From the desk of Jeff Eberhard: Imagine you agree to binding arbitration limited to a single issue of liability without any reference to remedies and the arbitrator finds that you are liable. But then he goes further, granting a hefty remedy against you. You may be thinking, “I didn’t agree to this!” Unfortunately, you might be wrong—read on to see how the Court of Appeals addressed this common litigation issue.
Claims Pointer: Arbitration is a potentially cost-reducing alternative to trial. When parties stipulate to arbitrate claims, they carefully craft the agreement to limit claims and issues to be considered. As this case illustrates, parties should be aware that if they do not limit an arbitrator’s authority to craft a remedy, Oregon statutes grant arbitrators extremely broad authority to craft a remedy that is “just and appropriate.” Failure to limit this authority can lead to unexpected results that a trial court will not likely vacate.
Couch Investments, LLC v. Peverieri, 270 Or App 233 (2015).
Couch Investments, LLC operated a gas station on Peverieri’s land pursuant to a lease agreement signed in 1997. In 2011, Peverieri sought to evict Couch for failing to maintain insurance, allowing unauthorized occupancy of the premises, and failing to comply with DEQ regulations. Couch countersued for intentional interference with business relationships and breach of contract. The parties stipulated to arbitrate who was responsible for DEQ compliance. The arbitration agreement stated, in part, that:
The only issue to be resolved through arbitration is whether Couch, as tenant, or Peverieri, as landlord, are liable under the lease that is the subject of the above action (the ‘Lease’) for the cost of storm water drainage improvements required by the Oregon Department of Environmental Quality (the ‘DEQ issue’).
After hearing the parties, the arbitrator issued a letter opinion which concluded that Peverieri was responsible for DEQ compliance under the lease.
Couch then submitted a proposed arbitration award which stated that Peverieri would complete the improvements by an agreed-upon date. Peverieri submitted an objection to the award, arguing that the proposed award was outside of the scope of authority of the arbitration agreement. They also argued that an appropriate award would either be payment of the cost of improvements or a plan that the DEQ would agree to in lieu of the improvements per administrative rule.
After another hearing, the arbitrator issued an arbitration award, stating that he relied on ORS 36.695(3), which states that:
“An arbitrator may order such remedies as the arbitrator considers just and appropriate under the circumstances of the proceeding. The fact that such a remedy could not or would not be granted by the court is not a ground for refusing to confirm an award…or vacating an award.”
The arbitrator found Peverieri liable for $32,500 for the DEQ improvements, required Peverieri to deposit the award amount in Couch’s trust account within fifteen days, and that Couch was required to make the improvements and remit the remaining money to Peverieri. Couch submitted a petition to enter the award and Peverieri submitted a petition to vacate the award on the basis that the arbitrator had exceeded his authority. The trial court denied Peverieri’s petition and entered the award. Peverieri appealed.
Peverieri argued that the arbitrator had exceeded his authority because the arbitrator stated that he interpreted ORS 36.695(3) to give him authority beyond the arbitration agreement. Couch argued that arbitrators have broad statutory authority to craft a remedy to meet the needs of the arbitrator. The Court of Appeals agreed with Couch that ORS 36.695(3) grants broad authority to arbitrators to craft a remedy in line with, but not beyond, the arbitration agreement. The Court of Appeals stressed that while the statute grants broad authority to arbitrators to craft a remedy, nothing prevents parties from limiting the scope of an arbitrator’s authority. In this case, the arbitration agreement did not explicitly limit the arbitrator’s award. Because the arbitrator’s award was within his authority to craft a remedy, the trial court did not err when it refused to vacate the award.
Case updates are intended to inform our clients and others about legal matters of current interest. They are not intended as legal advice. Readers should not act upon the information contained in this article without seeking professional counsel.