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Even if an arbitrator “misapplies” the law in a sexual harassment case, a court cannot vacate the arbitrator’s decision because such a mistake does not amount to “manifest disregard of the law,” a federal judge has ruled. In his eight-page opinion in Smith v. PSI Services II Inc., U.S. District Judge Jay C. Waldman found that the standard for reviewing an arbitration award “is one of the most limited known to the law.” The “manifest disregard of the law” test, Waldman said, is a “judicially created” ground for vacating an arbitration award, but it imposes a very high burden on the party seeking vacatur. Waldman found that Rosalind Smith and her lawyers, S. Robert Freidel Jr. and Michael H. Berg of Turnersville, N.J., failed to meet the test even though they showed that the arbitrator used too strict a definition of “pervasive” when analyzing a hostile environment sexual harassment claim. “The court believes that the arbitrator misapplied the law regarding pervasiveness to the facts as she found them. As noted, however, this is insufficient to vacate her decision,” Waldman wrote. “The arbitrator identified the pertinent governing law and proceeded to analyze the case with reference to that law. While the test for determining the pervasiveness of harassing conduct is admittedly not an exact one, the court has little difficulty in concluding that the highly offensive conduct attributed to Mr. Hughes is sufficient to satisfy that test. “Nevertheless, the court cannot conscientiously conclude that the arbitrator literally ignored or paid no attention to applicable legal principles or that her decision exceeded all bounds of rationality.” In the suit, Smith, 34, claimed that she was hired at PSI as an administrative assistant in 1993 and was soon being harassed by Troy Hughes, a PSI compliance coordinator. Smith claimed that Hughes looked down her blouse; that he would lick his lips when speaking with her; that he asked about her bra size; that he referred to her and another female employee as “the butt sisters”; that he asked her for a “one-night stand”; that he offered “graphic” descriptions of his sexual exploits during college; and that he asked about her sex life with her boyfriend and if he was “satisfying” her. In 1998, Judge Waldman dismissed the suit after finding that Smith was required to submit the claim to binding arbitration. But after the arbitrator ruled in PSI’s favor, Smith came back to court and demanded that the award be vacated. Attorney Freidel argued that the arbitrator’s decision was “clearly erroneous” since she found that Smith had proven that the harassment by Hughes had occurred and that PSI ignored the problem. In his brief, Freidel quoted the arbitrator’s decision: “It does not require any great leap to determine that Hughes’ behavior was offensive and could have easily had a greater effect upon [Smith] or her co-workers. Management knew or should have known about the behavior and taken action in accord with their own policy.” But Freidel complained that the arbitrator went on to rule in favor of PSI after applying too strict a definition of “pervasive.” “It appears that the arbitrator required humiliation plus a nervous breakdown in order for plaintiff to prevail in a sexual harassment hostile environment case,” Freidel wrote. “Such a decision reverses years of progress for women in putting an end to the type of behavior in the workplace that requires them to submit to ‘Animal House’ type of behavior,” Freidel wrote. But PSI’s lawyers, Diane Bernoff Sher and Mitchell L. Bach of Fineman & Bach, along with Francis T. Coleman and Karen A. Doner of Williams Mullen Clark & Dobbins in Washington, D.C., argued that the arbitrator’s decision was “well reasoned.” In their brief, the PSI defense team argued that Smith “should not be permitted to have this matter re-litigated” because there was “no showing that the award is in manifest disregard of the law.” Judge Waldman found that the arbitrator applied the five-prong test for establishing a Title VII hostile work environment claim and found that the harassment had not been “pervasive and regular” and had not detrimentally affected Smith. The five-prong test, announced by the 3rd U.S. Circuit Court of Appeals in Andrews v. City of Philadelphia, calls for a plaintiff to prove that she suffered intentional discrimination because of her sex; the discrimination was pervasive and regular; the discrimination detrimentally affected plaintiff; the discrimination would detrimentally affect a reasonable person in plaintiff’s position; and the existence of respondeat superior liability. The arbitrator determined that the discrimination was not pervasive and regular because there was no indication that the offensive behavior took place every day. Hughes was not Smith’s supervisor, the arbitrator noted, and, until the end of her employment, the two did not work closely together. But Judge Waldman found that Title VII law is not so strict. “While the existence of a supervisory relationship may enhance the severity of discrimination, such a relationship is not required for harassment to be pervasive. … Harassment need not occur on a daily basis to be pervasive and regular,” Waldman wrote. But despite finding that the arbitrator misapplied that aspect of the law, Waldman found that the decision should nonetheless be upheld on the basis of her finding that Smith was not detrimentally affected. “There is no legally cognizable ground to set aside the arbitrator’s determination, based largely on credibility findings, that plaintiff failed to prove she was detrimentally affected. The arbitrator discounted plaintiff’s claim of stress and found that the conduct complained of did not affect her performance, noting that plaintiff received three promotions during the period in question,” Waldman wrote. The burden for persuading a court to vacate an arbitrator’s decision is an especially heavy one, Waldman found, citing one appellate decision that said judicial inquiry into an arbitration decision is “extremely limited.” To show “manifest disregard of the law,” Waldman said, the moving party must show “more than an error of fact or law.” Instead, Waldman said, “it is reserved for situations where an arbitrator recognizes a clearly governing legal principle and then proceeds to ignore or pay no attention to it.” One court, Waldman said, described the test as requiring proof that the arbitrator’s decision “exceeded the bounds of rationality.” The 10th Circuit, he said, has held that “even erroneous interpretations or applications of law will not be disturbed.” Smith didn’t even come close to meeting the test in her challenge, Waldman found. “Nothing has been presented remotely to show that the arbitrator’s findings regarding credibility were irrational or tainted,” he wrote.

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