Labor & Employment Law

Hall Street: Non-statutory grounds for review

Hall Street Associates v. Mattel [details] (US Supreme Court 03/25/2008) (6-3) held that "§§10 and 11 respectively provide the [Federal Arbitration Act's] exclusive grounds for expedited vacatur and modification" of an arbitrator's award.

And some brave souls are asking "Do they really mean that? What about the various non-statutory grounds that courts seem to use for overturning arbitrators' awards, such as manifest disregard of the law, public policy, arbitrary and capricious, irrational?"

Well, here comes the truth:

• "Public policy" is the easiest. Yes, it exists as a non-statutory ground, but it will very rarely succeed. A court will not enforce an award that violates public policy because this is an inherent limitation on a court's power, and it needs no statutory statement.

  However, "public policy" is an extraordinarily narrow concept. You have to show that enforcing the award would violate a clear and well-articulated policy that is stated in statutes, regulations, or precedents. Courts can't just make up policy as they go along.

• "Manifest disregard of the law" is trickier. The Supreme Court has never said (and I believe never will say) that "manifest disregard" exists as a ground separate from the FAA. In Hall Street the Court referred to the concept as "a supposed judicial expansion by interpretation," and mused that it might refer to the §10 grounds collectively, or might be "shorthand" for §10(a)(3) (?guilty of misconduct?) or §10(a)(4) (?exceeded their powers").

  And "manifest disregard" is extremely narrow. Usually it means that there is proof that the arbitrator knew there was a law, but then ignored it. This is not the same as making a legal error, which is not a ground for overturning an award.

• Other grounds such as "arbitrary," "capricious," "irrational," will never make the cut at the Supreme Court. At their best, these concepts lack precision. At their worst, they are simply restatements of disagreement with the arbitrator's reasoning process.
• Bottom line: If you are attacking an arbitrator's award under the FAA, then you must use the statutory grounds, or "public policy," but don't get your hopes up if you must resort to public policy.

Full post as published by Arbitration Blog on March 27, 2008 (boomark / email).