To: Sarah Rudolph Cole
From: Alex Derkson
Date: October 3, 2012
RE: Validity of the “Manifest Disregard of the Law” Standard After the U.S. Supreme
Court’s Decision in Hall Street Associates, L.L.C. v. Mattel, Inc.
I. Introduction
The validity of the “manifest disregard of the law” standard for vacating an
arbitration award varies by jurisdiction. The U.S. Supreme Court has not ruled
definitively on the doctrine’s legitimacy and, consequently, the circuit courts split on the
issue; some circuits uphold the standard’s viability – under a few slightly different
rationales – while other circuits reject the doctrine’s continued existence – mostly for the
same reason. Table 1 presents a summary of the circuits’ respective positions on the
question. Section II of this memorandum discusses the key Supreme Court cases bearing
on the issue - Hall Street Associates, L.L.C. v. Mattel, Inc.1 and Stolt-Nielsen S.A. v.
AnimalFeeds Int’l Corp.2 Lastly, Section III highlights the defining cases – and the
justifications provided in those decisions – setting forth each circuit’s stance on the
existence of the manifest disregard standard.
Table 1
Existence of the Manifest Disregard (“MD”) Standard
MD is Valid Ground
MD is Not Valid
Undecided
for Vacatur
Ground for Vacatur
2nd Cir. (Published)
5th Cir. (Published)
1st Cir. (Published)
th
th
4 Cir. (Published)
7 Cir. (Published)
3rd Cir. (Unpublished)
6th Cir. (Unpublished)
8th Cir. (Published)
D.C. Cir. (Unpublished)
th
9 Cir. (Published)
11th Cir. (Published)
10th Cir. (Unpublished)
II. U.S. Supreme Court Case Law
The Supreme Court’s 2008 decision in Hall Street sparked the debate over the
validity of the manifest disregard standard. In Hall Street, the Court addressed whether
the statutory grounds for vacatur under §§10 and 11 of the Federal Arbitration Act
(“FAA”) could be expanded by contract.3 The Court answered this question in the
negative, holding that the FAA’s “statutory grounds are exclusive.”4 The Court rejected
Hall Street’s argument – based on language from the Supreme Court’s decision in Wilko
v. Swan – that manifest disregard was “a further ground for vacatur on top of those listed
in §10.”5 The Court analyzed the cited excerpt from Wilko and determined that manifest
disregard could be read in at least three ways: it could refer to §10 grounds collectively; it
could be “short-hand” for §10(a)(3) or §10 (a)(4); or it could name a “new ground for
1
Hall Street Assocs. L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008).
Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,130 S.Ct. 1758 (2010).
3
Hall Street Assocs. L.L.C., 552 U.S. at 578 (considering whether an arbitration agreement could expand
the scope of judicial review for vacatur of an arbitral award to include review for legal error in addition to
the enumerated grounds in §10 of the FAA).
4
Id.
5
Id. at 578. (internal citation omitted).
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review.”6 The Court thus resisted Hall Street’s invitation to uphold a particular
interpretation and passed on deciding the validity of the manifest disregard standard.
Two years after Hall Street, in Stolt-Nielsen, the Supreme Court again sidestepped
resolving the question. In a famous footnote, the Court stated succinctly that “[w]e do
not decide whether ‘manifest disregard’ survives our decision in Hall Street 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.”7 Stolt-Nielsen reignited the debate, and the circuit
courts continue to take different positions on the question. Within just the last year, the
Fourth and Seventh Circuits reached opposite conclusions on the standard’s validity. In
February 2012, the Fourth Circuit joined the Second, Sixth, Ninth, and Tenth Circuits in
upholding the legitimacy of manifest disregard doctrine.8 In contrast, last October, the
Seventh Circuit abolished the manifest disregard standard except in very limited
circumstances.9 Until the Supreme Court takes a clear position on this issue, the circuit
courts will remain split.
III. Circuit Courts of Appeals’ Case Law
a. MANIFEST DISREGARD OF THE LAW REMAINS A VALID BASIS FOR VACATING
AN ARBITRATION AWARD.
In the Second, Fourth, Sixth, Ninth, and Tenth Circuits, the manifest disregard
standard is a valid ground for vacating an arbitration award. These circuits defend their
respective positions under three primary rationales. This section is organized into three
subsections focusing on the justification set forth by each respective circuit. Briefly,
these subsections are: “Manifest Disregard is Valid as a ‘Judicial Gloss’ on §10 of the
FAA”; “Manifest Disregard is Valid as ‘Short-Hand’ for §10(a)(4) of the FAA”; and
“Manifest Disregard is Valid as Either an Independent Ground for Review or as a
‘Judicial Gloss’ on §10 of the FAA.”
i. Manifest Disregard is Valid as a “Judicial Gloss” on §10 of the FAA.
A. Second Circuit
Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 548 F.3d 85 (2nd Cir. 2008), rev’d on other
grounds, 130 S. Ct. 1758 (2010).
In Stolt-Nielsen, the Second Circuit set forth its stance on the validity of the
manifest disregard standard: “Others [circuit courts of appeals] think that ‘manifest
disregard,’ reconceptualized as a judicial gloss on the specific grounds for vacatur
enumerated in §10 of the FAA, remains a valid ground for vacating arbitration awards.
6
Id. at 585.
Stolt-Nielsen S.A., 130 S.Ct. at 1768 n.3.
8
See Wachovia Sec. LLC v. Brand, 671 F.3d 472, 483 (4th Cir. 2012)(ruling that the manifest disregard
standard survives Hall Street as either an independent basis for review of an arbitration award or as a
“judicial gloss” on §10 of the FAA).
9
See Affymax, Inc. v. Ortho-McNeil-Janssen Pharm., Inc., 660 F.3d 281, 285 (7th Cir. 2011)(abolishing the
manifest disregard standard except where “an award that directs the parties to violate the legal rights of
third persons who did not consent to the arbitration.”)
7
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We agree with those courts that take [this]approach.”10 In arriving at this conclusion, the
court acknowledged “[Hall Street’s holding][that] the FAA sets forth the ‘exclusive’
grounds for vacating an arbitration award…[was] undeniably inconsistent with some
dicta by [Second Circuit case law] treating the ‘manifest disregard’ standard as a ground
for vacatur entirely separate from those enumerated in the FAA.”11 But the court also
recognized the ambiguity in the Hall Street Court’s discussion of the manifest disregard
standard, noting that Hall Street Court “speculated that ‘the term manifest
disregard...merely referred to the §10 grounds collectively, rather than adding to them’ or as ‘shorthand for §10(a)(3) or §10(a)(4).’ [The Hall Street Court] did not, we think,
abrogate the ‘manifest disregard’ doctrine altogether.”12 The court thus concluded that it
“must therefore continue to bear the responsibility” to apply the manifest disregard
standard.13
Jock v. Sterling Jewelers Inc., 646 F.3d 113 (2nd Cir. 2011), cert. denied, 132 S.Ct. 1742
(2012).
In 2011, the court in Jock maintained the validity of the manifest disregard
standard, but suggested that it falls outside of §10: “In addition to the §10 grounds for
vacatur, we have recognized a judicially-created ground, namely that ‘an arbitral decision
may be vacated when an arbitrator has exhibited a manifest disregard of law.’”14
B. Sixth Circuit
Coffee Beanery Ltd. v. WW, L.L.C., 300 Fed.Appx. 415 (6th Cir. 2008), cert. denied, 130
S. Ct. 81 (2009).
In Coffee Beanery – an unpublished opinion - the Sixth Circuit interpreted Hall
Street narrowly to preclude only private parties’ attempts to expand the FAA’s grounds
for review by contract. The court concluded that judges could still look beyond the FAA
to vacate arbitration awards made in manifest disregard of the law: “In Hall Street, the
Supreme Court significantly reduced the ability of federal courts to vacate arbitration
awards for reasons other than those specified in 9 U.S.C. §10, but it did not foreclose
federal courts' review for an arbitrator's manifest disregard of the law.”15 To support its
holding, the Coffee Beanery court highlighted the ambiguity in Hall Street’s analysis of
Wilko: “[W]ith respect to the judicially-invoked, narrow exception for an arbitrator's
manifest disregard of the law, the [Hall Street] Court acknowledged that ‘[m]aybe the
term manifest disregard [in Wilko ] was meant to name a new ground for review,’ though
it [the Hall Street court] also suggested that narrower interpretations of Wilko were
equally plausible.”16 The court ended its analysis by declaring that “In light of the
Supreme Court's hesitation to reject the ‘manifest disregard’ doctrine in all
circumstances, we believe it would be imprudent to cease employing such a universally
Stolt-Nielsen S.A. v. AminalFeeds Int’l Corp., 548 F.3d 85, 94 (2nd Cir. 2008)(internal citation
omitted)(emphasis added).
11
Id. (internal citation omitted).
12
Id. at 94-95. (internal citation omitted)(emphasis added).
13
Id. at 95. (internal citation omitted).
14
Jock v. Sterling Jewelers Inc., 646 F.3d 113, 121-22 (2nd Cir. 2011)(internal citation omitted).
15
Coffee Beanery Ltd. v. WW, L.L.C., 300 Fed.Appx. 415, 418 (6th Cir. 2008)(internal citation
omitted)(emphasis added).
16
Id. at 419. (internal citation omitted).
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recognized principle. Accordingly, this [c]ourt will follow its well-established precedent
here and continue to employ the ‘manifest disregard’ standard.”17
Martin Marietta Materials, Inc. v. Bank of Oklahoma, 304 Fed.Appx. 360 (6th Cir.
2008).
A month after the Coffee Beanery decision, the Sixth Circuit – again in an
unpublished decision – acknowledged the uncertainty surrounding the validity of the
manifest disregard standard after Hall Street, but assumed that the doctrine remained
viable in cases brought under the FAA: “For present purposes, we will resolve the dispute
as the parties have presented it to us - namely, with the assumptions that the framework
of the labor-arbitration cases applies here, that the ‘manifest disregard’ standard
continues to apply to cases under the Federal Arbitration Act.”18
Grain v. Trinity Health, Mercy Health Srvs. Inc., 551 F.3d 374 (6th Cir. 2008).
After both Coffee Beanery and Martin Marietta Materials, the Sixth Circuit – this
time in a published opinion – cast some doubt on the vitality of the manifest disregard
standard in its jurisdiction. In dicta, the court stated that: “It is true that we have said that
‘manifest disregard of the law’ may supply a basis for vacating an award, at times
suggesting that such review is a ‘judicially created’ supplement to the enumerated forms
of FAA relief. Hall Street’s reference to the ‘exclusive’ statutory grounds for obtaining
relief casts some doubt on the continuing vitality of that theory.”19
ii. Manifest Disregard is Valid as a “Judicial Gloss” on § 10(a)(4) of the FAA.
A. Ninth Circuit
Comedy Club, Inc. v. Improv West Assocs., 553 F.3d 1277 (9th Cir. 2009), cert. denied,
130 S. Ct. 145 (2009).
In Comedy Club, the Ninth Circuit adhered to circuit precedent upholding the
validity of the manifest disregard standard. The court stated simply that “We determine
that Hall Street Associates does not undermine our prior precedent, Kyocera Corp. v.
Prudential-Bache T. Servs. Inc. As a result, in this circuit, an arbitrator's manifest
disregard of the law remains a valid ground for vacatur of an arbitration award under
§10(a)(4) of the FAA. Therefore, we adhere to the outcome in our prior decision.”20 The
court supported its conclusion, noting that the “The Supreme Court [in Hall Street] did
not reach the question of whether the manifest disregard of the law doctrine fits within §§
10 or 11 of the FAA. Instead, it [the Hall Street court] listed several possible readings of
the doctrine, including our own.”21 The court determined that Hall Street was not
17
Id. (emphasis added).
Martin Marietta Materials, Inc. v. Bank of Oklahoma, 304 Fed.Appx. 360, 362-63 (6th Cir. 2008).
19
Grain v. Trinity Health, Mercy Health Srvs. Inc., 551 F.3d 374, 380 (6th Cir. 2008)(internal citation
omitted).
20
Comedy Club, Inc. v. Improv West Assocs., 553 F.3d 1277, 1281 (9th Cir. 2009)(internal citation
omitted)(emphasis added).
21
Id. at 1290. (internal citation omitted).
18
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“clearly irreconcilable” with Kyocera, and that it was “bound by [its] prior precedent”
upholding the validity of the manifest disregard standard.22
Kyocera Corp. v. Prudential-Bache T. Servs. Inc., 341 F.3d 987 (9th Cir. 2003)(en banc),
cert. denied, 540 U.S. 1098 (2004).
Predating the Supreme Court’s ruling in Hall Street, the Ninth Circuit’s decision
in Kyocera articulated the circuit’s position on the validity of the manifest disregard
standard: “We have held that arbitrators ‘exceed their powers’ [under §10(a)(4) of the
FAA] in this regard not when they merely interpret or apply the governing law
incorrectly, but when the award is ‘completely irrational,’ or exhibits a ‘manifest
disregard of law.’”23 It was this language that the court in Comedy Club felt compelled to
follow.
Biller v. Toyota Motor Corp., 668 F.3d 655 (9th Cir. 2012).
Just this year, the court in Biller cited Kyocera for the proposition that manifest
disregard remains a valid ground for vacatur. The court, however, concluded that the
arbitrator in the case before it did not act in manifest disregard of the law.24
iii. Manifest Disregard is Valid as Either an Independent Ground for Review
or as a “Judicial Gloss” on § 10 of the FAA.
A. Fourth Circuit
Wachovia Sec. LLC v. Brand, 671 F.3d 472 (4th Cir. 2012).
In Wachovia Securities, the Fourth Circuit declared that the manifest disregard
standard survived Hall Street as 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.”25 The
court relied on the Supreme Court’s footnote in Stolt-Nielsen to support its conclusion:26
“We read this footnote to mean that manifest 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.’ Therefore, we decline to adopt the position of the Fifth
and Eleventh Circuits that manifest disregard no longer exists.”27 The court thus read the
ambiguity in footnote #3 in favor of upholding the manifest disregard standard. The
court did not feel compelled to decide whether manifest disregard survived as an
independent basis for vacatur or as a judicial gloss on §10 “because Wachovia's claim
fails under both.”28
22
Id. (internal citation omitted).
Kyocera Corp. v. Prudential-Bache T. Servs. Inc., 341 F.3d 987, 997 (9th Cir. 2003)(en banc) (internal
citation omitted).
24
Biller v. Toyota Motor Corp., 668 F.3d 655, 664 (9th Cir. 2012)(internal citation omitted).
25
Wachovia Sec. LLC v. Brand, 671 F.3d 472, 483 (4th Cir. 2012).
26
See Stolt-Nielsen S.A., 130 S.Ct. at 1768 n.3. (stating that “[w]e do not decide whether ‘manifest
disregard’ survives our decision in Hall Street 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.”)
27
Wachovia Sec. LLC, 671 F.3d at 483.
28
Id.
23
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B. Tenth Circuit
Lynch v. Whitney, 419 Fed.Appx. 826 (10th Cir. 2011).
In this unpublished decision rendered in April 2011, the Tenth Circuit cited circuit
precedent recognizing three “judicially-created bases for vacating an [arbitration] award,”
including “(1) where the award violates public policy; (2) when there was a denial of a
fundamentally fair hearing; and (3) manifest disregard of the law.”29 Just a few months
later, in Abbott v. Law Office of Patrick J. Mulligan, the Tenth Circuit revisited its case
law discussing the manifest disregard standard.
Abbott v. Law Office of Patrick J. Mulligan, 440 Fed.Appx. 612 (10th Cir. 2011).
In September 2011, the Tenth Circuit in Abbott – an unpublished opinion – held
that the manifest disregard standard remained in force after Hall Street. The court began
its analysis by noting that “Prior to Hall Street, we (somewhat equivocally), but like a
number of other circuits, interpreted the Supreme Court's decision in Wilko as creating a
judicial ground for vacating arbitration awards in addition to the grounds provided in 9
U.S.C. §10.”30 The court elected to adhere to its pre-Hall Street circuit precedent
characterizing the manifest disregard standard as a judicially-created basis for vacatur.31
By doing so, the court declined to “modify” its position to align with the interpretations
favored by the Second and Ninth Circuits that manifest disregard is a “judicial gloss” on
§10 of the FAA.32 The court also rejected the views of the Fifth, Eighth, and Eleventh
Circuits abolishing the manifest disregard standard.33 The court concluded that “in the
absence of firm guidance from the Supreme Court, we decline to decide whether the
manifest disregard standard should be entirely jettisoned. And it is not necessary to do
so because this case does not present exceedingly narrow circumstances supporting a
vacatur based on manifest disregard of the law.”34
b. MANIFEST DISREGARD OF THE LAW IS NO LONGER RECOGNIZED AS A VALID
BASIS FOR VACATING AN ARBITRATION AWARD.
The courts of appeals in the Fifth, Seventh, Eighth, and Eleventh Circuits have
abolished the manifest disregard standard as a basis for vacating an arbitration award.
The courts in these circuits defend their positions under two primary rationales. This
section is organized into two subsections focusing on the justification set forth by each
respective circuit. Briefly, these subsections are: “Under Hall Street, Manifest Disregard
is an Invalid Non-Statutory Basis for Vacatur” and “Manifest Disregard is Invalid,
Except When an Arbitration Award Directs Parties to Violate the Legal Rights of Third
Persons Who Did Not Consent to Arbitration.”
29
Lynch v. Whitney, 419 Fed.Appx. 826, 833 (10th Cir. 2011).
Abbott v. Law Office of Patrick J. Mulligan, 440 Fed.Appx. 612, 620 (10th Cir. 2011)(emphasis added).
31
Id.
32
Id.
33
Id.
34
Id. (emphasis added).
30
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i. Under Hall Street, Manifest Disregard is an Invalid Non-Statutory Basis
for Vacatur.
A. Fifth Circuit
Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009).
In Citigroup Global Markets, the Fifth Circuit read Hall Street to invalidate
manifest disregard as an extra-statutory basis for vacatur. The court reasoned that “Hall
Street unequivocally held that the statutory grounds are the exclusive means for vacatur
under the FAA. Our case law defines manifest disregard of the law as a nonstatutory
ground for vacatur. Thus, to the extent that manifest disregard of the law constitutes a
nonstatutory ground for vacatur, it is no longer a basis for vacating awards under the
FAA.”35 The court reasoned that Hall Street’s repeated statements that “We [the Hall
Street court] hold that the statutory grounds are exclusive” set down a broad prohibition
on all extra-statutory bases for vacatur, including manifest disregard.36 And, because
Fifth Circuit precedent characterized manifest disregard as outside of the FAA, the court
felt compelled to abolish the manifest disregard standard.37 In dicta, however, the court
noted that it might vacate an arbitration award where the “arbitrator is fully aware of the
controlling principle of law and yet does not apply it.”38
B. Eighth Circuit
Medicine Shoppe Int’l, Inc. v. Turner Inv., Inc., 614 F.3d 485 (8th Cir. 2010).
In Medicine Shop, the Eighth Circuit – noting that “manifest disregard” is
mentioned nowhere in the text of §10 of the FAA – stated simply that: “We have
previously recognized the holding in Hall Street and similarly hold now that an arbitral
award may be vacated only for the reasons enumerated in the FAA…Appellants' claims,
including the claim that the arbitrator disregarded the law, are not included among those
specifically enumerated in §10 and are therefore not cognizable.”39 The court reasoned
that Hall Street “resolved a circuit split” by deeming §§10 and 11 of the FAA as the
exclusive grounds for vacatur.40 And, because Eighth Circuit case law defined manifest
disregard as nonstatutory basis for vactur, the court felt itself bound to invalidate this
standard.41 The court also employed a literalist approach, highlighting the absence of
“manifest disregard of the law” in the language of §10.
35
Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 355 (5th Cir. 2009)(internal citations
omitted)(emphasis original).
36
Id. at 353.
37
Id. at 355.
38
Id. at 357. (noting that “We [the court] should be careful to observe, however, that this description of
manifest disregard is very narrow. Because the arbitrator is fully aware of the controlling principle of law
and yet does not apply it, he flouts the law in such a manner as to exceed the powers bestowed upon him.”)
39
Medicine Shoppe Int’l, Inc. v. Turner Inv., Inc., 614 F.3d 485, 489 (8th Cir. 2010)(internal citations
omitted).
40
Id.
41
Id.
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C. Eleventh Circuit
Frazier v. CitiFinancial Corp., LLC, 604 F.3d 1313 (11th Cir. 2010) reh’g denied, 408
Fed.Appx. 343 (11th Cir. 2010).
Like the Fifth and Eighth Circuits, the Eleventh Circuit felt compelled to abolish
manifest disregard doctrine because of circuit precedent characterizing the standard as an
extra-statutory basis of vacatur: “We hold that our judicially-created bases for vacatur are
no longer valid in light of Hall Street.”42 To support this holding, the court reasoned that
“we agree with the Fifth Circuit that the categorical language of Hall Street compels such
a conclusion.”43 The Eleventh Circuit determined that the “judicially-created” manifest
disregard standard was impermissible because it did not fall within Hall Street’s
“exclusive” statutory bases set forth in §§10 and 11 of the FAA.
ii. Manifest Disregard is Invalid, Except When an Arbitration Award
Directs Parties to Violate the Legal Rights of Third Persons Who Did Not
Consent to Arbitration.
A. Seventh Circuit
Affymax, Inc. v. Ortho-McNeil-Janssen Pharm., Inc., 660 F.3d 281 (7th Cir. 2011).
The Seventh Circuit is the most recent jurisdiction to abandon the manifest
disregard standard. The Affymax court articulated the Seventh Circuit’s new position:
“except to the extent recognized in George Watts & Son, ‘manifest disregard of the law’
is not a ground on which a court may reject an arbitrator's award under the Federal
Arbitration Act.”44 The exception recognized in George Watts & Son, Inc. v. Tiffany &
Co., allows a court in the Seventh Circuit to “set aside an award that directs the parties to
violate the legal rights of third persons who did not consent to the arbitration.”45 The
Affymax court supported its holding in much the same way as the Fifth, Eighth, and
Eleventh Circuits, stating that “This [statutory] list [under §10] is exclusive; neither
judges nor contracting parties can expand it. Disregard of the law is not on the statutory
list.”46
c. REFUSING TO OR AVOIDING TO CONSIDER THE VALIDITY OF THE MANIFEST
DISREGARD STANDARD AFTER HALL STREET.
The First, Third, and D.C. Circuits have not weighed in on the validity of the
manifest disregard standard after Hall Street. These circuits decline to resolve the
ambiguity surrounding the doctrine’s viability without clearer guidance from the
Supreme Court.
42
Frazier v. CitiFinancial Corp., LLC, 604 F.3d 1313, 1324 (11th Cir. 2010).
Id.
44
Affymax, Inc. v. Ortho-McNeil-Janssen Pharm., Inc., 660 F.3d 281, 285 (7th Cir. 2011)(internal citation
omitted).
45
Id. at 284. (internal citation omitted)
46
Id. (internal citation omitted).
43
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A. First Circuit
Kashner Davidson Sec. Corp. v. Mscisz, 601 F.3d 19 (1st Cir. 2010).
In Kashner Davidson Securities, the court resisted the appellee’s invitation to
invalidate the manifest disregard standard. The appellee argued that the court’s holding
in a previous appeal – vacating an arbitration award that manifestly disregarded the law –
was in conflict with Hall Street.47 The court acknowledged that “the continued vitality of
the manifest disregard doctrine in FAA proceedings is a difficult and important issue that
the courts have only begun to resolve.”48 The court concluded, however, that “We have
referred to the issue in dicta but have not squarely determined whether our manifest
disregard case law can be reconciled with Hall Street. In an effort to have us decide that
issue now, Kashner Davidson has asked us to take the unusual step of recalling our
earlier mandate. We will not oblige.”49
Ramos-Santiago v. United Parcel Serv., 524 F.3d 120 (1st Cir. 2008).
In Kashner Davidson Securities, the court referred to the following dicta from
Ramos-Santiago summarizing the First Circuit’s position after Hall Street: “We
acknowledge the Supreme Court's recent holding in Hall Street that manifest disregard of
the law is not a valid ground for vacating or modifying an arbitral award in cases brought
under the [FAA]. Because the case at hand is not an FAA case…we decline to reach the
question of whether Hall Street precludes a manifest disregard inquiry in this setting.”50
Although the court interpreted Hall Street to invalidate the manifest disregard standard,
the Ramos-Santiago court did not address the existence of the doctrine in its circuit.
B. Third Circuit
Paul Green School of Rock Music Franchising, LLC. v. Smith, 389 Fed.Appx. 172 (3rd
Cir. 2010).
The Third Circuit in Paul Green School of Rock Music Franchising – an
unpublished opinion – acknowledged the uncertainty in the law after Hall Street, but
declined to resolve the issue: “This Court has not yet addressed whether manifest
disregard of the law remains a valid ground for vacating an arbitration award under the
FAA, in the wake of the Supreme Court's decision in Hall Street… [Since] Hall Street, a
circuit split has emerged regarding whether manifest disregard of the law remains a valid
ground for vacatur. This Court has not yet entered that debate.”51
Rite Aid New Jersey, Inc. v. United Food Commercial Workers Union, Local 1360, 449
Fed.Appx. 126 (3rd Cir. 2011).
47
Kashner Davidson Sec. Corp. v. Mscisz, 601 F.3d 19, 22 (1st Cir. 2010).
Id. (internal citations omitted).
49
Id. (emphasis added).
50
Ramos-Santiago v. United Parcel Serv., 524 F.3d 120, 124 n.3 (1st Cir. 2008).
51
Paul Green School of Rock Music Franchising, LLC. v. Smith, 389 Fed.Appx. 172, 176-77 (3rd Cir.
2010)(internal citation omitted).
48
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In a footnote to this unpublished 2011 decision, the court stated simply that “We
have not addressed the question of whether manifest disregard of the law remains a valid
ground for vacating an arbitration award under the FAA in light of the Supreme Court's
decision in Hall Street.”52
C. D.C. Circuit
Affinity Fin. Corp. v. AARP Fin., Inc. 468 Fed.Appx. 4 (D.C. Cir. 2012).
The D.C. Circuit’s unpublished decision in Affinity Financial also sidestepped the
question, stating that “Assuming without deciding that the ‘manifest disregard of the law’
standard still exists after Hall Street, AARP Financial did not demonstrate (or even argue
on appeal) that ‘(1) the arbitrators knew of a governing legal principle yet refused to
apply it or ignored it altogether and (2) the law ignored by the arbitrators was well
defined, explicit, and clearly applicable to the case.’”53 The court thus presumed the
existence of the manifest disregard standard without directly tackling the issue.
IV. Conclusion
As the foregoing analysis shows, the circuit courts continue to disagree regarding
the validity of the manifest disregard standard after Hall Street. Until the Supreme Court
steps in to resolve the uncertainty surrounding manifest disregard doctrine, the circuit
courts will remain split on the question.
52
Rite Aid New Jersey, Inc. v. United Food Commercial Workers Union, Local 1360449 Fed.Appx. 126,
129 n.3 (3rd Cir. 2011).
53
Affinity Fin. Corp. v. AARP Fin., Inc. 468 Fed.Appx. 4, 5 (D.C. Cir. 2012)(internal citations omitted).
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