By Leslie King O’Neal
When & How do Arbitrators Exceed Their Powers?
Arbitrators “exceeding their powers” is grounds to vacate arbitration awards under the Federal Arbitration Act (“FAA”)[i] and state arbitration acts.[ii] How do arbitrators exceed their powers, making their awards subject to vacatur? Some recent cases give examples of what constitutes arbitrators “exceeding their powers” and what does not.
Awarding on a Claim Not Raised in Arbitration
Generally, arbitrators are limited to awarding relief based on the claims parties raise in arbitration. While arbitration rules don’t have the strict pleading requirements found in civil procedure rules, they require parties to state their claims.[iii] A recent case held an arbitrator exceeded her powers by awarding on a claim not raised in the arbitration.
In Nalco Company, LLC v. Bonday,[iv] a former employee filed for arbitration alleging his employer violated its severance plan by demoting him without offering severance pay. Nalco requested a court determine the scope of the arbitration agreement before the arbitration proceeded. However, the arbitrator concluded Bonday’s severance claim fell outside the scope of the agreement and awarded him nothing on his claim. Instead, the arbitrator awarded Bonday $129,465.50 for alleged discrimination in violation of ERISA. Bonday did not raise this claim in his arbitration demand.
Nalco moved to vacate the award, alleging the arbitrator exceeded her powers. The district court agreed and vacated the award. Finding the arbitrator exceeded her powers by awarding Bonday damages on a claim he never raised, the 11th Circuit affirmed (2-1). The majority opinion noted, “It is ‘well-established that an arbitrator can bind the parties only on issues that they have agreed to submit.[v]
Judge Tjoflat filed a scathing, 65-page dissent, asserting that the “District Court handed down a lawless decision,” and that “the Majority does the unthinkable. It affirms a trial court decision that cannot stand because it was handed down in defiance of the law.
Not Following Contract Requirements
Because arbitration is a creature of contract, arbitrators must show they considered contract requirements in their awards. An arbitrator’s refusal to comply with contract requirements can be considered “exceeding her powers.”
In USAA Savings Bank v. Goff[vi] the claimant filed for arbitration after his credit card account was closed. Goff sought actual and punitive damages. The arbitration agreement specifically required the arbitrator to provide a post-award of punitive damages awards with a written, reasoned explanation. The arbitrator found Goff suffered no actual damages but awarded him $10,000 in punitive damages and $77,000 in attorney’s fees. USAA requested a post-award review, but the arbitrator declined, citing AAA rules.
USAA moved to vacate the award asserting the arbitrator exceeded her authority by failing to provide the post-award review. The district court, while acknowledging the error, nevertheless confirmed the award. The Seventh Circuit reversed, finding the arbitrator exceeded her authority by ignoring the arbitration agreement’s required post-award review of the punitive damages award.
Allowing Contractor to Recoup Overpayments Did Not Exceed Powers
An arbitrator did not exceed his powers by allowing a contractor to recoup payments made to a subcontractor despite the contractor’s violation of the Massachusetts Prompt Payment Act.
In J.C. Cannistraro, LLC v. Columbia Construction Co.,[vii] a subcontractor filed arbitration under the AAA Construction Industry Arbitration Rules seeking payment for nearly $1 million in change orders from the general contractor.[viii] The general contractor had rejected the sub’s invoices but failed to include the required statutory “good faith” certification under the Massachusetts Prompt Pay Act (PPA). This meant the invoices were “deemed approved” under the PPA.
Because the invoices were “deemed approved” the arbitrator ordered the general contractor to pay the full invoice amounts ($951,855.05), which it did[ix]. After payment, the arbitrator allowed the general contractor to file a counterclaim (under AAA Rule R-6(b)) regarding the invoices’ merits. After a hearing, the arbitrator found the subcontractor had inflated costs and awarded the sub only $375,000. He awarded the general contractor $579,855.05 with interest from the time it paid the sub’s claims.
The subcontractor moved to vacate the award under the MA Arbitration Act[x] asserting the arbitrator exceeded his powers by allowing the recoupment counterclaim. The trial court agreed and vacated the award. The trial judge held the general contractor had forfeited all common law defenses (such as recoupment) by failing to raise them before paying the invoices. The trial court held that, “by allowing recoupment, the arbitrator ‘awarded relief prohibited by law’ and “exceeded his powers.”[xi] The MA arbitration law states that an arbitrator exceeds his authority by “awarding relief prohibited by law” and states this grounds to vacate the award.
Court Won’t Review Arbitrator’s Interpretation of AAA Procedural Rules
The Massachusetts Supreme Court reversed, noting that under the MA Arbitration Act, the arbitrator’s interpretation of procedural rules (here, AAA rules) courts may not review the arbitrator has discretion in interpreting and applying the procedural rules. Therefore, the court did not review the arbitrator’s permitting the counterclaim.
The MA Supreme Court rejected the sub’s argument that allowing the general contractor’s recoupment despite its noncompliance with the PPA violated public policy. The MA Supreme Court noted the general contractor had paid the invoices before seeking recoupment and had provided its reasons for non-payment. Based on another MA case interpreting the PPA[xii] it held the PPA did not preempt the general contractor’s recoupment defense. The PPA did not prohibit recoupment; therefore, the arbitrator did not grant relief “prohibited by law.”
Takeaways
- While courts rarely vacate arbitration awards, they will do so if a party shows the arbitrators “exceeded their powers.”
- Arbitrators should read the parties’ contract and arbitration agreement carefully. Be sure to comply with contract requirements regarding arbitration awards.
- Counsel should review the arbitration agreement thoroughly before filing an arbitration demand to be sure the claims are within the agreement’s scope.
- Counsel should also check the specific rules and specific arbitration law (FAA or state law) applicable to the case. Most federal circuit courts hold that choice of law clauses are insufficient to specify state arbitration law.[xiii]
[i] 9 U.S.C §§1 – 16.
[ii] All 50 states have enacted arbitration acts, which vary widely. See Cornell Law School, Legal Information Institute, Alternative Dispute Resolution—State Laws. https://www.law.cornell.edu/wex/table_alternative_dispute_resolution; See also Uniform Law Commission—Arbitration; https://www.uniformlaws.org/committees/community-home?CommunityKey=a0ad71d6-085f-4648-857a-e9e893ae2736;
[iii] E.g. AAA Construction Arbitration Rule 6; JAMS Construction Arbitration Rule 10.
[iv] Nalco Co. LLC v. Bonday, 142 F.4th 1336 (11th Cir. 2025). https://media.ca11.uscourts.gov/opinions/pub/files/202213546.pdf
Judge Tjoflat dissented. The dissent discusses the history of the FAA and arbitration, the limited grounds to vacate arbitration awards, Nalco’s persistent efforts to avoid or to prevent the arbitration from occurring, and its assertion that the arbitrability question was for the trial court and not for the arbitrator to decide. Nalco did not participate in the arbitration hearing. The dissent disagrees that the arbitrator ruled on a claim that wasn’t presented, noting that plaintiff was pro se and presented evidence of the ERISA claim at the hearing (which Nalco didn’t attend). The dissent further recommends the trial court determine whether Nalco’s counsel misinformed the Court as to the state of the relevant law in prosecuting its lawsuit against Bonday and Nalco’s motion for vacatur.
[v] Citing Butterkrust Bakeries v. Bakery, Confectionary & Tobacco Workers Int’l Union, AFL-CIO, Loc. No. 361, 726 F.2d 698, 700 (11th Cir. 1984) (further citations omitted).
[vi] (No: 25-1730) (7th Cir. 2026).https://law.justia.com/cases/federal/appellate-courts/ca7/25-1730/25-1730-2026-03-19.html
[vii] 497 Mass. 73 (Mass. June 26, 2026)
[viii] Initially, the subcontractor filed suit in state court, seeking damages for the unpaid invoices and asserting a claim for violation of the MA PPA.
[ix] The arbitrator postponed his award until the Mass. Appeals Court entered its decision in Tocci Building Corp. v. IRIV Partners, 101 Mass. App. Ct. 1033 (2022), which held the PPA certification requirement is an essential part of the statutory process.
[x] The opinion does not discuss why the MA Arbitration Act rather than the FAA applied. Most construction projects involve interstate commerce, even when the project participants are local. See Allied-Brue Terminix Cos. v. Dobson, 513 U.S. 265 (1995) (parties need not contemplate interstate commerce in contract; SCOTUS applies “commerce in fact” interpretation. Termite contract involved multi-state parties and interstate materials, therefore FAA applied).
[xi] Id.
[xii] Business Interiors Floor Covering Business Trust v. Graycor Construction Co., 494 Mass. 216 (2024)
[xiii] See FAA or State Arbitration Law? Which Applies and When?
But see, Volt Information Services, Inc. v. Board of Trustees of Stanford University, 489 U.S. 468 (1989) (contract specifying the contract would be governed by “the law of the place where the Project is located” was sufficient to incorporate the CA arbitration rules. FAA did not preempt CA arbitration rules even though the contract involved interstate commerce).
Leave a Reply