2d Circuit upholds million dollar labor arbitration award

The Court of Appeals clarifies what it takes for an aggrieved party to challenge an labor arbitration award, ruling that the arbitration in this case was fair and the employee is entitled to keep his million dollar wrongful discharge award.

The case is Odeon Capital Group v. Ackerman, decided on July 21. Ackerman was a bond trader. When he was fired, Ackerman challenged his termination in arbitration, alleging breach of contract, disability discrimination and retaliation arising from an investigation into one of his bond trades. While it rejected the bulk of Ackerman's claims, an arbitration panel found in Ackerman's favor on the unpaid wages claim, awarding him $1.1 million.

The employer sought to vacate the arbitration in federal court. This is always an uphill battle. The purpose of arbitrations is the keep the case away from the courts. But there are exceptions: You can vacate the arbitration upon a finding of fraud. In this case, the employer said Ackerman perjured himself at the arbitration hearing in connection with one o' his bond trades. The Court of Appeals (Calabresi, Pooler and Wesley) says that fraud cannot predicate a federal challenge to an arbitration ruling unless the fraud was material to the arbitration award. The standard is that "the petitioner must demonstrate a nexus between the alleged fraud and the decision made by the arbitrators, although petitioner need not demonstrate that the arbitrators would have reached a different result."  The Court of Appeals cites cases from other circuits on this point, which means the Court is probably saying this for the first time in our circuit.

What does it all mean for Ackerman? He keeps the arbitration award. Even if he did perjure himself about a bond trade, the arbitrators granted him relief only on his unpaid wages/breach of contract claim, not the claim arising from the bond trade claim. Any possible fraud was immaterial to Ackerman's award.

Ackerman brings his own cross-appeal. The district court said he was not entitled to attorneys' fees expended in defending his successful arbitration award in federal court. The district court thought you only get fees in that circumstance if the party challenging the arbitration does so in bad faith. On that rationale, no fees for Ackerman, the district court said, because the employer's arbitration challenge was not a bad faith endeavor. But the Court of Appeals nixes that analysis, noting that New York Labor Law entitles you to attorneys' fees "in any action instituted in the courts upon a wage claim by an employee ... in which the employee prevails." That statute applies to "special proceedings" under the CPLR. Since applications to confirm, vacate or modify arbitration awards are special proceedings, Ackerman gets his attorneys' fees for the work his lawyer did in the district court, and presumably on appeal as well.