Fourth Circuit Rules that ‘Manifest Disregard of the Law’ Continues to Exist

Recently, the U.S. Court of Appeals for the Fourth Circuit ruled that the doctrine of “manifest disregard of the law” continues to exist as a ground to vacate arbitration awards under the Federal Arbitration Act (“FAA”). See Wachovia Securities, LLC v.Brand, No. 10-2111 (4th Cir. Feb. 16, 2012).

Wachovia Securities, LLC (“Wachovia”) appealed from the district court’s refusal to vacate an arbitration award entered against it after it sued several former employees on what the arbitrators determined were frivolous claims.

Wachovia argued that the arbitrators (the “Panel”) violated § 10(a)(3) of the FAA and “manifestly disregarded” the law when they awarded $1.1 million in attorneys’ fees and costs under the South Carolina Frivolous Civil Proceedings Act (the “FCPA”). Specifically, Wachovia argued that the Panel “manifestly disregarded” the law when it refused to import the FCPA’s procedural requirements into the arbitration.

The Fourth Circuit stated, “Although we find that manifest disregard continues to exist as either an independent ground for review or as a judicial gloss, we need not decide which of the two it is because Wachovia’s claim fails under both.” Accordingly, the court affirmed the district court’s judgement.