Awards: Tennessee Supreme Court Backs Arbitrator's Award of 100% of Damages (Web)

Awards:  Tennessee Supreme Court Backs Arbitrator’s Award of 100% of Damages After a 100% Liability Finding, Reversing an Appellate Damages Reduction.
 
Williams Holding Co. v. Willis , No. W1999-02733-SC-R11-CV (July 5, 2005)(available at http://www.tsc.state.tn.us/opinions/tsc/PDF/053/WilliamsHolOPN.pdf). An arbitration award that granted plaintiffs 100% of the damages due to a defendant’s 100% liability was affirmed by a trial court, modified by an appellate court, and now, reinstated to the award’s original form early this month by the Tennessee Supreme Court.

The Court struck down the appellate court’s holding that the arbitrator had exceeded his authority by awarding damages after the plaintiff already had received an amount equal to half of the damages in a settlement with a third party, and reinstated the award for the full amount of damages notwithstanding the settlement.

Defendant Sharon Willis, of Memphis, Tenn., left her 12-year-old son and friend at home alone, and the friend accidentally bumped the stove, catching a pan of grease on fire and damaging the property, which was owned by Williams Holding Co.

Williams, which leased the apartment, and Willis agreed to arbitrate a subsequent suit, but before the arbitration the parties settled.  Willis and her son agreed to pay nearly $37,000 plus court costs.  The amount was 50% of the fire damages.

Representatives of the family friend, who also was a 12-year-old, opted to arbitrate with Williams.  The parties stipulated at the beginning of the proceedings to the amount of the damages, and to the fact that Williams had recovered half of this amount from Willis and her son. 

The arbitrator found the friend, now the only remaining defendant, to be 100% at fault, and charged him to pay 100% of the more-than-$73,000 in damages stipulated in the Williams-Willis settlement.  The defendant’s representatives appealed, arguing that Williams was receiving a windfall and that the court should modify the arbitration award on the grounds that the arbitrator had exceeded his authority.  The trial court disagreed, affirming the award, but the appellate court modified the award.

The Supreme Court held this modification to be improper on two grounds.  First, the standard of review for arbitration agreements is supposed to give great deference to the arbitrator’s award, in order to maintain arbitration’s speed and authority.  The appellate court’s review of the trial court’s decision was also supposed to follow the “clearly erroneous” standard.  It was not clearly erroneous to follow the arbitrator’s decision, the Court found, noting the appellate court erred because it overstepped the standards of review for both the trial court and the arbitration award. 

Second, the Court’s opinion states that “the arbitrator did not exceed his scope of authority.  The issue of awarding the full amount of the plaintiff's damages . . . was before the arbitrator.”  And the “issue of determining the percentage of [defendant’s] fault in causing the damages was likewise before the arbitrator.” 

Since both issues were within the arbitrator’s control, and the arbitrator didn’t go outside of the parties’ arbitration agreement, the fact that the arbitrator found the second boy 100% liable and awarded 100% damages is not in excess of his designated authority.

The Court’s opinion indicates that the stipulations as to the prior settlement were irrelevant to the award.  The defendant isn’t entitled to a credit based on a settlement that did not alter the distribution of fault.  “Here, the arbitrator found [the defendant] to be 100% at fault in causing the plaintiff's damages. As a result, requiring [the defendant] to pay 100% of the plaintiff's total damages does not result in him paying more than his proportionate share.  Instead, his liability is linked to his percentage of fault under the principles of comparative fault.”

The Court reinstated the entire award since the arbitrator did not exceed his authority for the fault finding; since the defendant is not entitled to a credit for the previous third-party settlement, and since the appellate court erred in its standard of review.

--Rebeka Fortess