Confirmation / Vacation of Arbitration Awards

Four recent opinions confirmed arbitration awards, in part rejecting claims that the award was in manifest disregard of law. In three of the cases, there was no discussion of the impact of the Supreme Court’s Hall Street Associates opinion on the manifest disregard of law doctrine.

• A district court has confirmed an arbitration award which adjudicated claims relating to underwriting fees allegedly owed in connection with a municipal bond transaction, holding that the arbitrators: (1) properly found an oral agreement subject to arbitration; (2) reasonably concluded that the arbitration was commenced timely; (3) afforded the parties a fundamentally fair hearing by considering all evidence offered; and (4) did not manifestly disregard the law. The court did not discuss Hall Street Associates. Finally, the court found that an award that was not a reasoned award was not arbitrary and capricious. Grigsby & Associates, Inc. v. M Securities Investment, Inc., Case No. 06-23-35 (USDC S.D. Fla. July 30, 2008).
• In an action concerning the collection on a promissory note, a court has confirmed an award over claims that it was in manifest disregard of law, except to vacate it to the extent that the award provided for pre-judgment interest, which was clearly contrary to “controlling Tennessee law.” There is no discussion of Hall Street Associates. Hicks v. The Cadle Co., Case No. 04-2616 (USDC D. Col. July 23, 2008).
• In Remote Solution Co. v. FGH Liquidating Corp., Case No. 06-4 (USDC D. Del. July 31, 2008), the court confirmed an award, finding no manifest disregard of law (without discussing Hall Street Associates), and that the arbitrator did not exceed his authority by awarding attorneys’ fees pursuant to a contractual provision. The agreement called for a reasoned award, and the arbitrator provided a very brief one paragraph “tentative ruling,” with an offer to provide a more detailed award if requested. The court found this to be sufficient, in part because no one requested a more detailed award.
• In Supreme Oil Co. v. Abondolo, Case No. 07-6479 (USDC S.D.N.Y. July 31, 2008), an arbitration of ERISA and Labor-Management Relations Act (“LMRA”) claims, the court held that the manifest disregard of law doctrine was not a basis to vacate an award under the FAA after Hall Street Associates, but that it was unclear whether the doctrine survived with respect to claims under the LMRA. The court declined to reach that issue, however, based upon its finding that the facts before it did not demonstrate manifest disregard of law.

This post written by Rollie Goss.

In an appeal of an arbitration award rendered pursuant to the rules of the National Association of Securities Dealers (“NASD”), the First Circuit has reversed the confirmation of an arbitration award on the basis that the award was in manifest disregard of law. The arbitrators had dismissed certain claims, with prejudice. The Panel initially justified its decision as being based upon its consideration of the merits of the claims, but when the losing party reminded the Panel that the merits of the claims had not been briefed, nor had the Panel received any evidence pertaining to the claims, the Panel announced that the dismissal was a discovery sanction pursuant to NASD Code Rule 10305, based upon the failure to produce documents in accordance with an Order to do so. The First Circuit found that the NASD rules required the imposition of lesser sanctions in an attempt to achieve compliance “before the ultimate sanction of dismissal is imposed. The Panel ignored this unmistakable directive.” The Court clearly was troubled by the severity of the sanction.

This opinion does not mention the Supreme Court’s decision in Hall Street Associates v. Mattel, which another panel of the First Circuit has read as eliminating the doctrine of manifest disregard of law as a basis for vacating an arbitration award. See the June 30, 2008 post discussing Ramos-Santiago v. UPS, No. 07-1024 (1st Cir. April 24, 2008), which stated in dicta that “manifest disregard of the law is not a valid ground for vacating or modifying an arbitral award in cases brought under the [FAA]”. This is developing into an interesting area of the law of arbitration. Kashner Davidson Securities Corp. v. Mscisz, No. 07-1231 (1st Cir. June 27, 2008).

This post written by Rollie Goss.

In an April 28, 2008 Special Focus posting and related article, we raised the question as to whether the manifest disregard of law doctrine would survive the Supreme Court’s decision in Hall Street Associates v. Mattel. This issue came up in a recent district court opinion. ALS & Associates sought the vacation of an arbitration award on three bases: (1) the arbitrator’s failure to postpone the proceedings; (2) the arbitrator’s evident partiality; and (3) the arbitrator’s manifest disregard of law. The district court confirmed the award. The court found that there was no evidence that the failure to postpone the proceedings to allow ALS to pursue documents from a third party deprived it of a fair hearing. The court noted that proceedings to enforce a subpoena to obtain 12 documents had been ongoing for two years, with two trips to the First Circuit, and that there was no showing that the documents were critical to ALS’s case. The court also rejected the contention that the arbitrator's very attenuated “connection” with one of the law firms resulted in any appearance of impropriety, much less evident partiality.

The interesting part of this opinion is the holding that the First Circuit has ruled that the manifest disregard of law doctrine is not a valid basis for vacating or modifying an arbitration award after Hall Street Associates. In so ruling, the district court relied upon the First Circuit’s decision in Ramos-Santiago v. UPS, No. 07-1024 (1st Cir. April 24, 2008), which stated that “manifest disregard of the law is not a valid ground for vacating or modifying an arbitral award in cases brought under the [FAA]”. That statement in Ramos-Santiago, however, is dicta, since the Court stated later in the footnote in which the statement appears that it was nevertheless not reaching that issue in deciding that case. However, in UMass Memorial Medical Center, Inc. v. United Food and Commercial Worker’s Union, No. 07-2527 (1st Cir. May 15, 2008), the First Circuit stated that courts still retain “inherent powers outside” the FAA to vacate arbitral awards, including situations in which the arbitrator acts in disregard of law. It seems that there is some dissention in the First Circuit on this issue. Stay tuned for further developments. ALS & Associates, Inc. v. AGM Marine Constructors, Inc., Case No. 06-10088 (USDC D. Mass. June 2, 2008).

This post written by Rollie Goss.