Stolt-Nielsen s Comfort for the Average Arbitrator: An Analysis of - PDF document

VOL. 27 NO. 2 FEBRUARY 2009 ALTERNATIVES 19 Stolt-Nielsen ’s Comfort for the ‘Average Arbitrator’: An Analysis of The Post- Hall Street ‘Manifest Disregard’ Award Review Standard BY CHRISTOPHER WALSH award “was procured by corruption, fraud, statutory ground”)—virtually all of the or undue means,” (2) “there was evident circuits have recognized the doctrine as an partiality or corruption in the arbitrators,” extra-statutory, common-law ground for For decades, federal district courts nation- (3) the arbitrators engaged in misbehavior by vacatur. See, e.g., Three S Delaware Inc. wide have vacated arbitration awards upon a refusing to consider material evidence, refus- v. Dataquick Info. Sys. Inc. , 492 F.3d 520, showing that the arbitration award reflected a ing without cause to postpone a hearing, or 527 (4th Cir. 2007); B.L. Harbert Int’l, “manifest disregard” of the applicable law. other acts which prejudiced one of the liti- LLC v. Hercules Steel Co. , 441 F.3d 905, Last year, the U.S. Supreme Court decided Hall Street Assocs. LLC v. Mattel 910 (11th Cir. 2006); Black Box Corp. v. Inc. , 128 S. Ct. 1396 (2008), which many Markham , 127 Fed. Appx. 22, 25 (3d Cir. 2005); Dominion Video Satellite Inc. v. analysts view as the death knell for the Echostar Satellite L.L.C. , 430 F.3d 1269, manifest disregard standard of review of 1275 (10th Cir. 2005); Brabham v. A.G. arbitration awards. COURT Since Hall Street , however, a number of Edwards & Sons Inc. , 376 F.3d 377, 381 DECISIONS (5th Cir. 2004); Duferco , supra; Hoffman district and circuit courts have found life in v. Cargill Inc. , 236 F.3d 458, 461 (8th the manifest disregard review standard. Oth- Cir. 2001), Merrill Lynch, Pierce, Fenner & ers, indeed, have pronounced it dead. This article briefly surveys the post- Hall Street Smith, Inc. v. Jaros , 70 F.3d 418, 421 (6th Cir. 1995); Advest Inc. v. McCarthy , 914 federal court cases addressing the continued gants, or (4) the arbitrators “exceeded their F.2d 6, 8-9 (1st Cir. 1990). viability of the manifest disregard doctrine powers, or so imperfectly executed them that Thus, most of the circuits recognizing standard of review, and criticizes the ap- a mutual, final, and definite award upon the the manifest disregard standard of review proach taken in a prominent recent case by subject matter submitted was not made.” 9 do so on the often-tacit assumption that the Second U.S. Circuit Court of Appeals, Stolt-Nielsen SA v. Animalfeeds Int’l Corp. U.S.C. § 10. the FAA’s four vacatur grounds are not the In addition to these four statutory exclusive grounds on which to vacate an grounds, it has been recognized since at arbitration award. VACATUR ORIGINS least the 1950s that arbitration awards may be vacated if the award displays a “mani- Federal Arbitration Act Section 10 lists four NEW SERIOUS DOUBT fest disregard of the law.” While the exact specific grounds for vacating an arbitration standards for finding a manifest disregard The U.S. Supreme Court’s Hall Street opin- award, all of which, generally speaking, go to of the law have been phrased differently ion casts that assumption into serious doubt. the process by which the arbitration was con- over the years in the federal circuit courts, In Hall Street , the Court was called on ducted. Section 10 permits a district court the fundamental idea is that an arbitration to decide whether the parties to an arbi- to vacate an arbitration award if: (1) the award may be vacated if it can be shown tration agreement could agree to expand that the arbitrator was aware of a control- by contract the grounds for vacating an The author is a director of Gibbons PC, in ling and well-defined legal principle but arbitration award beyond the four listed in Newark, N.J. did not heed that principle when render- Section 10. ing the award. See, e.g., Duferco Int’l Steel The Court held unequivocally that such Cartoon by John Chase Trading v. T. Klaveness Shipping A/S , 333 an agreement could not be enforced by a F. 3d 383, 389 (2d Cir. 2003) (“A party district court acting under the FAA because seeking vacatur bears the burden of prov- Section 10 provides the “exclusive grounds ing that the arbitrators were fully aware of for expedited vacatur.” 128 S. Ct. at 1403. the existence of a clearly defined governing In reaching this conclusion, the Court legal principle, but refused to apply it, in was forced to deal with its earlier opinion effect, ignoring it”). in Wilko v. Swan , 346 U.S. 427 (1953), While some circuits, such as the Sev- overruled by Rodriguez de Quijas v. Shear- enth Circuit, claim to find the doctrine’s son/American Express , Inc. , 490 U.S. 477, jurisprudential basis in the Section 10 109 S. Ct. 1917 (1989), which was seen by language—see, e.g., Wise v. Wachovia Sec. many lower courts as giving tacit approval LLC , 450 F.3d 265, 268 (7th Cir. 2006) to the nonstatutory manifest disregard (“we have defined ‘manifest disregard of standard of review. “A N OFFER HAS BEEN MADE THAT I THINK the law’ so narrowly that it fits comfort- WE NEED TO CONSIDER .” ably under the first clause of the fourth (continued on next page) Published online in Wiley InterScience (www.interscience.wiley.com). Alternatives DOI: 10.1002/alt