Tuesday, October 6, 2009

Supremes Will Not Hear Manifest Disregard Cases

The United States Supreme Court declined to hear the appeals of three cases, all of which involve the concept of manifest disregard of the law as a grounds for vacating an arbitration award.

Manifest disregard of the law has evolved over the years as an alternative justification for vacating an arbitration award. However, the concept is not contained in the arbitration statutes of the various states, nor is it in the Federal Arbitration Act. Rather it was judicially created, to address the situation where an arbitration panel is aware of a controlling legal principle, but refuses to apply it.

While such an event is rare, it does happen from time to time, and the courts have vacated awards when it is clear that that the arbitrators were aware of the law, that the law controlled the issue before the panel, and the panel simply refused to apply the law.

However, the concept has been called into question of late, and some courts have refused to consider manifest disregard as a grounds for vacature, taking the position that the only grounds to vacate an award are those set forth in the statutes - typically fraud, bias on the part of the arbitrators, arbitrator misconduct, or where the the arbitrators exceeded their authority.

There has been a split in the Circuit Courts, which should have resulted in a granting of a review by the Supreme Court. The Court's denial of the cert petition means that the split will continue, with some jurisdictions applying manifest disregard, and others holding that it is not grounds to vacate an award. For the near future, the ability to use the concept is going to depend on the court deciding the issue.

One question that is being raised that has some merit - isn't the refusal of an arbitrator to apply a controlling law to the facts before him a form of misconduct? And if so, then the concept of manifest disregard of the law is simply a form of arbitrator misconduct, and is in fact a grounds for vacating an award.

Thanks to Philip Loree for alerting us to the denial of cert.
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