Supreme Court Denies Cert in Manifest Disregard Case

On Monday, the U.S. Supreme Court denied certiorari in Certain Underwriters at Lloyd’s, London v. Lagstein, 10-534. The case sought to address whether a “manifest disregard of the law” standard of review for arbitration awards remains after the Court’s decision in Hall Street Associates, L.L.C v. Mattell, Inc., 552 U.S. 576 (2008).

In the case, Lagstein, a medical doctor, filed a claim for disability benefits under a policy he purchased from Certain Underwriters at Lloyd’s, London (Lloyd’s). After two years without payment on his claim, Lagstein filed a lawsuit in federal court. A district court stayed the case and the parties entered into binding arbitration pursuant to the terms of the disability policy. A three-member arbitration panel awarded Lagstein “full policy benefits, emotional distress damages, and punitive damages, all of which totaled more than six million dollars.”

The district court refused to confirm the arbitral award, however, and vacated it on the grounds the award was excessive and in manifest disregard of the law. Additionally, the district court vacated the punitive damages award because the arbitral “panel lacked jurisdiction to enter it after the panel had entered its compensatory award.” Lagstein appealed the district court’s vacatur of the arbitral award. The Ninth Circuit Court of Appeals reversed the district court’s vacatur and remanded the case.

According to Lloyd’s petition for certiorari, (from SCOTUSblog) the questions presented included:

1. (a) Whether review of an arbitration award for “manifest disregard of the law” or “complete irrationality” remains available after Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), a question that this Court again expressly reserved in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. __, 130 S. Ct. 1758 (2010), and on which there is a clear Circuit conflict; and

(b) If such review is available, may a reviewing court determine whether an award is irrational under the totality of the circumstances (as the district court did here and as the Second Circuit permits), or are awards impregnable unless it is “clear from the record that the arbitrators recognized the applicable law and then ignored it” (as the Ninth Circuit below held).

2. Whether the Federal Arbitration Act (“FAA”) requires vacatur of an arbitral award issued by arbitrators who failed to disclose material facts bearing on their integrity and their relationships with each other, in violation of the applicable rules governing arbitrations, or (as the Ninth Circuit held) are arbitrators required to disclose only their relationships with the parties and counsel, with the burden to investigate and unearth other material facts falling on the parties.

3. Whether arbitrators “exceed their powers” within the meaning of Section 10(a)(4) of the FAA when they issue an arbitral award after the deadline expressly agreed to by the parties in accordance with the governing arbitration rules.

Because the Supreme Court denied Lloyd’s certiorari petition, the Ninth Circuit’s opinion will stand.

Disputing has discussed the implications of Hall Street Associates many times since it was decided. You may read some of those posts here, here, here and here. We would love to hear your thoughts.

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