For arbitration awards that are the product of a manifest disregard of the law, it's hammer time. At least in jurisdictions that still recognize the "manifest-disregard" doctrine, that is.
On Monday, Judge Joel A. Pisano of the U.S. District Court for the District of New Jersey issued an opinion highlighting a circuit split over whether this doctrine survived the Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) “either as ‘an independent ground for review or as a judicial gloss on the enumerated grounds’ in the [Federal Arbitration Act (FAA)].” Cerone v. Bank of Am., Civil Action No. 12-00214 (JAP) (Dist. N.J. June 4, 2012) (unpublished). The FAA provides a laundry list of scenarios in which a district court may vacate an arbitration award. See 9 U.S.C. § 10(a).
The statute does not explicitly refer to an arbitrator’s “manifest disregard” of the law, and the Court left the question for another day in its decision in Hall Street Associates, L.L.C. Judge Pisano outlined the resulting circuit split over the issue as follows:
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 The Fifth and Eleventh Circuits, however, have held that the doctrine is no longer valid.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 Ass'n v. Garvey, 532 U.S. 504, 509, 121 S. Ct. 1724, 149 L. Ed. 2d 740 (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, 121 S. Ct. 462, 148 L. Ed. 2d 354 (2000) (citing Paperworkers v. Misco, Inc., 484 U.S. 29, 38, 108 S. Ct. 364, 98 L. Ed. 2d 286 (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)).
Cerone, Civil Action No. 12-00214 (JAP). Perhaps the time has come for the Supreme Court to decide whether arbitration awards resulting from a manifest disregard of the law are in indeed untouchable.