What to do with an arbitration award that appears to be fatally internally inconsistent and provides no explanation or reconciliation of the inconsistency? For lack of something better to say, perhaps tee up the elusive “manifest disregard of the law” doctrine as a basis to seek vacatur of the award. See, Weiss v. Sallie Mae, Inc., No. 18-2362, 2019 U.S. App. LEXIS 27476 (2d Cir. Sept. 12, 2019). Or is the award’s defect that it is not adequately “reasoned” and therefore constitutes an imperfect execution of the arbitrator’s powers under FAA § 10(a)(4)? The Second Circuit recently wrestled with the problem . . . and punted.

In Weiss, an arbitrator had (a) awarded claimant Weiss $108,500 in damages under the Telephone Consumer Protection Act (“TCPA”), after having (b) determined that Weiss was a party to a class action settlement that included a general release barring class members from bringing TCPA claims against Sallie Mae and its successors. See id. at *2-*3. The Court of Appeals characterized the arbitrator’s determinations as “in tension,” id. at *3, and incoherent, id. at *14.

The District Court had vacated the award for the arbitrator’s “manifest disregard of the law.” The Second Circuit Court of Appeals could not reach that conclusion. This seemed to be a square peg-round hole problem. What to do? It punted back to the arbitrator, perhaps hoping that the arbitrator would “fix” things (a) by amending the arbitral award (if possible; see the functus oficio doctrine) or (b) by elaborating and thus cooking this goose a bit more thoroughly for the courts to carve up.

The Second Circuit agreed with the District Court’s conclusion that the arbitrator had “ignored the unambiguous general release provision in [the class action] settlement agreement,” id. at *3, “and neglected to explain the award’s mutually exclusive determinations,” id. It concluded, however, that it was unable to determine whether the award in question “was issued in manifest disregard of the law, as the District Court held.” Id. The Court of Appeals therefore reversed and remanded the case to the District Court with an order to remand to the arbitrator with instructions to clarify whether Weiss had received sufficient notice of the class action settlement (including the release of Sallie Mae) and, if so, “to construe the general release in the first instance and to vacate or modify the award as necessary.” See id. at *3, *14. The arbitrator thus was to be instructed “either [a] to interpret and apply the terms of the [class action] Settlement agreement’s general release provision or [b] to explain why that provision does not bar Weiss’s claims.” Id. at *14.

The case context was as follows. Plaintiff-appellant Weiss had defaulted on a 2008 student loan from Sallie Mae (“SM” c/k/a Navient Solutions, LLC), which prompted frequent collection calls to Weiss’s cell phone. Weiss asserted a claim against SM in 2013 under the TCPA, 47 U.S.C. §§ 227, et seq., and the parties stipulated to conducting an arbitration under the arbitration agreement in Weiss’s student loan promissory note. Id. at *3-*4.

The arbitrator found that Weiss was a member of the settlement class in Arthur v. Sallie Mae, Inc., a separate class action suit in the U.S.D.C. for the W.D. of Washington. Class members included “any person who received ATDS [automated telephone dialing system] calls from . . . Sallie Mae between October 27, 2005 and September 14, 2010.” Id. at *5. Weiss conceded that that placed her within the “Arthur Settlement” class.

The Arthur Settlement, which took effect with the class action court’s approval and judgment on or about Sept. 17, 2012, included a provision by which class members “fully released and forever discharged Sallie Mae” and successors from all claims and causes of action, inter alia, “that arise out of or are related in any way to the use of an ‘automated telephone dialing system’ . . . by any of the Released Parties in connection with efforts to contact or attempt to contact Settlement Class Members including, but not limited to, claims under or for violations of the [TCPA].” Id. at *6. The Court of Appeals noted that the arbitrator found that Weiss was bound as a class member, and was thus deemed to have waived “any and all” TCPA claims “effective the date of final judgment in the Arthur Settlement action” -- i.e., Sept. 17, 2012. Id. at *6. “The arbitrator, however, did not even acknowledge this release provision.” Id. The District Court had found that that amounted to a “manifest disregard of the law.”

The Court of Appeals, reviewing de novo, accepted that “manifest disregard of the law” remains a basis for vacatur of an arbitration award under the Federal Arbitration Act (“FAA”), either as an independent judicial doctrine or as a “judicial gloss” on the enumerated grounds in FAA § 10(a). See id. at *7-*8. And it opined that “manifest disregard of the law” includes situations “where the arbitrator’s award is in manifest disregard of the terms of the [parties’ relevant] agreement.” Id. at *8. (However, the court did not identify an agreement to which it could refer for that purpose in this case.)

Ultimately, the Court of Appeals found itself

“unable to ascertain from the record whether the arbitrator in fact based his decision on the four corners of the Arthur Settlement agreement and its accompanying class notice . . . or whether he instead discarded the agreement in favor of his own policy preferences.” Id. at *11.

This was arguably a criticism of the form of the arbitrator’s decision, which left certain seemingly inexplicable elements unexplained. That might be frustrating, but an arbitration award should not be in jeopardy of vacatur if it has any possible colorable basis. The Court of Appeals seemed to be seeking such a basis, if it existed, and so treated the award in question as something less than fully reasoned.

In the Second Circuit, a “reasoned award” is something more than a line or two of unexplained conclusions, “but something less than full findings of fact and conclusions of law on each issue raised before the panel.” Leeward Const. Co., Ltd. v. Am. Univ. of Antigua-College of Medicine, 826 F.3d 634, 640 (2d Cir. 2016). If a “reasoned award” was called for by the controlling arbitration agreement, the court might have used the absence of a coherent explanation for the Weiss award as a basis (a) for vacating it under FAA § 10(a)(4) (the arbitrator’s having exceeded his/her powers), or (b) for remanding the matter to the arbitrator in order to elicit a fully reasoned award. See, e.g., Smarter Tools, Inc. v. Chongquing SCENCI Import & Export Trade Co., 2019 U.S. Dist. LEXIS 50633 at *13-*14 (S.D.N.Y. Mar. 26, 2019). This sort of analysis might better explain the Second Circuit’s ultimate ruling -- i.e., to reverse the District Court’s vacatur order and to remand the case for further remand to the arbitrator with instructions in effect to clarify, or better yet to amend, the award in question.

Did the situation in the Weiss case permit a conclusion that the arbitrator had manifestly disregarded the law, justifying vacatur under the FAA? Might that eventually be a justifiable legal conclusion after further clarification by the arbitrator? If we are considering the classical understanding of the “manifest disregard of the law” doctrine -- an arbitrator acts with manifest disregard of the law if (i) any applicable legal principle is clearly defined and not subject to reasonable debate; and (ii) the arbitrator refuses to heed that legal principle -- arguably neither would seem to be clearly warranted. On the other hand, when faced with an incoherent, internally inconsistent arbitration award, a court has to reach for some rationale when declining to confirm it. The remand by the Second Circuit might be interpreted as a questioning of the form of the award in an effort to give the arbitrator an opportunity to see the light and either (a) amend the award (if possible) or (b) cook that goose sufficiently to make a stronger case for vacatur under one of the recognized four bases in FAA § 10(a).