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Judges from traffic court to the U.S. Supreme Court swear to uphold the law, but Georgia arbitrators apparently don’t carry that burden. That’s the ruling of the Supreme Court of Georgia, which on Monday split 5-2 to hold that an arbitrator’s “manifest disregard of the law” was not a valid reason for courts to vacate an arbitration award. In the majority opinion, Justice Hugh P. Thompson wrote that in the Georgia Arbitration Code the General Assembly established four reasons courts may throw out arbitration awards: the arbitrator was corrupt, was partial toward one side of the case, overstepped his authority, or failed to follow procedure set by Georgia law. “Significantly, it did not include ‘manifest disregard of the law’ as one of those grounds,” Thompson added, noting that arbitration law must be strictly construed. “Whatever the merits of the ‘manifest disregard of the law’ principle, we should not be so bold as to judicially mandate its use as an additional ground for vacatur.” Progressive Data Systems v. Jefferson Randolph Corp., No. S01G1765 (Ga. July 15, 2002). Chief Justice Norman S. Fletcher, Presiding Justice Leah Ward Sears and Justices Robert Benham and P. Harris Hines joined Thompson’s opinion. Justice George H. Carley penned a dissent, joined by Justice Carol W. Hunstein. “A holding that the courts cannot vacate an arbitration award on the basis of the arbitrator’s ‘manifest disregard of the law’ has the effect of rendering judicial review a meaningless exercise,” Carley wrote. “If the majority is correct, then an arbitrator is free to ignore the law willfully, as the deliberate refusal to adhere to it will not prevent enforcement of the admittedly illegal award.” 1999 CONTRACT DISPUTE The court’s decision delivered a win to Progressive Data Systems Inc., a software and computer company, in a contract dispute with a former customer, trucking company Jefferson Randolph Corp. Jefferson Randolph in 1999 sued to rescind its agreement with Progressive Data and to collect damages from alleged fraud. Progressive Data said the contract mandated arbitration and counterclaimed to seek unpaid licensing fees and future fees it expected to collect under the contract. After a two-day hearing in July 2000, arbitrator Henry M. Abelman ruled for Progressive Data and awarded compensatory damages of $81,540, plus attorney fees, administrative fees and expenses. As occurs in other arbitrations, Abelman did not explain his reasons for the award, although he pointed out that damages for future license fees amounted to liquidated damages and therefore an unenforceable penalty. Judge Michael C. Clark of Gwinnett Superior Court confirmed Abelman’s ruling, but last year the Georgia Court of Appeals threw out the award. Judge Frank M. Eldridge wrote that Abelman’s decision was wrong because it amounted to “a manifest disregard for the law.” Joined by Presiding Judge Gary B. Andrews and Judge M. Yvette Miller, Eldridge wrote that Abelman was correct that liquidated damages were unenforceable. But he added that “contract damages of $81,540 are unsupported by any evidence and must be in whole or in part attributable to liquidated damages for the future licensing fees” — which both Abelman and the panel agreed were unenforceable. Jefferson Randolph Corp. v. Progressive Data Systems, 251 Ga. App. 1 (2001). ALLOWABLE GROUNDS FOR VACATUR The Georgia Supreme Court granted certiorari to determine whether an arbitration could be vacated because of the arbitrator’s “manifest disregard of the law.” “The answer is ‘no,’” wrote Thompson for the majority. He cited Greene v. Hundley, 266 Ga. 592 (1996), in which the high court ruled that the four grounds on which an award may be overturned were the state’s sole allowable reasons. “Inasmuch as the Code does not list ‘manifest disregard of the law’ as a ground for vacating an arbitration award, it cannot be used as an additional ground for vacatur,” Thompson added. He also noted that federal courts do allow arbitration awards to be thrown out on “manifest disregard of the law” grounds, but added “that principle is widely recognized as being nothing more than a non-statutory creation of the federal courts.” In his dissent, Justice Carley wrote that the grounds for throwing out an arbitration award under Georgia law “implicitly incorporate the concept of ‘manifest disregard of the law.’” Michael A. Dailey of Atlanta’s Anderson Dailey, who represented Jefferson Randolph, said he “definitely” would ask the court to reconsider but did not know whether he would seek certiorari at the U.S. Supreme Court if the Georgia justices stick to their ruling. Dailey said the only damages requested by Progressive Data were those Abelman found unenforceable, and he added that Eldridge’s decision could be upheld as finding that Abelman overstepped his authority in the arbitration, one of the four grounds to overturn an award accepted by the high court. As for the policy ramifications, Dailey said the decision “undermines the arbitration process to have [arbitrators] understand they can disregard the law.” Peter H. Strott, who represented Progressive Data, said the award was lawful, but he added that arbitration is not supposed to offer the same exacting requirements as a courtroom. “Arbitration is supposed to be fast and cheap,” he said. “You give up rights” by agreeing to arbitrate a dispute, adding, “The rules are different.” The high court decision did not address whether Abelman’s decision violated the law. Abelman, an associate general counsel at First Data Corp., said, “In my opinion, I did not disregard the law at all. I said what the law was, and I did follow it.” An arbitrator since 1986, Abelman called the high court ruling “a very good decision upholding the finality of arbitration.” “I feel vindicated in that it tells the appeals court they shouldn’t have looked into it,” he said, adding that because the appeals court did not have access to the arbitration record, it couldn’t know if he showed a manifest disregard for the law.

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