Section 10 of the Federal Arbitration Act lists specific grounds upon which a court is authorized to vacate an arbitration award. 9 U.S.C. § 10. Over the years, courts added an additional ground, i.e. “manifest disregard of law.” See First Options of Chicago v. Kaplan, 514 U.S. 938, 942 (1995) (“parties [are] bound by [an] arbitrator’s decision not in manifest disregard of law.”); Wilko v. Swann, 346 U.S. 427, 436-37 (1953) (“[I]nterpretations of the law by the arbitrators in contrast to manifest disregard [of the law] are not subject, in the federal courts, to judicial review for error in interpretation . . . .”). The courts were not completely consistent as to what constituted a manifest disregard of law. All agreed that it required something other than an erroneous conclusion of law. One of the more restrictive tests was adopted by the Second and Third Circuits and required the complaining party to “bear the burden of proving that the arbitrators were fully aware of the existence of a clearly defined governing legal principle, but refused to apply it, in effect, ignoring it.” Bellantuono v. ICAP Securities USA, LLC, No. 12-4253 (3rd Cir. Jan. 30, 2014); Dufercov Int’l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 389 (2nd Cir. 2003). While the burden was high, the complainant did have some legal basis to challenge the award. The Ninth Circuit adopted a more lenient standard under which vacatur is authorized where “the arbitration panel commits clear and obvious error in the face of contrary law.” La Tour v. Citigroup Global Mkts, Inc., No. 12-55643 (9th Cir. Nov. 12, 2013).
In Hall Street Assocs., LLC v. Mattell, Inc., 552 U.S. 576, 586-87 (2008), the U.S. Supreme Court stated that the text of Sections 10 and 11 of the Federal Arbitration Act “compels a reading of [those sections] as [the] exclusive” grounds upon which an arbitration award may be vacated. While the Court did not expressly reject the continued viability of manifest disregard of law as grounds for vacatur, some commentators and district courts were quick to sound the death knell of manifest disregard of law as grounds to vacate an arbitration award.
Not so fast. Like Carrie’s hand from the grave, the doctrine still lives. Of the seven Circuits that have addressed the continued viability of manifest disregard of law as grounds for vacatur since the Hall Street decision, four have ruled one way and three the other. Specifically, the Second, Fourth, Sixth and Ninth Circuits have held that manifest disregard of law remains a grounds for vacatur because an arbitrator essentially would have exceeded his or her powers under Section 10(a)(4) of the Act by manifestly disregarding the law. See Abu Dhabi Investment Auth. v. Citigroup, Inc., No. 13-1068-CV (2d Cir. Feb. 19, 2014); Wachovia Sec. LLC v. Brand, 671 F.3d 472, 480 (4th Cir. 2012); Coffee Beanery, Ltd. v. WW, LLC, 300 F.App’x. 415, 418 (6th Cir. 2009); Cobble Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 1281 (9th Cir. 2009).
Conversely, the Fifth, Eighth and Eleventh Circuits have held that manifest disregard of the law no longer serves as a ground to overturn an arbitration award. See Frazier v. CitiFinancial Corp., 604 F.3d 1313, 1314 (11th Cir. 2010);Medicine Shoppe Int’l, Inc. v. Turner Invs., Inc., 614 F.3d 485, 489 (8th Cir. 2010); Citigroup Global Mkts., v. Bacon, 563 F3d 349, 350 (5th Cir. 2009). In DIRECTV, LLC v. Arndt, No. 13-10033, 213 WL 5718384 (11th Cir. Oct. 22, 2013), the Eleventh Circuit reversed the vacation of an arbitration award, stating, “The arbitrator’s award may have been ugly, and could have been mistaken, incorrect, or in manifest disregard of the law, but those are not grounds for vacating the award under [Section 10(a)(4) of the FAA].”
However, the Fifth Circuit recently wobbled a bit in ConocoPhilips, Inc. v. Local 13-0555 United Steel Workers Intern. Union, No. 12-31225 (5th Cir. Jan. 30, 2014), where the court stated, “If an issue has been submitted to an arbitrator, a court will set that decision aside only in very unusual circumstances, such as fraud, manifest disregard of the law, corruption, undue means, and the arbitrator overstepping its powers.” While that language was dicta, it may reflect some disagreement on the court.
Not only has manifest disregard of law survived in some circuits, sometimes it succeeds. In Dewan v. Walia, No. 12-2175 (4th Cir. Oct. 28, 2013), the court held that an arbitrator had manifestly disregarded the law by refusing to enforce a release provision. The Eighth Circuit recently overturned an arbitrator’s award on the grounds that he had manifestly disregarded the law. Reyco Granning LLC v. International Broth. Of Teamsters, Local Union No. 245, 735 F.3d 1018 (8th Cir. Nov. 15, 2013). However, on January 14, 2014, the full Eighth Circuit granted rehearing en banc and may rule the other way.
Until the U.S. Supreme Court resolves the differences among the Circuits, the viability of manifest disregard of law as grounds to vacate an arbitration award will remain unsettled. For now, and to the extent a business has a choice, it should designate the federal venue carefully.
