Although it is not an employment case, last week’s decision in Citigroup Global v. Bacon (5th Cir. 3/5/09) [pdf] is important because it makes clear that the 5th Circuit will no longer reverse an arbitrator’s decision on the basis of manifest disregard of the law. Judge Jolly’s decision for a panel consisting of one of the most senior and the most junior of 5th Circuit judges, Judge Catharina Haynes, held that Hall Street Associates LLC v. Mattel, Inc. (Supreme Court 2008) makes clear that the exclusive grounds for vacating a decision must be found in the Federal Arbitration Act.
It makes prescient a comment on Workplace Prof’s post on the Hall Street decision, Hall Street v. Mattel and the Future of Arbitration, just after it was handed down last March:
I’m no labor and employment lawyer, but another important facet of the case is whether it does away with all non-statutory grounds for vacatur, including “manifest disregard of the law” and “violation of public policy,” the latter of which has been used to vacate arbitration awards in the employment context. The sweeping language used in the majority opinion arguably throws those babies out with the bathwater.
The Court’s conclusion is pretty blunt:
The question before us now is whether, under the FAA, manifest disregard of the law remains valid, as an independent ground for vacatur, after Hall Street. The answer seems clear. 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. [cites omitted] 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.
In reaching its decision the Court surveyed what its sister circuits had done post-Hall Street and seemed to agree that a very limited version of “manifest disregard” as adopted by the 2nd Circuit might survive.
In Stolt-Nielsen SA v. AnimalFeeds Int’l Corp, (2d Cir. 2008) that Court wriote:
We must therefore continue to bear the responsibility to vacate arbitration awards in the rare instances in which “the arbitrator knew of the relevant [legal] principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it.” Westerbeke, 304 F.3d at 217. At that point the arbitrators have “failed to interpret the contract at all,” Wise, 450 F.3d at 269, for parties do not agree in advance to submit to arbitration that is carried out in manifest disregard of the law. Put another way, the arbitrators have thereby “exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” 9 U.S.C § 10(a)(4).
But the 5th Circuit emphasized how narrow that holding was and also made clear that even the phrase “manifest disregard” as a term of “legal art, is no longer useful in actions to vacate arbitration awards.” Translation — don’t use it.