This past year we’ve followed the U.S. Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc., No. 06-989 (U.S. Mar. 25, 2008), and whether courts have interpreted it as eliminating the doctrine of manifest disregard of the law, a judicially-created concept that provides parties with a basis for challenging an arbitration award beyond those grounds enumerated in the Federal Arbitration Act (“FAA”). Click here, here and here to review our prior blog posts on this topic.
In Hall Street, the Supreme Court held that the statutory grounds for vacating and modifying arbitration awards are “exclusive” under the FAA, and thus cannot be expanded, even if expressly agreed upon by the arbitrating parties. Those who predicted that Hall Street would cast doubt on the continued viability of manifest disregard of the law can point to several cases decided after Hall Street that have held that manifest disregard is no longer a valid basis for challenging arbitration awards. See e.g., Robert Lewis Rosen Associates Ltd. v. Webb, 2008 WL 2662015, *4 (S.D.N.Y. July 7, 2008) (finding that, in light of Hall Street, manifest disregard of the law is no longer a valid basis for overturning or modifying arbitral awards under the FAA); ALS & Associates, Inc. v. AGM Marine Constructors, Inc., 557 F. Supp. 2d 180, 185 (D. Mass. 2008) (to the same effect); Prime Therapeutics LLC v. Omnicare Inc., 555 F. Supp. 2d 993, 999 (D. Minn. 2008) (same); Hereford v. D.R. Horton, Inc., 2008 WL 4097594, at *5 (Ala. Sept. 5, 2008) (to the same effect); Millmaker v. Bruso, No. 07-3837 (S.D. Tex. Oct. 9, 2008) (noting that Hall Street put the viability of manifest disregard of the law in doubt).
Many other courts, however, have continued to consider this doctrine as a valid ground for vacatur or modification of an arbitration award, even when specifically referring to Hall Street in the decision. See e.g., Kashner Davidson Securities Corp. v. Mscisz, 531 F.3d 68 (1st Cir. 2008) (vacating an arbitration award based on manifest disregard of the law); Stolt-Nielsen Transportation Group Ltd., et al. v. Animal Feeds International Corp., 2008 U.S. App. LEXIS 22838 (2d Cir. Nov. 4, 2008) (recognizing manifest disregard of the law as a basis for vacatur, despite Hall Street); Parnell v. Tremont Capital Mgmt. Corp., 2008 WL 2229442, at *1 (2d Cir. May 30, 2008) (recognizing in dicta the manifest disregard standard); Reeves v. Chase Bank USA, NA, 2008 WL 2783231, at *3 (E.D. Mo. July 15, 2008); Fitzgerald v. H&R Block Financial Advisors Inc., 2008 WL 2397636, at *4 (E.D. Mich. June 11, 2008) (noting that manifest disregard of the law is a separate standard, distinct from the FAA); LaPine v. Kyocera Corp., 2008 WL 2168914, at *6 (N.D. Cal. May 23, 2008) (manifest disregard of the law is a narrow basis for vacatur, but nonetheless a valid one); Jimmy John’s Franchise, LLC v. Kelsey, 549 F. Supp. 2d 1034, 1037 (C.D. Ill. 2008) (to the same effect). See also Barclays Capital Inc. v. Shen, No. 07-111720 (N.Y. Sup. Ct. Apr. 22, 2008) (not mentioning Hall Street, and finding that an arbitrator’s award may be vacated for manifest disregard of the law if: the moving party can establish that the arbitrators knew of a governing legal principle, yet refused to apply it or ignored it altogether and; the law ignored by the arbitrators was well defined, explicit and clearly applicable to the case).
Further, several other courts have found that manifest disregard of the law is encompassed within the grounds for vacatur or modification enumerated by the FAA. See e.g., Stevens & Co. v. Cikanek, 2008 WL 2705445, at *4 (N.D. Ill. July 9, 2008); Mastec North America, Inc. v. MSE Power Systems, Inc., 2008 WL 2704912, at **3, 7 (N.D.N.Y. July 8, 2008); Chase Bank USA, N.A., 859 N.Y.2d 342, 349 (N.Y. Sup. Ct. 2008).
Notably, in Hall Street, the Supreme Court expressly preserved a party's right to pursue expanded review of arbitration awards that are governed by state law. 128 S.Ct. at 1405. See also Cable Connection Inc., et al. v. DirectTV Inc., 44 Cal.4th 1334, 1364, 82 Cal. Rptr. 3d 229, 254 (2008) (holding that, under the California Arbitration Act, parties may obtain expanded judicial review of arbitral awards, and distinguishing Hall Street as limited to awards arising under the FAA). Nonetheless, at least one state court has followed Hall Street's holding where the applicable state law was silent as to whether parties could contract for expanded judicial review. See Quinn v. Nafta Traders, Inc., 257 S.W.3d 795, 799 (Tx. Ct. App. 2008) (comparing the language of the Texas General Arbitration Act to the FAA).
The U.S. Supreme Court has yet to clarify whether it meant for Hall Street to eliminate the doctrine of manifest disregard of the law altogether. Recently, however, the Supreme Court vacated a judgment originating from the U.S. Court of Appeals for the Ninth Circuit that had vacated an arbitration award based on manifest disregard of the law. See Improv W. Assocs. v. Comedy Club, Inc., 77 U.S.L.W. 3195 (U.S. Oct. 6, 2008). The Supreme Court remanded the case for reconsideration in light of Hall Street. Thus, insurers and reinsurers should stay tuned for this developing area of the law.