Article | Are Arbitrators Above the Law? The ‘Manifest Disregard of the Law’ Standard

Michael H. LeRoy, Professor of Labor and Industrial Relations and Law at the University of Illinois College of Law, recently published a law review article entitled Are Arbitrators Above the Law? The ‘Manifest Disregard of the Law’ Standard, Boston College Law Review, Vol. 52, No. 1, p. 137, 2011; Illinois Program in Law, Behavior and Social Science Paper. In his article, Professor LeRoy examines the effect Hall Street Associates v. Mattel, Inc., 552 U.S. 576 (2008), has had on the “manifest disregard of the law” standard across federal Circuit Courts.

Here is the abstract:

Arbitration is supposed to be final and binding. But federal and state laws, and judicial doctrines, allow courts to vacate arbitrator awards. This study contemplates the role of courts when they review awards that “manifestly disregard the law” – a term that means the arbitrator knew the law but chose to ignore it. Given the norm of arbitral finality, should courts vacate these rulings?

Hall Street Associates v. Mattel, Inc., 552 U.S. 576 (2008), failed to answer this question. The parties asked a court to review their award for errors of law. This standard is not in the Federal Arbitration Act (FAA). Hall Street ruled that courts cannot review awards beyond the FAA’s express terms. The parties’ standard prompted Hall Street to ask whether courts may apply “manifest disregard of the law,” even though it is not in the FAA. Inscrutably, Hall Street answered: “Maybe the term ‘manifest disregard’ was meant to name a new ground for review, but maybe it merely referred to the [FAA’s] § 10 grounds collectively, rather than adding to them.”

I analyze “manifest disregard” by using historical and empirical methods. Common law courts vacated awards for “fraud,” “corruption,” “partiality,” or if arbitrators “exceeded powers.” The FAA enumerates these as grounds to vacate awards. In the same sequence with these terms, nineteenth century courts vacated awards for “manifest mistake” or “palpable mistake” of the law. I contend that Congress inadvertently omitted “manifest disregard” from the FAA. To answer Hall Street’s equivocation: “Manifest disregard of the law” is part of the FAA.

This sets the stage for my empirical question: Has Hall Street led courts to confirm more awards, thus promoting finality? The answer is yes. In 46.4% of federal cases and 21.8% of state cases, parties in my database argued that an award manifestly disregarded the law. Still, state appellate courts confirmed more employment awards after Hall Street was decided on March 3, 2008 – 88.9% (16/18), compared to 70.9% (73/103) from 1975 until Hall Street. Federal district courts confirmed 93.7% of awards (164/175) before Hall Street, and 90.9% (30/33) after. Federal appeals courts confirmed awards at a high rate before and after Hall Street (87.8% and 85.7%).

Unfortunately, Hall Street’s muddled analysis has split federal circuits. The Fifth and Eleventh Circuits ruled that Hall Street ended “manifest disregard,” but the Second, Sixth, and Ninth Circuits still treat it as part of the FAA. The First, Third, Fourth, and Tenth Circuits avoided ruling on the standard. In addition, state courts have differed in their reactions to Hall Street.

This fractured approach implies that the Supreme Court may reconsider its vague treatment of “manifest disregard.” The Court should affirm this standard. My findings show that review for “manifest disregard” does not erode finality. The standard translates to nanoscale review of awards. As one court put it: “There is…a way to understand ‘manifest disregard of the law’ that preserves the established relation between court and arbitrator…It is this: an arbitrator may not direct the parties to violate the law.” Judges have applied this concept for two centuries to ensure that private tribunals conform to the laws. This rationale is particularly relevant because so much arbitration has changed from a voluntary to mandatory process. Judicial review must be allowed to correct an arbitrator’s intentional flouting of the law. If “manifest disregard” is eliminated, arbitral finality will rise above the crowning principle of the American constitutional system: “No man in this country is so high that he is above the law.” (U.S. v. Lee, 106 U.S. 196, 220 (1882)).

The article may be downloaded (without charge) from Social Science Research Network.

What are your thoughts?

Technorati Tags: law, ADR, arbitration, manifest disregard of the law