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“Manifest Disregard Of The Law” Has Circuit Courts in Disarray

The Fourth Circuit recently affirmed that it will consider “manifest disregard of the law” as a separate basis for attacking an arbitration award, in addition to the four bases set forth in Section 10 of the Federal Arbitration Act.  Wachovia Secs., LLC v. Brand, __ F.3d ___, 2012 WL 507022, at *8 (4th Cir. Feb 16, 2012) (“[M]anifest disregard continues to exist either ‘as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10.”)  The federal circuits are now split on whether “manifest disregard” lives on after the Supreme Court decisions in Hall Street and Stolt-Nielsen.

For many years, courts have overturned arbitration awards on the grounds that the arbitrator showed a “manifest disregard of the law,” but the Supreme Court questioned the validity of that basis in Stolt-Nielsen v. Animalfeeds Int’l Corp., 130 S. Ct. 1758, 1768 n.3 (2010) and Hall Street Associates, L.L.C. v. Mattel, Inc., 552U.S. 576, 585 (2008).  In those cases, the Court suggested that the four statutory bases in Section 10 are the exclusive bases for vacating an arbitration award.

In the wake of those two decisions, the circuits are split into opposing camps about the vitality of “manifest disregard.”  The First, Fifth, Seventh, Eighth and Eleventh Circuits have determined that “manifest disregard” is no longer viable.  See Affymax, Inc. v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., 660 F.3d 281, 285 (7th Cir. 2011); Frazier v. CitiFinancial Corp., 604 F.3d 1313, 1324-25 (11th Cir. 2010); Medicine Shoppe Intern., Inc. v. Turner Investments, Inc., 614 F.3d 485, 489 (8th Cir. 2010); Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009); Ramos-Santiago v. UPS, 524 F.3d 120, 124 n.3 (1st Cir. 2008). 

On the other hand, in addition to the Fourth Circuit, the Second, Sixth,  Ninth and Tenth Circuits have continued to analyze cases under the “manifest disregard” standard. Biller v. Toyota Motor Corp., __ F.3d __, 2012 WL 336135, at *5-6 (9th Cir. Feb. 3, 2012); Jock v. Sterling Jewelers, 646 F.3d 113, 121-22 (2d Cir. 2011); Lynch v. Whitney, 419 Fed. Appx. 826 (10th Cir. 2011); Coffee Beanery Ltd. v. WW, LLC., 300 F. App’x 415, 419 (6th Cir. 2008).

 The Third Circuit has taken a middle ground, finding cases did not meet the “manifest disregard” standard, assuming it was still valid.  Rite Aid New Jersey, Inc. v. UFCW, 2011 WL 5075657, at *2 (3d Cir. Oct. 26, 2011).

Given how active the Supreme Court has been in this area, I predict it is simply waiting for the perfect ”manifest disregard” case, and then it will resolve this circuit split (most likely against the vitality of any bases other than those in Section 10).

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