Vacating an “Irrational” Arbitration Award
The Appellate Division, Second Department (covering all downstate counties aside from the Bronx and New York counties) recently issued a decision in “In the Matter of Centurion Companies, Inc. v. Bowne Tech Construction Corp., 2025 Slip Op. 04246 [2d Dept July 23, 2025]” that serves as a strong illustration as to the finality of arbitration decisions and to what extent a decision may be susceptible to an appeal.
Facts
Centurion Companies, Inc. (“Centurion”), the general contractor on a project, entered into a subcontract with Bowne Tech Construction Corp. (“Bowne”) to perform certain steel work for the project. After completing its work, Bowne filed a mechanic’s lien in the amount of $261,200, representing an unpaid $150,000 change order and other claimed outstanding invoices. Thereafter, Centurion served a notice of demand to arbitrate, pursuant to terms of the subcontract, challenging the $261,200 claim for unpaid construction work and seeking damages of its own based upon Bowne’s alleged noncompliance with the subcontract. The arbitrator denied Bowne’s $261,200 claim and instead awarded Centurion damages in the principal sum of $156,790, with $91,250 of that sum representing delay damages.
Following the arbitration award, Centurion filed a petition for a court to confirm the arbitration award (a procedural process in which the court will convert a valid arbitration award into a judgement, enabling the prevailing party to use additional methods to recover from the judgment-debtor if it fails to comply with the arbitration award). While normally this is a mere procedural process, here Bowne cross-moved to vacate or modify the arbitration award, which was denied by the court. Bowne subsequently appealed, which led to the Second Department’s decision.
Legal Standard to Vacate an Arbitration Award
Judicial review of an arbitration award is extremely limited and requires the party seeking to overturn the arbitration award to prove “by clear and convincing evidence” that one of the grounds to vacate an arbitration award have been met. Generally, an arbitration may be vacated upon a showing of fraud, corruption, or misconduct on the part of the arbitrator. There are, however, additional grounds to vacate an arbitration award, including when an arbitrator exceeds its authority in rendering a decision. The arbitrator may be found to exceed its authority if the “award violates a strong public policy, is irrational or clearly exceeds a specifically enumerated limitation on the arbitrator’s power.”
Courts must, however, grant great deference to the arbitrator’s factual findings and application of law. In fact, even in circumstances where the arbitrator makes errors of law or fact, in most cases courts will refuse to assume the role of overseer to conform the award to their sense of justice.
Analysis
The Appellate Division first analyzed Bowne’s argument as to the $91,250 delay damages awarded to Centurion. Generally, to prove delay the plaintiff must show: (i) that the other party was responsible for the delay; (ii) the subject delay caused the project completion to be delayed; and (iii) that the plaintiff suffered damages resulting from the delay. Here, however, Centurion acknowledged that its own delays pushed back the start of Bowne’s work by seven months, and no acts or omissions of Bowne caused any further delay to the project. Moreover, the arbitrator failed to provide any rational basis for why it assigned a $1,000 per day damage amount in its award. As a result, the Second Department held that the arbitrator’s award as to Centurion’s delay claim was clearly irrational and contrary to public policy and vacated the $91,250 delay damages award.
Bowne also argued the arbitrator failed to offset the damages awarded to Centurion by $84,000 that was due to Bowne. On this issue, however, the court refused to intervene. While the law does permit a court to intervene upon a mere “miscalculation of figures” (i.e., a mathematical error), the Appellate Division denied the request. The arbitrator did not make a mere mathematical error but instead decided not to offset the amount due to Centurion, and Bowne’s request sought to have the court modify the arbitrator’s legal and factual conclusions, which was not permitted.
Lastly, the court refused to vacate the portion of the arbitration award denying Bowne’s change order claim. The arbitrator denied the change order claim because the subcontract’s no oral modification clause required change orders to be signed by the subcontractor, contractor, and owner. Here, the evidence showed that the claimed change orders were only signed by the subcontractor. The court again refused to intervene as it would not step in absent a showing that the arbitrator’s determination was “irrational.” The arbitrator is granted great deference, and its determination did not rise to the level of being clearly and convincingly irrational.
Andrew J. Mundo, Esq., MURTAGH, COHEN, BYRNE & MURDY