Courts are reluctant to overturn arbitrators' decisions. The whole idea of arbitration is to get disputes out of the courts, so if judges show willingness to second-guess decisions made elsewhere, they will be deluged with cases asking them to vacate arbitrators' awards.
Nonetheless, there are times when a court finds that an arbitrator's ruling has to be thrown out because it is not only wrong but also goes against important social norms.
Three years ago, the U.S. Supreme Court curbed that limited authority by ruling that it cannot be invoked in cases involving only general considerations of what a judge thinks is the public interest. The public policy that the arbitrator allegedly ignored has to be one explicitly spelled out in laws and prior court rulings, the high court said.
The U.S. Court of Appeals in New York has decided that the battle against sexual harassment has become just that kind of unequivocal public policy, requiring a court to make adjustments when an arbitrator does not treat such charges seriously enough.
The Oct. 5 ruling in Newsday v. Long Island Typographical Union came in a case where the arbitrator found that an employee should not have been discharged for sexually harassing the women with whom he worked.
The arbitrator rejected the union contention that the sexual harassment charges were just a trumped up reason to get rid of an employee who had a guaranteed job, and agreed that the instances of harassment were serious.
Nonetheless, he ruled that firing was inappropriate, that before resorting to a pink slip management should have handed out less onerous sanctions.
That approach completely ignores the 1964 Civil Rights Act, the sex discrimination guidelines of the Equal Employment Opportunity Commission and Supreme Court rulings that it is unlawful to let sex bias create a hostile work environment, Senior Judge J. Edward Lumbard explained. He said that by condoning the harassment, the arbitration decision undercuts an employer's efforts to obey the law, and it has to be overturned.
In other cases, courts ruled that:
When a grand jury questions a corporate officer, it's a lot more than a simple request for information. The U.S. Court of Appeals in St. Louis said that such a probe is close enough to an allegation of wrongdoing that the insurance company carrying the directors' and officers' liability coverage of the executive has to pick up the tab for the legal expenses.
The judges said the insurance company underestimated the seriousness of the investigation in characterizing it as merely asking for an explanation of business decisions and therefore refusing reimbursement.
(Polychron v. Crum & Forster, Oct. 11) Courts shouldn't penalize clients for their lawyers' mistakes. The U.S. Court of Appeals in Richmond told the U.S. Tax Court it acted incorrectly in throwing out a challenge to the Internal Revenue Service lodged by members of an equipment-leasing partnership. The group's lawyer knew little about Tax Court litigation and did not stay in touch with special tax counsel called in for the case.
As a result, the government never got the documents it had asked for and the case didn't proceed. The appellate judges suggested that the Tax Court should punish the lawyers, but found the "dismissal sanction is usually inappropriate when it unjustly penalizes a blameless client for the attorney's behavior."
Hillig v. Commissioner, Oct. 16 Maryland hospitals and doctors cannot be sued if their negligence leads to the death of someone who was likely to die anyway. After ducking the question twice before, the Maryland Court of Appeals decided not to authorize medical malpractice suits for "loss of chance" -- that is, diminishing the chance for survival in cases where the patient has a less than 50-50 chance.
If such actions are to be endorsed, the green light should come not from judges but from the legislature, the opinion concludes.
Fennell v. Southern Maryland Hospital, Oct. 9 A divorce settlement means what the man and woman meant it to mean when they signed it. The question comes up in a lot of bankruptcy proceedings because a bankruptcy frees a person from the obligation to make future property distributions, but does not wipe out alimony or support obligations. Sometimes it's hard to tell the two kinds of payments apart, such as when the divorce decree tells the husband to pay off a second mortgage on the family home.
Some courts have tried to answer the question by looking at the financial condition of the two parties at the time one files for bankruptcy.
But the U.S. Court of Appeals, siding with a majority of the precedents, said instead a bankruptcy court should look at the situation at the time of the divorce.
If the woman had limited earning power then, it is more likely that the settlement is really for support.
Assessing her finances later, the judges reasoned, would penalize the woman who had worked hard to develop a profitable career. In re Gianakas, Oct. 19
Moskowitz is a Washington editor with Business Week newsletters.