Ninth Circuit Upholds Arbitrator Award Containing Clear Factual Error

The U.S. Court of Appeals for the Ninth Circuit recently affirmed an arbitration award despite clear factual error, finding that the factual error was not so critical, obvious, or intentional that it amounted to manifestly disregarding the law.

In VIP Mortgage Incorporated v. Gates, 162 F.4th 1010 (9th Cir. 2025), loan officer Jennifer Gates filed an arbitration demand against her former employer, VIP Mortgage, for claims for wage-and-hour violations. In response, VIP counterclaimed with allegations of breach of fiduciary duty and breach of contract. The parties agreed to settle VIP’s counterclaims prior to the arbitrator’s final award, and in fact, the arbitrator approved the stipulation to dismiss stating that the parties would bear their own fees and costs. 

The arbitrator eventually issued an interim award for Gates, who sought attorneys’ fees. VIP objected to the fee request but did not remind the arbitrator about the parties’ stipulation dismissing the counterclaims. The arbitrator ultimately awarded Gates unpaid overtime wages, liquidated damages, and attorneys’ fees. Although the arbitrator reduced the hourly rate in response to VIP’s objections, it did not distinguish between time spent on Gates’ claims and VIP’s counterclaims.

VIP asked the district court to vacate or modify the award on the grounds that the arbitrator’s fee award was contrary to the parties’ agreement to bear their own fees for the settled counterclaims. The district court denied VIP’s motion and instead granted Gates’ motion to confirm the award. VIP appealed to the Ninth Circuit, who affirmed the district court’s decision and found that the court correctly determined that the arbitrator’s decision should not be overturned.

In so ruling, the appellate court found that while the decision met the first prong of the test for vacatur—the factual error was so critical to the disputed legal issue that it determined the outcome of that issue—it failed the second prong—that the fact was so obvious that the arbitrator must have known about it when she decided the fees motion. In particular, the Ninth Circuit held that because VIP did not mention the stipulation to bear fees in its briefing in opposition to the fees motion 14 months after the stipulation was entered, it was fair to infer that the arbitrator forgot about it. Although the arbitrator erred, the court reminded parties that the risk of such errors is inherent in arbitration proceedings. 

Employers who seek to arbitrate claims with employees should be mindful of the benefits and drawbacks of arbitration compared to litigation in court. Employers considering arbitration agreements with employees should contact experienced counsel.