Over the last few months, www.insurereinsure.com has reported on the U.S. Supreme Court’s landmark decision in Hall Street Associates v. Mattel, Inc., 128 S.Ct. 1396 (2008) (click here to view previous post), which held that parties could not contract to expand the grounds for vacatur or modification of arbitration awards under the Federal Arbitration Act (“FAA”), and the potential impact its holding might have on the doctrine of manifest disregard of the law (click here to view previous post). Two recent decisions originating from federal courts in Massachusetts shed some light on this issue. Compare ALS & Associates, Inc. v. AGM Marine Constructors, Inc., No. 06-10088 (D. Mass. June 2, 2008) with Kashner Davidson Securities Corp. v. Mscisz, No. 07-1231 (1st Cir. June 27, 2008).
In the first decision, ALS & Associates, Inc. f/k/a Southeast Floating Docks, Inc. (“ALS”) moved to vacate an arbitration award issued in favor of AGM Marine Contractors (“AGM”), arguing that, among other things, the arbitrator acted in manifest disregard of the law. AGM cross-moved to confirm the award. The United States District Court for the District of Massachusetts denied ALS’s motion to vacate, finding that manifest disregard of the law was no longer a basis for vacating or modifying arbitration awards in light of Hall Street and the First Circuit’s recent decision in Ramos-Santiago v. UPS, No. 07-1024, at *7 n. 3 (1st Cir. April 24, 2008), which stated as such in dicta.
A few weeks later, however, the First Circuit reached a different conclusion in Mscisz. In that case, a party moved to vacate an arbitration award on the basis that the panel acted in manifest disregard of the law by dismissing the party’s claims with prejudice as a sanction for its failure to comply with certain discovery orders. The National Association of Securities Dealers (“NASD”) rules, which governed the arbitration, state that a party’s claims can be dismissed with prejudice as a sanction only if lesser sanctions have failed. Because the arbitration panel dismissed Mscisz’s claims without first employing other sanctions, the First Circuit vacated the award, finding that the panel acted in manifest disregard of the law by blatantly disregarding the unambiguous language of the NASD rules. Notably, the court did not reference Hall Street in the decision.