Smart Arbitrator Avoids Manifest Disregard Bullet

Some of you have been wondering when I'd get around to Sheehan Company v. McCrory Construction Company, Inc., - Ga. App. - , - S.E.2d - , 2007 WL 738773 (A06A2005, March 30, 2007), a seemingly straightforward dispute over lying tile in Savannah's Oglethorpe Mall. The arbitrator awarded Sheehan $117,997.05, but granted McCrory a set-off in the amount of $16,062. The arbitrator also awarded McCrory, as the "prevailing party," $92,849 in attorney fees, costs, and expenses. Hold on here! Having won $101,935.05 more than McCrory, shouldn't Sheehan be the prevailing party? Sheehan thought so and moved to vacate the arbitration award, arguing that the arbitrator manifestly disregarded the law. The trial court denied Sheehan's motion, and Sheehan appealed. Some of you have been wondering when I'd get around to Sheehan Company v. McCrory Construction Company, Inc., - Ga. App. - , - S.E.2d - , 2007 WL 738773 (A06A2005, March 30, 2007), a seemingly straightforward dispute over lying tile in Savannah's Oglethorpe Mall. The arbitrator awarded Sheehan $117,997.05, but granted McCrory a set-off in the amount of $16,062. The arbitrator also awarded McCrory, as the "prevailing party," $92,849 in attorney fees, costs, and expenses. Hold on here! Having won $101,935.05 more than McCrory, shouldn't Sheehan be the prevailing party? Sheehan thought so and moved to vacate the arbitration award, arguing that the arbitrator manifestly disregarded the law. The trial court denied Sheehan's motion, and Sheehan appealed.

Who is the “prevailing” party when the arbitration agreement provides that the prevailing party is entitled to recover costs and expenses, including attorneys’ fees and arbitrator fees? Although the net award favored Sheehan, the arbitrator determined that McCrory was the prevailing party because Sheehan was entitled to less than a fourth of the claim it asserted and that was less than what McCrory had offered previously to settle the claim. Sheehan moved to vacate the arbitrator's award in the trial court, arguing that the arbitrator manifestly disregarded the law in: (1) finding McCrory to be the 'prevailing party' for purposes of awarding attorney fees and costs; (2) considering evidence of a settlement offer; and (3) calculating the costs and fees awarded McCrory. The Court of Appeals affirmed the trial court’s denial of the motion.

The Court began its analysis by stating the correct legal standard for determining who prevailed. It then sought evidence that the standard was presented to the arbitrator, which it was through the post-hearing briefs, and that the arbitrator used the standard, which by the language of the award, he appeared to so do. Whether the arbitrator used the standard correctly was irrelevant so long as it was not ignored.

For lack of supporting authority, the Court rejected Sheehan’s contention that the arbitrator should not have considered the settlement offer in deciding who prevailed. Moreover, it would not examine whether or not a valid settlement offer was tendered because to do so would require the Court to exceed its authority by determining the sufficiency of the evidence. Here, as in most of the manifest disregard cases, lack of a transcript restrained the Court’s inquiry into manifest disregard even if it wanted to.

Was the arbitrator right? Frankly, it doesn't matter. He could have completely misapplied the legal standard on what constitutes a prevailing party and still have an unassailable award. What's admirable here is the arbitrator inserting language into his award that indicates he was aware of and applied (rightly or wrongly) the legal standard. You might recall that in the 11th Circuit's first, and so far only, use of the manifest disregard standard to vacate a case, Montes v. Shearson (1997), there was no evidence that once confronted with the legal standard the arbitrator did not disregard the standard. Of course, in Montes, one side argued that the standard should be ignored. That was not the case in Sheehan, nevertheless, this was a clever preemptive strike in award drafting.