"Manifest disregard": Not yet entirely disregarded.

• Author: Wolper, Matthew

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On March 25, 2008, the U.S. Supreme Court issued its opinion in Hall Street Assoc., LLC v. Mattel, Inc., 552 U.S. 576 (2008), holding that [section][section] 10 and 11 of the Federal Arbitration Act (FAA) provide litigants with the "exclusive grounds for expedited vacatur and modification" of arbitration awards. (1) The Court also suggested that manifest disregard of the law may no longer be a viable basis on which to vacate an arbitration award, but fell short of actually making that a part of its holding. (2)

In the ensuing three years, conflicts have arisen in the circuit courts regarding whether the manifest disregard standard survived Hall Street. (3) The Second, Fourth, Sixth, and Ninth circuits have held that manifest disregard remains viable while the Fifth, Eighth, and 11th circuits have held that it does not. (4) The First, Seventh, and 10th circuits have yet to take a definitive position.

This article explores the most recent cases in each jurisdiction.

The Manifest Disregard of the Law Standard

Section 10 of the FAA provides that a court may vacate an arbitration award under the following circumstances:

[W]here the award was procured by corruption, fraud, or undue means.

[W]here there was evident partiality or corruption in the arbitrators, or either of them.

[W]here the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.

[W]here 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. (5)

While the phrase "manifest disregard of the law" does not appear anywhere in the statute, over the years, federal courts considering vacatur petitions filed pursuant to the FAA have recognized additional judicially created grounds for vacatur. The additional grounds for vacatur include manifest disregard of the law--a concept used to define conduct when an arbitrator is advised of the law, recognizes its applicability, and consciously disregards it. (6)

The origin of manifest disregard of the law is found in the Supreme Court's opinion in Wilko v. Swann, 346 U.S. 427, 436-437 (1953), in which the Court discussed the judicial review of arbitration awards and stated that "the interpretations of the law by the arbitrators in contrast to the manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation." (7) Lower courts have interpreted this to mean that judicial review of arbitration awards is permitted if the arbitrator manifestly disregards the law. (8) Prior to Hall Street, the manifest disregard standard was recognized in every federal circuit. (9)

However, over the years, and even in Hall Street, the Supreme Court has not affirmatively stated whether manifest disregard is an independent, common law ground for vacatur, or simply a shorthand method of referring to the grounds enumerated in the FAA.

Hall Street

In Hall Street, the Court was asked to consider whether the statutory grounds for vacatur under [section][section] 10 and 11 of the FAA could be supplemented by contract to provide for a more expansive review of arbitration awards. (10) The Court concluded that the enumerated grounds in [section][section] 10 and 11 are, in fact, exclusive. 11

One of the arguments raised in favor of the ability to contractually supplement the FAA was the Court's acceptance in Wilko of manifest disregard of the law as a nonstatutory basis on which to vacate an arbitration award. (12) It was asserted that this language provided the Court with precedent supporting an expanded judicial review, beyond the confines of the FAA. (13) The Court disagreed, finding that a court must grant an application for confirmation of an arbitration award unless one of the prescribed exceptions in [section][section] 10 or 11 are present. (14)

The Court acknowledged the vagueness of Wilko's expression of manifest disregard, but resisted the invitation to address squarely whether it would continue to be a viable basis for vacatur. (15) Instead, the Court engaged in more of a philosophical discussion regarding the past application by federal courts of the manifest disregard standard.

Maybe the term "manifest disregard" was meant to name a new ground for review, but maybe it merely referred to the [section] 10 grounds collectively, rather than adding to them ... or, as some courts have thought, 'manifest disregard' may have been shorthand for [section] 10 (a)(3) or [section] 10(a)(4), the paragraphs authorizing vacatur when the arbitrators were "guilty of misconduct" or "exceeded their powers." (16)

In holding that [section][section] 10 and 11 provide exclusive regimes for the review provided by the statute, we do not purport to say that they exclude more searching review based on authority outside the statute as well. (17)

The Impact of Hall Street in the Federal Circuits

The Court's lack of clear direction has led the circuit courts to fend for themselves as to whether manifest disregard remains viable. Each circuit has had the opportunity to consider the implications of Hall Street, but only the Second, Third, Fourth, Fifth, Sixth, Eighth, Ninth, and 11th circuits have taken a clear position. (18) The First, Seventh, and...