Progressive Data System, Inc. v. Jefferson Randolph Corp. , 275 Ga. 420 ( 2002 )

Thompson, Justice.

We granted a writ of certiorari to the Court of Appeals in Jefferson Randolph Corp. v. Progressive Data Systems, 251 Ga. App. 1 (553 SE2d 304) (2001), to determine whether an arbitration award can be vacated because of the arbitrator’s “manifest disregard of the law.” The answer is “no.”

Progressive Data Systems (“PDS”) sold computer equipment and software to Jefferson Randolph Corporation (“JRC”). After the equipment was delivered, JRC sued to rescind the sales agreement and for fraud. PDS sought arbitration and counterclaimed for unpaid software licensing fees and future fees. The arbitrator entered an award on PDS’s counterclaim for compensatory damages in the amount of $81,540, plus attorney fees, administrative fees and expenses. The trial court confirmed the award and added “post-award prejudgment interest” and “additional attorney fees” to it. JRC appealed and the Court of Appeals reversed, holding, inter alia, that the arbitrator manifestly disregarded the law because, although he recognized that damages for future license fees are to be treated as liquidated damages and an unenforceable penalty, he awarded damages anyway.

In Greene v. Hundley, 266 Ga. 592 (468 SE2d 350) (1996), this Court ruled that the four statutory grounds for vacating an arbitration award are exclusive. That is to say that to vacate an award of arbitration, the applying party must show that its rights

were prejudiced by: (1) Corruption, fraud, or misconduct in procuring the award; (2) Partiality of an arbitrator appointed as a neutral; (3) An overstepping of the arbitrators of their authority or such imperfect execution of it that a final and definite award upon the subject matter submitted was not made; or (4) A failure to follow the procedure of this [Code], unless the party applying to vacate the award continued with the arbitration with notice of this failure and without objection.

OCGA § 9-9-13 (b).

Thus, under Greene, an arbitration award can be vacated in only one of four statutory ways. See Ralston v. City of Dahlonega, 236 Ga. App. 386 (512 SE2d 300) (1999) (review must be confined to the four statutory grounds). That is because the Georgia Arbitration Code is in derogation of the common law and must be strictly construed. Greene, supra at 594.

Inasmuch as the Code does not list “manifest disregard of the law” as a ground for vacating an arbitration award, it cannot be used as an additional ground for vacatur. Nor can it be said that a “manifest disregard of the law” fits within the framework of the third statutory ground listed above — overstepping of the arbitrator’s authority. That ground only comes into play when an arbitrator determines matters beyond the scope of the case. Threatt v. Forsyth County, 250 Ga. App. 838, 841 (552 SE2d 123) (2001) (citing Haddon v. Shaheen & Co., 231 Ga. App. 596 (499 SE2d 693) (1998)). It is not applicable where, as here, the issue to be decided, i.e., damages, is properly before the arbitrator.

Because the federal arbitration law closely mirrors the statutory grounds set forth in our Arbitration Code, we examine its provisions.¹ We note that the federal law provides several statutory grounds for vacating an arbitration award and that “manifest disregard of the law” is not one of them. Nevertheless, the federal courts cite “manifest disregard of the law” as a ground for vacatur. See, e.g., NCR Corp. v. Sac-Co., 43 F3d 1076, 1079 (6th Cir. 1995).

In the main, the federal courts do not rely upon the provisions of the federal arbitration statute to justify using the “manifest disregard of the law” principle. To the contrary, that principle is widely recognized as being nothing more than a non-statutory creation of the federal courts. See Carte Blanche (Singapore) v. Carte Blanche (Intl.), 888 F2d 260, 265 (2nd Cir. 1989) (“manifest disregard of the law” is a judicially created ground for vacatur of an arbitration award; it is not to be found in the federal arbitration law).

Our legislature set forth four statutory grounds for vacating an arbitration award. Significantly, it did not include “manifest disregard of the law” as one of those grounds. Whatever the merits of the “manifest disregard of the law” principle, we should not be so bold as to judicially mandate its use as an additional ground for vacatur, especially since, as noted above, our Arbitration Code is in derogation of the common law and must be strictly construed.

Judgment reversed.

All the Justices concur, except Hunstein and Carley, JJ., who dissent.

1 The federal law allows a court to vacate an arbitration award where the award was procured by “corruption” or “fraud”; where the arbitrators demonstrated “partiality”; “where the arbitrators were guilty of misconduct” or “other misbehavior” causing prejudice to the rights of any party; “where the arbitrators exceeded their powers” in such a way “that a mutual, final, and definite award upon the subject matter submitted was not made.” 9 USCA § 10 (a).