Award Vacated. Arbitrator Exceeded Powers

The Federal Arbitration Act provides that an award should only be vacated where “arbitrators exceed their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made,” 9 U.S.C. §10(a)(4).

The Seventh Circuit Court of Appeals in USAA Savings Bank v. Goff, No. 25-1730 (7th Cir. March 19, 2026) serves as a reminder that arbitrators must follow the rules laid out in the contract.

The case began after USAA Savings Bank closed Michael Goff’s credit card account and provided him with conflicting reasons for doing so. Goff took the matter to arbitration, alleging violations of the Equal Credit Opportunity Act (ECOA).

The arbitrator agreed with Goff, finding that USAA failed to provide adequate notice of the account closure. The arbitrator found that Goff suffered zero actual damages but still awarded him $10,000 in punitive damages (and $77,428 in legal fees).

USAA did not challenge the merits of the ECOA violation itself. Instead, they pointed to the contract provision stating that before any punitive damages award becomes final, the arbitrator must conduct a post-award review using the same standards a judge would use in a state court. This review must also include a written, reasoned explanation.

When USAA requested this review, the arbitrator refused. She claimed that under the American Arbitration Association (AAA) rules, she did not have the authority to "re-determine the merits" of a claim she had already decided.

While a lower district court initially sided with Goff, the Seventh Circuit reversed the lower court. The appellate court’s logic centered on the principle that arbitrators exceed their authority when they ignore clear and unambiguous contractual language.

The court noted that while AAA rules generally apply, the contract explicitly stated those rules are secondary if they conflict with the arbitration agreement. By refusing to conduct the post-award review, the arbitrator was not just "misinterpreting" the contract, she was disregarding it entirely.

The majority opinion noted that USAA specifically "bargained for a post-award review" before any punitive damages could be finalized. Because the arbitrator failed to provide that review, there was effectively no final award to enforce.

The general rule is that an award may not be vacated when an arbitrator errs. Here the arbitrator did not err, rather she did not apply the contract at all.

A dissenter argues that the arbitrator’s final award did technically incorporate the interim findings and that the arbitrator’s explanation was enough to "draw its essence" from the agreement. The dissenter suggested that the court should have deferred to the arbitrator’s procedural choices.

The Seventh Circuit remanded the case back to the original arbitrator. The lesson is simple: follow the contract. The arbitrator must now conduct the required post-award review and provide the reasoned explanation that USAA was promised in the original agreement.