Commercial Litigation and Arbitration

Arbitration — Lingering Circuit Split over Viability of Manifest Disregard — Sixth Circuit’s Take

Schafer v. Multiband Corp., 2013 U.S. Dist. LEXIS 22057 (E.D. Mich. Feb. 19, 2013):

Prior to Hall Street, the circuits unanimously recognized "manifest disregard" as a ground for vacatur. Since, however, the circuits have split over whether manifest disregard survives. 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, 271-80 (2011) (discussing circuit split); Ann C. Gronlund, Note, The Future of Manifest Disregard As A Valid Ground for Vacating Arbitration Awards in Light of the Supreme Court's Ruling in Hall Street Associates, L.L.C. v. Mattel, Inc., 96 Iowa L. Rev. 1351, 1363-69 (2011) (same); MyLinda K. Sims & Richard A. Bales, Much Ado About Nothing: The Future of Manifest Disregard After Hall Street, 62 S.C. L. Rev. 407, 424-29 (2010) (same).

The Sixth Circuit, for its part, has concluded (albeit with occasional reluctance) that manifest disregard lives on. E.g., Coffee Beanery, Ltd. v. WW, L.L.C., 300 F. App'x 415, 418 (6th Cir. 2008) (Cole, J.) (holding that manifest disregard survives Hall Street); Dealer Computer Servs., Inc. v. Dub Herring Ford, 547 F.3d 558, 561 n.2 (6th Cir. 2008) (Keith, J.) (same); Ozormoor v. T-Mobile USA, Inc., 08-11717, 2010 U.S. Dist. LEXIS 85248, 2010 WL 3272620, *at 2 (E.D. Mich. Aug. 19, 2010) (Cohn, J.), aff'd, 459 F. App'x 502 (6th Cir. 2012); Thomas Kinkade Co. v. Lighthouse Galleries, LLC, 09-10757, 2010 U.S. Dist. LEXIS 6443, 2010 WL 436604, at *6 & n.13 (E.D. Mich. Jan. 27, 2010) (Rosen, C.J.) (same); but see Grain v. Trinity Health, Mercy Health Services Inc., 551 F.3d 374, 380 (6th Cir. 2008) (Sutton, J.) ("Hall Street's reference to the 'exclusive' statutory grounds for obtaining relief casts some doubt on the continuing vitality of that theory.").

Specifically, the Sixth Circuit instructs that "[a] court's ability to vacate an arbitration award is almost exclusively limited to [the § 10] grounds, although it may also vacate an award found to be in manifest disregard of the law." Coffee Beanery, 300 F. App'x at 418 (emphasis supplied) (citing Wilko v. Swan, 346 U.S. 427, 436, 74 S. Ct. 182, 98 L. Ed. 168 (1953)); see also Dealer Computer Servs., 547 F.3d at 561 n.2 [*21] ("A court may also vacate an award on non-statutory grounds if the arbitration panel demonstrates a 'manifest disregard of the law.'"). While it is uncertain whether the Supreme Court would reach the same result, this Court is obliged to follow the instructions of the Sixth Circuit. ***

Arbitrators manifestly disregard the law, the Sixth Circuit instructs, when "(1) the applicable legal principle is clearly defined and not subject to reasonable debate; and (2) the arbitrators refused to heed that legal principle." Coffee Beanery, 300 F. App'x at 418 (quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d 418, 420 (6th Cir. 1995)). The court cautions, however, that this is a "narrow" ground -- "a mere error in interpretation or application of the law is insufficient. Rather, the decision must fly in the face of clearly established legal precedent." Id.

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