July 06, 2015 Practice Points

Manifest Disregard: The Circuit Split Persists

By Liz Kramer and Bri'An Davis

Section 10 of the Federal Arbitration Act does not list “manifest disregard of the law” as one of the four bases for vacating an arbitration award. Nonetheless, it continues to be argued and, sometimes, accepted. An analysis shows that, while some circuits have shifted their position slightly, there is still no clear majority on whether manifest disregard of the law is a valid basis for overturning an arbitration award.

Three federal appellate courts have maintained a strict reading of SCOTUS’s 2008 Hall Street decision. The Fifth, Eighth, and Eleventh Circuits continue to hold that manifest disregard is no longer an applicable basis for vacating an arbitration award. See McVay v. Halliburton Energy Servs., Inc., 2015 WL 1810950, at *2 (5th Cir. Apr. 22, 2015); Medicine Shoppe Intern., Inc. v. Turner Invs., Inc., 614 F.3d 485, 489 (8th Cir. 2010); Campbell’s Foliage, Inc. v. Federal Crop Ins. Corp., 562 Fed. Appx. 828, 831 (11th Cir. 2014).

The Second, Fourth, Seventh, Ninth, and Tenth Circuits take the opposite view and have allowed arguments to vacate an arbitration award based on manifest disregard of the law. See A & G Coal Corp. v. Integrity Coal Sales, Inc., 565 Fed. Appx. 41, 42–3 (2nd Cir. 2014); Dewan v. Walia, 544 Fed. Appx. 240, 248 (4th Cir. 2013); Renard v. Ameriprise Fin. Servs., Inc., 778 F.3d 563, 56–69 (7th Cir. 2015); Wetzel’s Pretzels, LLC v. Johnson, 567 Fed. Appx. 493, 494 (9th Cir. 2014); Adviser Dealer Servs., Inc. v. Icon Advisers, Inc., 557 Fed. Appx. 714, 717 (10th Cir. 2014).

Interestingly, more circuit courts have opted for a middle ground in the last few years, declaring that the issue is undecided. The First Circuit recently reversed a district court’s decision to vacate an arbitration award for manifestly disregarding the law. See Raymond James Fin. Servs., Inc., v. Fenyk, 780 F.3d 59, 63–4 (1st Cir. 2015). The court stated that whether the manifest disregard doctrine remains good law is “uncertain,” but that the alleged error in the arbitrator’s award did not meet that high standard in any case.

In addition to the First Circuit, the Sixth and Third Circuits leave unanswered the question whether manifest disregard is a legitimate basis to vacate an arbitration award. In 2008, the Sixth Circuit decided to continue accepting manifest disregard and overturned an arbitration award on that basis, yet in 2014 it held that the legitimacy of using manifest disregard has not been settled and evaded applying it. See Coffee Beanery, Ltd. v. WW, LLC, 300 Fed. Appx. 415, 419 (6th Cir. 2008); Schafer v. Multiband Corp., 551 Fed. Appx. 814, 818–19 (6th Cir. 2014). Although the Third Circuit has allowed manifest disregard arguments in the past, it recently held that “this court has not yet ruled” on whether manifest disregard is an allowable basis to vacate an award. Bellantuono v. ICAP Secs. USA, LLC, 557 Fed. Appx. 168, 173–74 (3rd Cir. 2014).

Litigants hoping to overturn arbitration awards should not take great comfort in the fact that five circuit courts allow manifest disregard arguments. Even those five circuits are reluctant to vacate arbitration awards on that basis. In fact, we were able to find only two federal appellate courts, the Fourth and Ninth, that have overturned an arbitration award on that basis since 2009. See Dewan, 544 Fed. Appx. at 248; Comedy Club, Inc. v. Improv West Assocs., 553 F. 3d 1277, 1289–90 (9th Cir. 2009).

Here’s the scorecard:

 

Manifest Disregard Lives

Manifest Disregard Dead

Status Uncertain

2015

2nd, 4th, 7th, 9th, 10th

5th, 8th, 11th

1st, 3rd, 6th

2012

2nd, 4th, 6th, 9th, 10th

1st, 5th, 7th, 8th, 11th.

3rd


Keywords: alternative dispute resolution, litigation, manifest disregard, vacate, arbitration

Liz Kramer is with Stinson Leonard Street in Minneapolis, Minnesota. Bri’An Davis is a 2017 J.D. candidate at University of  Iowa College of Law in Iowa City, Iowa.


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