Arbitration awards are hard to undo — and “fact mistakes” are even harder
Arbitration is built for finality. That is not just a slogan — it is embedded in the Federal Arbitration Act (FAA) and reinforced by decades of federal appellate decisions. Courts do not sit as “backup arbitrators,” and they do not re-try cases, re-weigh evidence, or re-score the merits after the fact. Even when lawyers strongly believe the arbitrator got it wrong, the question in federal court is usually not “Was the arbitrator right?” but “Did the arbitrator cross one of the FAA’s narrow vacatur lines?”
The Ninth Circuit’s published decision in VIP Mortgage Incorporated v. Gates — filed December 22, 2025 — is a crisp, practical illustration of how unforgiving that standard can be, especially when the alleged “error” is factual rather than legal.
The case also delivers a lesson litigators can use immediately: if an agreed term (like a fee-bearing stipulation) will matter later, it needs to be argued later — explicitly, repeatedly, and in the right briefing posture. Otherwise, even a seemingly “obvious” point can become a non-issue on judicial review.
The dispute in plain English
VIP Mortgage employed Jennifer Gates as a loan officer. After she resigned, she initiated arbitration under an employment agreement that included an arbitration provision governed by the FAA and contemplated attorneys’ fees consistent with the statute at issue — here, the Fair Labor Standards Act (FLSA). Gates pursued claims for unpaid overtime under the FLSA and Arizona law. VIP responded with counterclaims (including breach of fiduciary duty and breach of contract).
Before the final award issued, the parties settled VIP’s counterclaims and submitted a stipulation dismissing them. The arbitrator approved that stipulation in April 2023, and it stated that each side would bear its own fees and costs relating to those counterclaims.
Fast forward. After additional proceedings, the arbitrator issued a final award that included unpaid overtime wages, liquidated damages, and a significant attorneys’ fee award — totaling $650,805.41. Importantly, the arbitrator did not parse out time spent on the counterclaims versus time spent on Gates’s affirmative wage claims.
VIP then sought vacatur in federal court, arguing (among other things) that the arbitrator exceeded her authority by awarding fees that arguably included time connected to the counterclaims — despite the earlier stipulation that each party would bear its own fees for those counterclaims.
The FAA standard: “extremely limited” review means what it says
The Ninth Circuit started where these cases usually start: with the FAA’s narrow grounds for vacatur and the court’s extremely deferential posture toward arbitration awards. Under Ninth Circuit precedent, even a legal error ordinarily does not justify vacatur unless the award is “completely irrational” or reflects “manifest disregard of the law,” and factual review is even more limited.
That matters because many vacatur petitions are written as if federal judges will correct the arbitrator’s mistakes the way they might correct a trial court’s mistake. VIP Mortgage is a reminder that arbitration review is not appellate review. The “trade” parties make for arbitration — speed, informality, privacy, and finality — comes with the risk that an arbitrator’s decision will stand even if a court might have decided the issue differently.
The key doctrinal contribution: a narrow “legally dispositive fact” pathway
Where this opinion becomes especially useful for litigators is its careful explanation of the Ninth Circuit’s narrow exception for “legally dispositive facts.”
Generally, the Ninth Circuit will not vacate an award based on an arbitrator’s “unsubstantiated factual finding” or a “manifest disregard of the facts.” But the court recognizes a slim category where a factual mistake is so firmly established and so central to the legal outcome that ignoring it can amount to manifest disregard.
The panel articulated a two-part test for vacating on a “legally dispositive fact” theory:
The factual error must be dispositive to the disputed legal issue.
The arbitrator must have known about the undisputed fact when deciding the legal issue.
Put differently, the error has to be “critical, obvious, and intentional” enough to resemble manifest disregard — not mere forgetfulness, confusion, or sloppy reasoning.
This second prong is the real gatekeeper. It is not enough to say, “The arbitrator was wrong about an important fact.” The record must support a much harder showing: the arbitrator knew the undisputed fact and still decided as if it were not true.
Applying the test: VIP could clear prong one, but not prong two
In VIP Mortgage, the court effectively gave VIP a partial win — and then explained why it still loses.
On prong one (dispositive fact), the panel acknowledged the stipulation mattered: if the arbitrator had recognized and applied the parties’ agreement to bear their own fees on the counterclaims, the outcome on that specific fees issue likely would have changed.
But prong two is where VIP’s challenge collapsed. The panel emphasized a record fact that should make every litigator pause: when VIP objected to Gates’s fee request fourteen months later, VIP did not remind the arbitrator about the stipulation’s fee provision.
That omission made it difficult — and ultimately impossible — to argue that the arbitrator “must have known” the stipulation still controlled when deciding fees. The court viewed the fee allocation term as an ancillary issue, entered long before the later fee motion, and easily forgotten without a direct reminder in the briefing.
In short, the Ninth Circuit saw this as a likely memory or attention failure — not an intentional disregard of an undisputed dispositive fact. And because arbitration review does not exist to correct ordinary mistakes, the award stood.
The contrast case: when the record shows the arbitrator knowingly ignored reality
The Ninth Circuit compared VIP’s situation to a “quintessential” example where vacatur was warranted: an arbitration in which it was undisputed that a postal worker participated in a strike, yet the arbitrator concluded he did not — effectively to compromise on what the arbitrator believed was a too-harsh penalty. In that scenario, the arbitrator’s awareness of the key fact and the intentional decision to ignore it were evident.
That is the kind of record that can support vacatur on a “legally dispositive fact” theory. VIP Mortgage did not present that kind of record.
Practical takeaways for attorneys and clients
This decision is not just a vacatur case; it is a litigation-management case. The rule it reinforces is simple: arbitration is final, and preservation is everything.
1) If a stipulation will matter later, treat it like a living document
Stipulations, settlement terms, and procedural orders often get filed, approved, and then forgotten — until someone tries to use them as a weapon during fees, costs, or post-award briefing.
VIP Mortgage is the cautionary tale: even though the stipulation existed, it apparently did not do enough “work” in the later fee briefing because it was not pushed front and center when it mattered most.
Practical moves:
When a counterclaim (or claim) is dismissed by stipulation with a fee term, re-attach it as an exhibit to later fee briefing if fees are contested.
Quote the relevant provision in the statement of issues and in the argument section, not just a footnote.
Ask the arbitrator for a clear ruling allocating fee time categories when the case involves mixed claims, settlements, or partial dismissals.
2) Record-building is not just for court — it is for arbitration, too
A common arbitration misconception is that the record does not matter because arbitration is “informal.” But review standards make the record matter in a different way: not to win a merits appeal (there usually isn’t one), but to preserve the rare issues that could support vacatur.
Here, prong two (“the arbitrator must have known”) is essentially a record question. If the brief does not tee up the dispositive fact clearly, it becomes very difficult to argue later that the arbitrator knowingly ignored it.
3) Fees can become the real battleground — plan for that early
In many statutory cases (including wage-and-hour disputes), fee exposure can dwarf damages. That reality changes the strategy:
Parties often litigate “fees-on-fees.”
Counterclaims can be leveraged for settlement pressure, but they can also complicate fee parsing.
A settlement term about fees on dismissed claims may not self-execute unless counsel frames it clearly when the fee motion is decided.
VIP Mortgage underscores a hard truth: if fee clarity is desired, counsel may need to insist on it while the arbitrator is actively focused on the issue — not after the award, and not on judicial review.
4) Client counseling: vacatur is an uphill climb — budget expectations accordingly
Clients sometimes hear “we can appeal” as a comfort phrase. Arbitration does not offer that comfort in most cases, and this opinion is a useful client-facing explanation of why.
When a client is evaluating whether to challenge an arbitration award, it helps to frame the question this way:
Is there an FAA ground (corruption, evident partiality, misconduct, exceeded powers)?
If the argument is “the arbitrator got the facts wrong,” can it be shown that (a) the fact was legally outcome-determinative and (b) the arbitrator actually knew the fact and ignored it anyway?
If the answer is “no,” a vacatur petition may become a costly detour rather than a practical path.
Why this matters beyond wage-and-hour cases
Although this dispute arose from an employment/wage context, the holding is broadly relevant across commercial and business arbitrations:
Complex cases often involve multiple claims, counterclaims, partial settlements, and shifting scopes.
Fee and cost allocation terms frequently appear in stipulations and term sheets.
Post-award challenges are common when dollars are high and emotions are hot.
The Ninth Circuit’s message is consistent: arbitration is meant to end things, not extend them. And only the most egregious, clearly preserved issues will justify a court stepping in.
Closing thought: the “best” vacatur argument is the one avoided by good process
The most effective way to “win” a vacatur issue is often to prevent it — by tightening the arbitration process itself:
clarify stipulations,
insist on clean submissions,
identify fee categories early,
and brief key constraints clearly when the arbitrator is deciding the issue.
That is where experienced neutrals add value. Nationwide ADR’s approach — Trusted. Balanced. Resolution-Driven. — is built around helping parties and counsel surface the true decision points early and reach enforceable outcomes that do not invite unnecessary second-round litigation. When the goal is finality with confidence, arbitration and mediation work best when the process is designed deliberately from the start.
LinkedIn Post (ready to paste)
The Ninth Circuit’s new published decision in VIP Mortgage v. Gates (Dec. 22, 2025) is a reminder that arbitration awards are extraordinarily difficult to undo — especially for “fact mistakes.”
The court reaffirmed a narrow vacatur path for “legally dispositive facts,” and clarified a two-part test:
the factual error must be outcome-determinative, and
the record must show the arbitrator knew the undisputed fact and decided contrary to it anyway.
A practical takeaway for litigators: if a stipulation or settlement term will matter later (especially on attorneys’ fees), it must be raised clearly and prominently when the arbitrator is deciding the later motion — not just assumed from an old filing.
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