Commercial Litigation and Arbitration

Arbitration — If Manifest Disregard Survives, What Does It Mean?

Cerone v. Bank of Am. Inv. Servs., 2012 U.S. Dist. LEXIS 76952 (D.N.J. June 4, 2012):

Pursuant to the FAA, a district court may vacate an arbitration award only under a limited set of circumstances:

(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 [*7] 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. § 10(a). The Supreme Court has explicitly reserved ruling on whether or not the "manifest disregard of law" doctrine survived its decision in Hall Street Associates v. Mattel, 128 S. Ct. 1396 (2008), either as "an independent ground for review or as a judicial gloss on the enumerated grounds" in the FAA. Stolt-Nielsen, 130 S. Ct. at 1768 n.3. The Third Circuit has not yet ruled on the issue, and the decisions of other Circuits are split. See, e.g., Paul Green School of Rock Music Franchising LLC v. Smith, 389 F. App'x 172, 176-77 (3d Cir. 2010). The Second and Ninth Circuits have held that the doctrine survives because a manifest disregard for the law is one way that arbitrators may "exceed their powers" under 9 U.S.C. § 10(a)(4). Id. at 177 n.6 (citing Comedy Club Inc. v. Improv W. Assocs., 553 F.3d 1277, 1290 (2d Cir. 2008); Stolt-Nielsen SA v. Animal Feeds Int'l Corp., 548 F.3d 85, 93-95 (2d Cir. 2008)). The Fifth and Eleventh Circuits, however, have held that the doctrine is no longer valid. Id. (citing Frazier v. CitiFinancial Corp. LLC, 604 F.3d 1313 (11th Cir. 2010); Citigroup Global Markets v. Bacon, 562 F.3d 349, 357 (5th Cir. 2009)).

Whether or not a "manifest disregard" standard still applies in the Third Circuit, it is clear that a Plaintiff must do more than state his disagreement with the arbitrator's ruling in order to survive a motion to dismiss. "It is only when an arbitrator strays from interpretation and application of the agreement and effectively dispenses his own brand of industrial justice that his decision may be unenforceable." Stolt-Nielsen S. A., 130 S. Ct. at 1767 (quoting Major League Baseball Players Assn. v. Garvey, 532 U.S. 504, 509 (2001)) (internal citations omitted). Thus, if an "'arbitrator is even arguably construing or applying the contract and acting within the scope of his authority,' the fact that 'a court is convinced he committed serious error does not suffice to overturn his decision.'" Eastern Associated Coal Corp. v. United Mine Workers of America, District 17, 531 U.S. 57, 62 (2000) (citing Paperworkers v. Misco, Inc., 484 U.S. 29, 38 (1987)). "Neither a court's disagreement with the arbitrator's construction of a contract nor its belief that its interpretation of a contract is better justifies a court overruling the arbitrator." Exxon Corp. v. Local Union 877, Intern. Broth. of Teamsters, Chauffeurs, Warehousemen and Helpers of America, 980 F.Supp. 752, 760 (D.N.J. 1997) (citing News America Publications, Inc. Daily Racing Form Div. v. Newark Typographical Union, Local 103, 918 F.2d 21, 24 (3d Cir. 1990)).

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