An arbitrator’s “manifest disregard of the law” is no longer a ground for vacating an arbitration award, according to the Fifth Circuit. In other circuits, however, this ground for vacatur may have some continuing vitality.
In the Fifth Circuit, manifest disregard has been a difficult standard to satisfy, as it has required a readily-perceived error by an arbitrator who appreciated, but ignored, the existence of a clearly governing principle. Nevertheless, like most circuits, the Fifth Circuit had come to recognize manifest disregard as a nonstatutory basis for vacatur.
The Fifth Circuit recently changed all of this in Citigroup Global Markets Inc. v. Bacon, an appeal of a lower court’s vacatur of a FINRA securities arbitration award. The court concluded that it was bound to follow a 2008 Supreme Court holding to the effect that the four statutory grounds set forth in Section 10 of the Federal Arbitration Act are the exclusive grounds for vacatur.
Does the Supreme Court’s holding reduce the likelihood in all circuits that broker-dealers will prevail on their motions to vacate? Perhaps not. Manifest disregard persists as a relevant concept in at least three circuits that have since considered this issue.
The Sixth Circuit, for example, has construed the Supreme Court’s holding only to invalidate any agreement by the parties to expand the statutory grounds for review. The Sixth Circuit does not otherwise foreclose a court’s review of an arbitrator’s manifest disregard of the law. Moreover, the Ninth and Second Circuits have concluded that, despite the Supreme Court’s holding, manifest disregard of the law remains a relevant consideration in applying one of the statutory grounds. To date, only the Fifth Circuit has definitively held that such manifest disregard is no longer a “useful” concept in actions to vacate arbitration awards.