Commercial Litigation and Arbitration

Arbitration — Current State of the Circuit Split on Manifest Disregard — What “Manifest Disregard” Requires, If It Does Survive: Knowing, Intentional, Explicit Refusal to Apply the Law

Bartlett Grain Co. v. Sunburst Farms P’ship, 2013 U.S. Dist. LEXIS 94140 (D. Kan. July 5, 2013):

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 According to the Second, Sixth (in an unpublished decision) and Ninth Circuits, manifest disregard remains a viable standard because an arbitrator who manifestly disregards the law exceeds his powers under 9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 v. AnimalFeeds Intern. Corp., 548 F.3d at 95 (2d Cir. 2008) ("[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, 130 S. Ct. 1758 (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 Appx. 415, 419 (6th Cir. 2008) (unpublished) ("In light of the Supreme Court's hesitation to reject the 'manifest disregard' doctrine in all circumstances, we believe it would be imprudent to cease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 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CitiFinancial Corp., 604 F.3d 1313, 1324 (11th Cir. 2010) ("We hold that our judicially-created bases for vacatur are no longer valid in light of Hall Street.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, are not included among those specifically enumerated in § 10 and are therefore not cognizable."). Id. at 618-19. In the end, the [Tenth] Circuit in Abbott [v. Law Office of Patrick J. Mulligan, 440 Fed. Appx. 612, 617-20 (10th Cir. Sept. 21, 2011)] declined to modify its precedent to conclude that an arbitrator who manifestly disregards the law exceed his powers under § 10 and declined to expressly abandon "manifest disregard" entirely, concluding that it was not necessary to come to grips with the issue as the case before it did not present the "exceedingly narrow circumstances supporting a vacatur based on manifest disregard of the law." Id. at 619-20.

Like the Tenth Circuit in Abbott, the court here declines to decide whether "manifest disregard" survives Hall Street because even assuming that an arbitrator's "manifest disregard of the law" may support a decision to vacate an award either as a nonstatutory ground for vacatur or as a "judicial gloss" on the enumerated grounds for vacatur set forth in 9 U.S.C. § 10, see Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 130 S. Ct. 1758, 1768 n.3 (2010), Sunburst Farms has not met its burden of showing that vacatur is warranted on that basis.

"Manifest disregard of the law clearly means more than error or misunderstanding with respect to the law." ARW Exploration Co., 45 F.3d at 1463. "It is not enough . . . to show that the panel committed an error-or even a serious error." Abbott, 440 Fed. Appx. at 620 (quoting Stolt-Nielsen, 130 S. Ct. at 1767). "It requires a party to establish the arbitrator's 'willful inattentiveness to the governing law.'" Id. (quoting Stolt-Nielsen, 130 S. Ct. at 1767). Stated another way, a "finding of manifest disregard means the record will show the arbitrators knew the law and explicitly disregarded it." Dominion Video Satellite, Inc. v. Echostar Satellite LLC, 430 F.3d 1269, 1275 (10th Cir. 2005).

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