbitration awards that are in manifest disregard of the law.  Awards are vacated on these grounds only in those exceedingly rare instances where some egregious impropriety on the part of the arbitrator is apparent.  Proving that an arbitrator acted in manifest disregard of the law requires a two-part showing.  First, the court must consider whether the governing law alleged to have been ignored by the arbitrator was well-defined, explicit, and clearly applicable.  Second, the court must consider whether the arbitrator appreciated the existence of a clearly governing legal principle but decided to ignore or pay no attention to it.

In denying the motion to vacate, the court found that the arbitrator did not (1) exceed his authority by issuing a final award, (2) exceed his authority by finding irreparable harm, and (3) manifestly disregard the law.  The court stated that Yahoo did not meet the heavy burden required to show that the arbitrator exceeded his authority and did not present sufficient evidence to show that this award was one of the exceedingly rare instances where an arbitrator manifestly disregards the law.

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