Commercial Litigation and Arbitration

Arbitration — State of Circuit Split as to Whether Hall Street Eliminates Manifest Disregard as a Ground for Vacating Arbitration Award

From Abbott v. Law Office of Patrick J. Mulligan, 2011 U.S. App. LEXIS 19468 (10th Cir. Sept. 21, 2011):

In the wake of Hall Street, the circuits have split as to whether manifest disregard of the law is still a viable ground on which to overturn an arbitration award. According to the Second, Sixth (in an unpublished decision) and Ninth Circuits, manifest disregard remains a viable standard because an arbitrator who manifestly disregards the law exceeds his powers under 9 U.S.C. § 10(a)(4). See Comedy Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 1290 (9th Cir. 2009) ("We have already determined that the manifest disregard ground for vacatur is shorthand for a statutory ground under the FAA, specifically 9 U.S.C. § 10(a)(4), which states that the court may vacate 'where the arbitrators exceeded their powers . . . .'"); Stolt-Nielsen SA, 548 F.3d at 95 ("[The Supreme Court in Hall Street] did not, we think, abrogate the "manifest disregard" doctrine altogether . . . . [P]arties do not agree in advance to submit to arbitration that is carried out in manifest disregard of the law. Put another way, the arbitrators have thereby '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. § 10(a)(4)."), overruled on other grounds, U.S. , 130 S. Ct. 1758, 176 L. Ed. 2d 605 (2010); see also Coffee Beanery, Ltd. v. WW, L.L.C., 300 Fed. Appx. 415, 419 (6th Cir. 2008) (unpublished) ("In light of the Supreme Court's hesitation to reject the 'manifest disregard' doctrine in all circumstances, we believe it would be imprudent to cease employing such [*17] a universally recognized principle. Accordingly, this Court will follow its well-established precedent here and continue to employ the 'manifest disregard' standard.").

In contrast, the Fifth, Eighth and Eleventh Circuits have concluded Hall Street left no room for the judicially created doctrine. Frazier v. CitiFinancial Corp., 604 F.3d 1313, 1324 (11th Cir. 2010) ("We hold that our judicially-created bases for vacatur are no longer valid in light of Hall Street. In so holding, we agree with the Fifth Circuit that the categorical language of Hall Street compels such a conclusion."); Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 355 (5th Cir. 2009) ("Hall Street unequivocally held that the statutory grounds are the exclusive means for vacatur under the FAA. Our case law defines manifest disregard of the law as a nonstatutory ground for vacatur. Thus, to the extent that manifest disregard of the law constitutes a nonstatutory ground for vacatur, it is no longer a basis for vacating awards under the FAA.") (citation omitted); Medicine Shoppe Int'l, Inc. v. Turner, 614 F.3d 485, 489 (8th Cir. 2010) ("Appellants' claims, including the claim that the arbitrator disregarded the law, [*18] are not included among those specifically enumerated in § 10 and are therefore not cognizable.").

Footnote 9. The First and Third Circuits so far have declined to reach the issue. See Kashner Davidson Sec. Corp. v. Mscisz, 601 F.3d 19, 22-23 (1st Cir. 2010) ("The continued vitality of the manifest disregard doctrine in FAA proceedings is a difficult and important issue that the courts have only begun to resolve."); Paul Green Sch. of Rock Music Franchising, L.L.C. v. Smith, 389 Fed. Appx. 172, 177 (3d Cir. 2010) (unpublished).

Prior to Hall Street, we (somewhat equivocally), but like a number of other circuits, interpreted the Supreme Court's decision in Wilko as creating a judicial ground for vacating arbitration awards in addition to the grounds provided in 9 U.S.C. § 10. See Jenkins v. Prudential-Bache Sec., Inc., 847 F.2d 631, 633-34 (10th Cir. 1988) ("[F]ederal courts have never limited their scope of review to a strict reading of this statute . . . ."). We permitted vacatur of awards in which the arbitrators had manifestly disregarded the law, without regard to whether such decisions could be stricken under any provision of § 10 of the FAA. See MACTEC, Inc. v. Gorelick, 427 F.3d 821, 827 (10th Cir. 2005) ("In addition [to the grounds provided in § 10], the Supreme Court has held that vacatur is also appropriate when the arbitrator demonstrates a 'manifest disregard' for the law.").

Abbott urges us to follow the Second and Ninth Circuits and modify our precedent to conclude an arbitrator who manifestly disregards the law exceeds his powers under § 10. Mulligan, of course, urges us to expressly abandon "manifest disregard" as did the Fifth, Eighth and Eleventh Circuits. But in the absence of firm guidance from the Supreme Court, we decline to decide whether the manifest disregard standard should be entirely jettisoned. And it is not necessary to do so because this case does not present exceedingly narrow circumstances supporting a vacatur based on manifest disregard of the law.

Footnote 11. We note that in Hall Street, the Supreme Court observed "the old rule of ejusdem generis has an implicit lesson to teach here. Under that rule, when a statute sets out a series of specific items ending with a general term, that general term is confined to covering subjects comparable to the specifics it follows." 552 U.S. at 586.

Share this article:


Recent Posts