Demise of “Manifest Disregard” Disregarded

Kashner Davidson Securities Corp. v. Mscisz, 2008 U.S. App. LEXIS 13562 (1st Cir. June 28, 2008) must have been briefed and argued before the Supreme Court’s March 25, 2008 decision in Hall Street Assocs. LLC v. Mattel, Inc., 128 S.Ct. 1396 (2008), given that the Supreme Court jettisoned the “manifest disregard of law” standard of review for arbitration awards in Hall Street, yet the First Circuit applied it to overturn an award in Mscisz. (Hall Street is discussed in the article entitled Arbitration 2008 on the Recent Articles page (http://www.josephny_live.com/articles/viewarticle.php?56).) The First Circuit had good reason for doing so:

After carefully reviewing the provisions of the NASD Code (the "Code"), which were incorporated into the parties' arbitration agreement, and the Panel's explanation of its decision, we hold that the Panel manifestly disregarded the law by dismissing appellants' counterclaims and third-party claims as a sanction in contravention of the explicit terms of the Code, which specify that such a sanction can be entered only after lesser sanctions have been imposed and have proven ineffective. We therefore reverse the decision of the district court and remand the case for entry of an order vacating the arbitration award.

Mscisz illustrates a practical problem imposed by the holding in Hall Street that the Federal Arbitration Act "confines ... expedited judicial review to the grounds listed in 9 U.S.C. §§ 10 and 11." Id. at 1408. Namely, conduct that warrants reversal might not fit within § 10 or § 11. Serious thought ought to be given to amending them. Currently they limit judicial review as follows. 9 U.S.C. § 10(a) provides:

(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration-

(1) where the award was procured by corruption, fraud, or undue means;

“(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where 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; or

(4) where 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.

9 U.S.C. § 11 provides:

In either of the following cases the United States court in and for the district wherein the award was made may make an order modifying or correcting the award upon the application of any party to the arbitration-

(a) Where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award.

(b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted.

(c) Where the award is imperfect in matter of form not affecting the merits of the controversy.

The order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties.

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