2009 Developments in Arbitration: Manifest Disregard of the Law

In addition to the grounds for vacating awards provided by the Federal Arbitration Act (FAA), courts have developed the doctrine of “manifest disregard” of the law as a common-law ground to vacate awards. An arbitral panel is said to have manifestly disregarded the law if, knowing the existence of a clear legal principle, refuse to apply it. However, in 2008, in Hall Street Associates, LLC v. Mattel, Inc., 128 S.Ct. 1396 (2008) the U.S. Supreme Court concluded that the statutory grounds for vacating arbitration awards are exclusive when a party seeks judicial review under the FAA. The Court indicated that “manifest disregard” of the law was not a basis for reviewing such awards.

For background and commentary on Hall Street, visit our previous posts:

• Professor Alan Scott Rau Responds to Hall Street v. Mattel Jun. 9, 2008
• Professor Alan Scott Rau Gives Justice Souter a C-minus Jun. 5, 2008
• Glen Wilkerson on Hall Street v. Mattel April 19, 2008
• No Longer Can You Craft Your Own Arbitral Standard of Review March 26, 2008

Over the past year, the circuit courts have differed over whether the “manifest disregard” doctrine survives the Supreme Court’s holding in Hall Street. The First Circuit, in Ramos-Santiago v. United Parcel Serv.,524 F.3d 120 (1st Cir. 2008), concluded that Hall Street abolished “manifest disregard” as a ground for vacating or modifying an award under the FAA. Similarly, In Citigroup Global Mkts v. Bacon, 562 F.3d 349 (5^th Cir. 2009) the Fifth Circuit strongly rejected “manifest disregard” as an independent, nonstatutory ground for setting aside an award. It stated that “the term itself, as a term of legal art, is no longer useful in actions to vacate arbitration awards.” (read more here)

However, other circuit courts have reached a different conclusion. The Second Circuit held that “manifest disregard” survives Hall Street in Stolt-Nielsen SA v. AnimalFeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2008). The court explained that “manifest disregard” was shorthand for a statutory ground, merely that the arbitrators “exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” The court stressed that arbitration is a creature of contract law and that the parties did not agree to an arbitration carried out in “manifest disregard” of the law. (read more here)

Likewise, the Ninth Circuit concluded in Comedy Club, Inc. v. Improv West Associates, 553 F.3d 1277 (9th Cir. 2008) that Hall Street did not abolish “manifest disregard” because its case law considers it as a shorthand for statutory ground in § 10(a)(4). Also, the Sixth Circuit, in The Coffee Beanery, Ltd. v. WW, LLC, 300 Fed. Appx. 415 (6th Cir. 2008) interpreted Hall Street to limit only the contractual expansions of the grounds for review. More recently, the Tenth Circuit decided ‘DMA Int’l, Inc. v. Qwest Communications Int’l, Inc., applying the doctrine of “manifest disregard” of the law. (read more here)

Despite the split on the circuit courts over the doctrine, in October 2009, the U.S. Supreme Court denied certiorari to three “manifest disregard” of the law cases: The Coffee Beanery, Ltd. v. WW, LLC, 300 Fed. Appx. 415 (6th Cir. 2008); Grain v. Trinity Health, 551 F.3d 374 (6th Cir. 2008); and Comedy Club, Inc. v. Improv West Associates, 553 F.3d 1277 (9th Cir. 2008).

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