Reinsurance & Arbitration Focus

In a 2-1 decision, the Ninth Circuit Court of Appeals recently reversed a district court’s order confirming an arbitration award in favor of a former Costco employee who had been fired for selling cocaine on company property. The arbitrator found that the employee’s termination was barred by the doctrine of “industrial double jeopardy,” because he had already incurred a three-day suspension for his conduct, and awarded that the employee be “made whole.”

The Ninth Circuit took issue with the fundamental fairness of the arbitration proceedings. Following the presentation of evidence, the arbitrator engaged in extensive ex parte communications with the terminated employee and the Teamsters Union, which had represented the employee at arbitration. The arbitrator also conveyed a $6,000 settlement offer to the employee, which Costco was unaware of and had not authorized. When rendering his decision, the arbitrator did so via a “vague and bizarre” email sent only to the Teamsters Union, which said: “The above named grievant prevails in his grievance. The Union’s arguments as to double jeopardy were correct. Union remedy is adopted. So that I can look at myself in the mirror, my resignation is effective today.” The arbitrator failed to provide any reasoned basis for his decision, without any finding of fact or statement of law. He then resigned after rendering his email judgment.

Acknowledging the high standard that must be met to vacate an arbitration award, the Ninth Circuit ultimately decided that the arbitration proceedings deprived Costco of a fundamentally fair hearing, and entitled Costco to vacatur of the award. “For all we know,” the majority commented, “the arbitrator flipped a coin, consulted a ouija board, or threw darts at a dartboard to determine the outcome.” The court concluded: “No Party agreeing to arbitration bargained for a proceeding such as this.”