First Circuit announces harsh manifest disregard of law standard

The United States Court of Appeals for the First Circuit has joined numerous other Circuits this year in announcing a harsh standard for vacating arbitration awards on the basis that they are in manifest disregard of the law. In McCarthy v. Citicorp Global Markets, Inc., Case No. 06-1001 (1st Cir. Sept. 19, 2006), the Court vacated a District Court Order that set aside an arbitration award. The Court of Appeal held that to prevail in establishing manifest disregard, “there must be some showing in the record, other than the result obtained, that the arbitrators knew the law and expressly disregarded it. … 'Disregard' implies that the arbitrators appreciated the existence of a governing legal rule but wilfully decided not to apply it.” The District Court had previously vacated a decision by the Panel and remanded with instructions, which it believed the Panel “might” have disregarded on remand. The Court of Appeal held that this was insufficient to vacate the Panel's second award, because, as stated by the Supreme Court in United Paperworkers Int'l Union v. Miusco, Inc., 484 U.S. 29, 38 (1987), courts “do not sit to hear claims of factual or legal error by an arbitrator as an appellate court does in reviewing decisions of lower courts.” The First Circuit concluded that even if legal error is “painfully clear, courts are not authorized to reconsider the merits of arbitration awards.”