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Arbitration: Circuit Split on Manifest Disregard — Adhesion Contract Shortening Statute of Limitations Is Void on Public Policy Grounds If It Leaves Plaintiff Too Little Time to Investigate Her Claim

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Tucker v. Sterling Jewelers, Inc., 2012 U.S. Dist. LEXIS 16666 (E.D. Mich. Feb. 10, 2012):

In this case, Plaintiff's principal argument is that the arbitrator acted in contravention of the court's holding in Thurman v. DaimlerChrysler, Inc., 397 F.3d 352 (6th Cir. 2004). Specifically, the arbitrator did not recognize that "an agreement to shorten a statute of limitations violates public policy if the agreement fails to afford the aggrieved party with a reasonable amount of time to investigate and file an action in the context of a federal cause of action." Pl.'s Br. 7, 9, 11 (citing Thurman, 397 F.3d at 354-59). Plaintiff's reliance on Thurman is misplaced.

In Thurman, an employer included a six-month limitation of actions provision in its employment applications. 397 F.3d at 358. An employee was sexually harassed in September and October 1999. Id. at 354-55. She first filed suit in June 2000, but the suit "was dismissed by the district court due to the repeated failure of the [the employee's] counsel to appear and participate in court ordered conferences." Id. at 355. The employee then refiled suit in August 2000, arguing that the provision was unenforceable because it was an unreasonable term in an adhesion contract. Id. at 357. Specifically, the employee argued that "the clause is unreasonable because there was not a sufficient opportunity to investigate her claims and determine the extent of her damages." Id. at 358. Disagreeing, the court held that six months provided the employee with "ample time to investigate her claim and determine her damages." Id. The court noted that the employee had been "referred to medical and psychological treatment one week after the first incident," had "filed a complaint with the Michigan Department of Civil Rights on September 29, 1999," had "filed a criminal complaint . . . on October 20, 1999," and had even "filed the first lawsuit encompassing the underlying events within the abbreviated limitations period." Id.

The Thurman rule of reasonableness, however, applies only to adhesion contracts. See id. at 357. ***

Turning to Plaintiff's alternative, "manifest disregard" argument, the Court observes that it is not obvious that manifest disregard of the law remains a viable independent ground for setting aside an arbitration decision. See generally Leigh F. Gill, Note, Manifest Disregard After Hall Street: Back From the Dead -- The Surprising Resilience of a Non-Statutory Ground for Vacatur, 15 Lewis & Clark L. Rev. 265 passim (2011) (discussing circuit split in Hall Street's wake); Hiro N. Aragaki, The Mess of Manifest Disregard, 119 Yale L.J. Online 1 passim (2009), http://yalelawjournal.org/2009/09/29/aragaki.html (same).***

Some courts have read [Hall Street] as vitiating the "manifest disregard" ground of vacatur. See, e.g., Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 350 (5th Cir. 2009) (rejecting manifest disregard as an independent ground due to Hall Street). The Sixth Circuit, however, has read Hall Street in a more restrained fashion, suggesting that "manifest disregard" may have continuing vitality. See, e.g., Grain v. Trinity Health, Mercy Health Servs., Inc., 551 F.3d 374, 380 (6th Cir. 2008) ("It is true that we have said that 'manifest disregard of the law' may supply a basis for vacating an award, at times suggesting that such review is a 'judicially created' supplement to the enumerated forms of FAA relief.").

Assuming that manifest disregard of the law may yet supply a basis for vacating an award in an appropriate case, it does not do so here. Under Sixth Circuit precedent, "[a]n arbitration panel acts with manifest disregard if (1) the applicable legal principle is clearly defined and not subject to reasonable debate; and (2) the arbitrators refused to heed that legal principle." Elec. Data Sys. Corp. v. Donelson, 473 F.3d 684 (6th Cir. 2007) (quoting Dawahare v. Spencer, 210 F.3d 666, 669 (6th Cir. 2000)).

Here, Plaintiff asserts only that the arbitrator acted with manifest disregard for [a] principle discussed above -- namely, the Thurman rule that "an agreement to shorten a statute of limitations violates public policy if the agreement fails to afford the aggrieved party with a reasonable amount of time to investigate and file an action in the context of a federal cause of action." Pl.'s Br. 11. As noted above, Plaintiff does not explain why Thurman applies to a non-adhesive stipulation executed by counsel for both parties. Plaintiff's motion to vacate the arbitrator's decision on this ground shall be denied as well.

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New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

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