On June 16, 2020, a U.S. District Court in North Carolina refused to confirm an arbitration award, holding that it constituted “manifest disregard of the law.” Warfield v. ICON Advisors, Inc. (No. 3:20CV195-GCM, W.D. North Carolina).
The central point made by the court was that applicable North Carolina law does not recognize the cause of action for which the arbitrator granted relief and that the arbitrator was aware of the applicable law but chose to ignore it. The court explained the requirements for “manifest disregard” of the law to apply:
The Fourth Circuit has recognized that "manifest disregard" of the law also exists as either an independent ground for overturning arbitral awards or as a judicial gloss on the grounds for vacatur set forth in 9 U.S.C. § 10. Wachovia Securities, LLC v. Brand, 671 F.3d 472, 483 (4th Cir. 2012). The Court has adopted a two-part test for manifest disregard of the law: "(1) the applicable legal principle is clearly defined and not subject to reasonable debate; and (2) the arbitrator [] refused to heed that legal principle." Id. (quoting Long John Silver's Rests., Inc. v. Cole, 514 F.3d 345, 349 (4th Cir. 2008)). A misapplication or error in the law is not manifest disregard of the law.
To provide further clarification, the court quoted a Fourth Circuit decision that stated:
[A] court's belief that an arbitrator misapplied the law will not justify vacation of an arbitral award. Rather, appellant is required to show that the arbitrators were aware of the law, understood it correctly, found it applicable to the case before them, and yet chose to ignore it in propounding their decision. Remmey v. PaineWebber, Inc., 32 F.3d 143, 149 (4th Cir. 1994).
The Court found that the award on Warfield's claim for "wrongful termination without just cause" has no basis in North Carolina law because North Carolina is an employment at-will state. Although North Carolina recognizes some exceptions to the employment at-will doctrine—such as when an employee’s termination is based on the employee’s age, race, sex, religion, national origin, or disability or in retaliation for the employee’s filing certain kinds of claims against the employer—no such exception was alleged by the employee here. Moreover, the court found that the defendants made the arbitration panel aware of the clear, well-established law in North Carolina, and the panel “chose to disregard that law.” As a result, the award was vacated.
The court said that it was mindful that vacating an arbitration award should be a "rare occurrence," but held that, under the circumstances of this case, it was appropriate.