Grounds for Vacatur of an Arbitration Award under Federal Law
The Federal Arbitration Act (FAA) provides four explicit grounds for vacatur in section 10(a): (1) the opposing party’s fraud or corruption in securing the award, (2) the arbitrator’s corruption or evident partiality to one of the parties, (3) other misconduct by the arbitrators in granting the award, or (4) the arbitrators grossly exceeding their powers in issuing the award. Section 11 of the FAA also allows courts to make modifications or corrections to an award in limited circumstances, such as when the award is imperfect in a matter of form not affecting the merits of the controversy.
Historically, courts have also used a judicially created ground for vacatur: manifest disregard of the law. Under this doctrine, a court will vacate an award when a party establishes that an arbitrator knew of a governing legal principle that controlled the outcome of the dispute but “nonetheless willfully flouted the governing law by refusing to apply it.” Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 559 U.S. 662, 672 (2010). Manifest disregard of the law requires more than “committ[ing] an error—[] even a serious error.” Id. at 671. As noted by the Fourth Circuit, manifest disregard is a heavy burden. See, e.g., Warfield v. ICON Advisers, Inc., 26 F.4th 666 (4th Cir. 2022) (“In this case, as in almost all manifest disregard cases, the sky-high standard of judicial review is the beginning and the end of our analysis.”). Despite this burden, “every federal appellate court ha[d] allowed for the vacatur of an award based on an arbitrator’s manifest disregard of the law” prior to the Supreme Court’s opinion in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576(2008). See Coffee Beanery, Ltd. v. WW, L.L.C., 300 F. App’x 415, 419 (6th Cir. 2008).
In Hall Street, the Supreme Court held that the FAA’s enumerated grounds are the exclusive bases for vacating or modifying an arbitration award. See Hall Street Associates, 552 U.S. at 584. This holding has brought into question the continued viability of manifest disregard of the law as a ground for vacatur under federal law. The Supreme Court suggested that manifest disregard was not a viable basis on which to vacate an arbitration award, but the Court fell short of making that statement a precedential part of its ruling. Id. at 586–87. Subsequently, the Court has expressly declined to “decide whether ‘manifest disregard’ survives . . . 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.” Stolt-Nielsen, 559 U.S. at 672.
Circuits Are Split on the Continued Viability of Manifest Disregard
The courts of appeals are split on the question of the viability of manifest disregard as a ground for vacatur of awards governed by the FAA. As of the date of this article, four circuits have interpreted Hall Street as holding that manifest disregard is no longer viable, while four circuits have found that the manifest disregard standard survives independently Federal Arbitration Act or as judicial gloss on the statutory grounds. Four circuits have refused to explicitly decide the issue.
The following is a summary of the current status of each circuit court’s position on the issue:
| Circuit |
Position on Viability of Manifest Disregard |
Citation |
| 1st Circuit | Open question, but seemingly leaning against |
“Although we concluded, in dicta, that the doctrine is no longer available we have ‘not squarely determined whether our manifest disregard case law can be reconciled with Hall Street.’” Raymond James Fin. Servs. v. Fenyk, 780 F.3d 59, 64–65 (1st Cir. 2015) (quoting KashnerDavidson Sec. Corp. v. Mscisz, 601 F.3d 19, 22 (1st Cir. 2010)). “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].” Ramos-Santiago v. UPS, 524 F.3d 120, 124 n.3 (1st Cir. 2008). |
| 2nd Circuit | Yes, as judicial gloss and potentially as an independent ground | “‘[M]anifest disregard remains a valid ground for vacating arbitration awards’ whether applied as judicial gloss or as an independent basis.” Weiss v. Sallie Mae, Inc., 939 F.3d 105, 109 (2d Cir. 2019) (citing Schwartz v. Merrill Lynch & Co., 665 F.3d 444, 451–52 (2d Cir. 2011)). While the 2d Circuit has not foreclosed the prospect of manifest disregard as an independent ground, courts have primarily interpreted manifest disregard as judicial gloss. See Seneca Nation of Indians v. New York, 988 F.3d 618, 625 (2d Cir. 2021) (“We have held that as judicial gloss on the specific grounds for vacatur of arbitration awards in the FAA, an arbitrator’s manifest disregard of the law . . . remains a valid ground for vacating arbitration awards.” (internal quotation marks and citations omitted)); Stolt-Nielsen v. Animal Feeds Int’l Corp., 548 F.3d 85, 94 (2d Cir. 2008), cert. granted, Stolt- Nielsen S.A. v. Animal Feeds Int’l Corp., 557 U.S. 903 (2009) (holding that “‘manifest disregard,’ reconceptualized as a judicial gloss on the specific grounds for vacatur enumerated in section 10 of the FAA, remains a valid ground for vacating arbitration awards”). |
| 3rd Circuit | Open question, but seemingly leaning yes, as judicial gloss | The court cited Hall Street as “suggesting without deciding that the judicially created manifest disregard of law ground for vacatur may be proper only as a judicial gloss on the statutory grounds.” Sutter v. Oxford Health Plans LLC, 675 F.3d 215, 220 n.2 (3d Cir. 2012). |
| 4th Circuit | Yes, as judicial gloss and as an independent ground | Although the 4th Circuit has ruled that manifest disregard survived Hall Street as an independent ground for vacatur, the court recently questioned that decision, stating in dicta that manifest disregard survives only as judicial gloss. See Friedler v. Stifel, 108 F.4th 241, 249 (4th Cir. 2024).See also Wachovia Sec., LLC v. Brand, 671 F.3d472, 483 (4th Cir. 2012) (finding that “manifest disregard continues to exist either as an independent ground for review or as judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10”). |
| 5th Circuit | No | “In the light of the Supreme Court’s clear language that, under the FAA, the statutory provisions are the exclusive grounds for vacatur, manifest disregard of the law as an independent, non- statutory ground for setting aside an award must be abandoned and rejected.” Citigroup Glob. Mkts., Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009). |
| 6th Circuit | Yes, as judicial gloss |
While it is not yet “firmly settled” whether manifest disregard survives Hall Street in the 6th Circuit, the courts continue to assume that it “remains valid.” See Hale v. Morgan Stanley Smith Barney LLC, No. 21-4184, 2023 U.S. App. LEXIS 9121, at *9 (6th Cir. Apr. 17, 2023). The manifest disregard test is “part and parcel of the statutory prohibition against the arbitrators’ ‘exceed[ing] their powers’” under section 10(a)(4). In re Romanzi, 31 F.4th 367, 375 (6th Cir. 2022). See also Coffee Beanery, Ltd. v. WW, L.L.C., 300 F. App’x 415, 418–19 (6th Cir. 2008), cert. denied, 558 U.S. 819 (2009) (“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 recognized principle. Accordingly, this Court will follow its well-established precedent here and continue to employ the ‘manifest disregard’ standard.”). |
| 7th Circuit | No | “This list [under 10(a)] is exclusive; neither a judge nor a contracting party can expand it,” and “‘manifest disregard of the law’ is not a ground on which a court may reject an arbitrator’s award under the [FAA].” Affymax, Inc. v. Ortho-McNeil-Janssen Pharms., Inc., 660 F.3d 281, 283, 285 (7th Cir. 2011). |
| 8th Circuit | No | “Appellant’s claims, including the claim that the arbitrator disregarded the law, are not included among those specifically enumerated in §10 and are not cognizable.” Med. Shoppe Int’l, Inc. v. Turner Invs., Inc., 614 F. 3d 485, 487 (8th Cir. 2010). |
| 9th Circuit | Yes, as judicial gloss | “[A]fter Hall Street Associates, manifest disregard of the law remains a valid ground for vacatur because it is a part of §10(a)(4).” Comedy Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 1290 (9th Cir. 2009), cert denied, Improv West Assocs. v. Comedy Club, Inc., 558 U.S. 824 (2009). |
| 10th Circuit | Open question | “[I]n the absence of firm guidance from the Supreme Court, we decline to decide whether the manifest disregard standard should be entirely jettisoned.” Abbott v. Law Off. of Patrick J. Mulligan, 440 F. App’x 612, 620 (10th Cir. 2011). |
| 11th Circuit | No | “[O]ur judicially-created bases for vacatur are no longer valid in light of Hall Street.” Frazier v. CitiFinancial Corp., 604 F.3d 1313, 1323 (11th Cir. 2010). |
| District of Columbia Circuit |
Open question | After Hall Street, the D.C. Circuit “assumed without deciding” that “manifest disregard” still existed, but declined to rule on that assumption. Affinity Fin. Corp. v. AARP Fin., Inc., 468 F. App’x 4, 5 (D.C. Cir. 2012). Although the manifest disregard standard has been applied arguendo, the courts have continuously found that “we need not resolve whether manifest disregard remains a ground for vacating an arbitration award.” Selden v. Airbnb, Inc., 4 F.4th 148, 160 n.6 (D.C. Cir. 2021). |
Conclusion
This split seems to call for a resolution by the Supreme Court. However, it declined that opportunity in Stolt-Nielsen and has given no indication that it intends to definitively address the issue.
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