Question: What’s the difference between an arbitration ruling based on an interpretation of contract that is merely wrong, and one that is irrational?
The answer in Hayday Farms, Inc. v. FeedX Holdings, Inc., No. 21-55650 (9th Cir. Dec. 19, 2022), an appeal from an arbitration award, is about $7 million.
This is yet another cautionary tale that arbitration severely constrains the litigants’ appellate rights. The 9th Circuit panel agreed that the appellant’s interpretation of the contract was the right one, but that was not enough: the arbitration award was not “irrational” or “some form of vigilante justice,” so it stands.
The arbitration panel awarded the plaintiffs $21 million on the contract dispute, but when the plaintiffs moved the district court to confirm the award, the defendants argued that $21 million was excessive. The large award was more than the plaintiffs stood to receive had the contract been performed, and so under California Civil Code section 3358, the award was excessive.
The district court agreed the arbitration award was excessive, and reduced it by $7 million.
The 9th Circuit reversed the district court and reinstated the aribtral award, even though the panel agreed with the district court that the award was excessive. As Judge Milan wrote, the defendant "probably offers the best interpretation of the parties’ agreements,” and the panel expressed "concern about a seemingly unfair damages award that likely violates § 3358.”
But as long as the arbitral award "was not some form of vigilante justice,” it has to be affirmed.