Plaintiff, a vice president of sales and marketing, commenced an arbitration against his employer (i2) alleging that i2 had failed to pay him approximately $2.7 million in sales commissions due under his Account Manager Compensation Plan (the Contract). Following the arbitrator’s issuance of an award of $1 million in plaintiff’s favor, i2 moved to vacate, or, alternatively, modify the award, arguing that the arbitrator exceed his authority by basing his award on his finding that i2 had breached a section of the Contract that neither party had ever referenced during the arbitration.
The District Court began its analysis by recognizing that judicial review of an arbitration award is “exceedingly deferential” and that, under applicable Fifth Circuit precedent, such an award must be upheld if it “is rationally inferable from the letter or purpose of the underlying agreement.” The Court then noted that “no court has yet addressed the question of whether an arbitrator can base his decision in a breach of contract case on a section of the contract that was not specifically referenced in the parties’ briefs or during the arbitration.”
In upholding the award, the District Court cited a Fifth Circuit case in a related context in which the court ruled that “when considering whether an arbitrator has exceeded his authority in ruling upon a matter not submitted to him, the only question the court is permitted to ask is ‘whether the award, however arrived at, is rationally inferable from the contract.’” Applying this standard, the District Court ruled that the arbitrator could have rationally inferred he had the power to base the award on the section of the contract he relied upon. The Court noted that there was no indication that the parties had limited the arbitrator’s authority to only those provisions of the Contract that they referenced. Accordingly, the Court upheld the award, finding that (i) the issue presented to the arbitrator was whether i2 had breached the Contract, and (ii) it was reasonable for the arbitrator to infer that he could rest his decision on a different section of the Contract than the one i2 relied upon to support its position. (VandenAvond v. I2 Technologies, Inc., 2008 WL 5336300 (N.D.Tex.))