Emerald Aero LLC v. Kaplan

A $30 million arbitration award is vacated as the arbitrator exceeded his powers by awarding punitive damages that the claimant first requested the day before the arbitration hearing.  This decision reverses a judgment confirming an arbitration award of $30 million, most of it punitive damages, in a securities fraud case.  The arbitrator exceeds his powers if his award is inconsistent with limitations in the parties’ arbitration agreement, their arbitration submissions, or the agreed arbitration rules.  Here, neither the agreement nor the submissions precluded an award of punitive damages.  However, plaintiff did not raise a claim for punitive damages until the day before the arbitration hearing, when it e-mailed an arbitration brief to the arbitrator and copied the defendant.  The email service the day before the hearing of a brief that introduced a new claim for punitive damages was not effective written notice as required by AAA Rule 6.  The lack of proper notice was prejudicial as defendant did not attend the arbitration hearing in person or by counsel, but might have if he had proper notice of the size of the award plaintiffs’ sought.  There were other less serious procedural lapses in the arbitration which together with the large size of the punitive damages award led the court to conclude that the arbitrator exceeded his power and that his award could not be corrected without affecting the merits of the award, so the award was vacated under CCP 1286.2(a)(4).

California Court of Appeal, Fourth District, Division 1 (Haller, J.); February 28, 2017; 2017 WL 767004

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