Labor & Employment Law Daily Wrap Up, ARBITRATION—9th Cir.: Arbitrator’s error in awarding attorney fees on counterclaims did not warrant vacatur, (Jan 2, 2026)

By Ronald Miller, J.D.

Under the “legally dispositive fact” vacatur ground, the arbitrator’s factual error must be so “egregious” and central to the legal issue that it amounts to manifestly disregarding the law.

A district court’s rulings confirming an arbitration award in favor of an employee’s overtime claim was affirmed, even though the arbitrator erred in awarding attorney fees without disallowing time spent on an employer’s counterclaims, ruled the Ninth Circuit. The arbitrator had previously approved the parties’ stipulation to dismiss the counterclaims, which stated that the parties would bear their own fees and costs on the counterclaims. However, the arbitrator’s factual error in apparently not remembering that the parties had agreed to bear their own fees for the settled counterclaims did not fall within the narrow carveout for “legally dispositive facts” (VIP Mortgage, Inc. v. Gates, No. 24-7624 (9th Cir. Dec. 22, 2025)).

The employer is in the business of mortgage loan banking and brokering. The employee was employed as a loan officer beginning in May 2016 until she resigned in September 2022. Following her resignation, the employee filed a demand for arbitration under the arbitration provision in her employment agreement.

Overtime claims. In her demand for arbitration, the employee alleged that the employer and her supervisor violated the FLSA and Arizona state law by withholding overtime pay. According to the employee, the defendants required her to work over forty hours a week but did not compensate her for overtime hours. In response, the employer counterclaimed, alleging breach of fiduciary duty and breach of contract.

Counterclaims. Before the arbitrator issued the final award, the parties agreed to settle the employer’s counterclaims. In April 2023, the arbitrator approved the stipulation to dismiss the counterclaims, which stated that parties would bear their own fees and costs. Fourteen months later in June 2024—after the arbitrator had issued an interim award for the employee—the employer filed a brief objecting to the employee’s request for attorney fees.

Final award. In the final award, the arbitrator awarded the employee unpaid overtime wages under the FLSA, attorney fees, and liquidated damages in the total amount of $650,805.41. In awarding the bulk of requested fees, the arbitrator explained that the employee was “the prevailing party in this action” and “was successful in this matter, and not to a de minimis degree.” The arbitrator did not distinguish between time spent on the employee’s claims and the counterclaims. The arbitrator apparently ignored the fact that the parties had earlier agreed to bear their own attorney fees and costs for those counterclaims.

Petition to vacate. The employer petitioned the district court to vacate or modify the award, while the employee moved to confirm the award. The district court concluded the arbitrator’s award was not “completely irrational or emblematic of a manifest disregard of the law.” Thus, it denied the employer’s motion to vacate the award and granted the employee’s motion to confirm the award. On appeal, the employer asserted that the arbitrator erred in awarding the employee attorney fees for the counterclaims.

Attorney fees. Section 10 of the FAA authorizes vacatur only where (1) “the award was procured by corruption, fraud, or undue means”; (2) “there was evident partiality or corruption in the arbitrators”; (3) “the arbitrators were guilty of misconduct”; and (4) where “the arbitrators exceeded their powers, or so imperfectly executed them that a... final, and definite award upon the subject matter submitted was not made.”

The Ninth Circuit will not disturb even an incorrect legal decision by an arbitrator unless it was completely irrational or reflected manifest disregard of the law. Thus, the district court correctly held that the arbitrator did not exceed her authority by awarding attorney fees for the settled counterclaims.

“Legally dispositive fact.” Generally, an arbitrator’s “unsubstantiated factual finding” cannot “justify federal court review of an arbitral award under the FAA.” A “[m]anifest disregard of the facts” does not provide a basis to vacate an arbitration award. But the Ninth Circuit has recognized a narrow basis for vacatur where the facts are “so firmly established that an arbitrator cannot fail to recognize them without manifestly disregarding the law.” Under this “legally dispositive fact” vacatur ground, the arbitrator’s factual error must be so “egregious” and central to the legal issue that it amounts to manifestly disregarding the law.

The “legally dispositive fact” basis for vacatur applies if (1) the factual error was so critical to the disputed legal issue that it determined the outcome of that issue, and (2) the fact was so obvious and undisputed that the arbitrator must have known about it when she decided the legal issue.

However, the narrow “legally dispositive fact” vacatur basis does not apply here. The arbitrator’s factual error here—apparently not remembering that the parties had agreed to bear their own fees for the settled counterclaims—does not fall within the narrow carveout for “legally dispositive facts.”

While the employer met the first prong of the “legally dispositive fact” basis for vacatur, it cannot meet the second prong—that this fact was so obvious that the arbitrator must have known about it when she decided the fees motion. By the time the arbitrator issued the final award, it had been over a year since she had entered the order approving the stipulation to dismiss the counterclaims. The employer did not remind the arbitrator of the stipulation’s fee provision when it objected to the motion for attorney fees 14 months later. Given that the fees request for the counterclaims was a minor issue in the arbitration, the arbitrator may not have remembered the details of that stipulation.

Thus, the appeals court was not convinced that the arbitrator ignored a legally dispositive fact to orchestrate a desired outcome. Accordingly, the appeals court affirmed the district court’s rulings to confirm the arbitration award.

The case is No. 24-7624.

Judge: Lee, K.

Attorneys: Jeffrey W. Toppel (Bianchi Brandt) for VIP Mortgage, Inc. James Weiler (Law Offices of James Weiler) for Jennifer Gates.

Companies: VIP Mortgage, Inc.

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