'Final' Awards Reconceptualized: A Proposal to Resolve the Hall Street Circuit Split

Abstract

This article discusses the current circuit split over the continued validity of manifest disregard of the law (“manifest disregard”) as a nonstatutory ground for vacatur of arbitration awards under the Federal Arbitration Act (“FAA”). Today, as commercial parties decide whether to include arbitration agreements in their business contracts, they weigh the risks of proceeding to arbitration versus litigation to resolve their disputes. This topic is especially pertinent in light of the current economic climate.

Dicta from the U.S. Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc. called into question the continued validity of nonstatutory grounds for vacatur. The circuit courts have severely split on the question of one ground in particular: manifest disregard. Although seemingly ripe for review, the Supreme Court has appeared reluctant to resolve the issue, even side-stepping the Second Circuit’s opinion in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. and ruling on other grounds.

Rather than opining on which side of the split should prevail, this article posits first that manifest disregard should never have been a valid ground for vacatur under the FAA. Next, the article takes a historical perspective that shows the FAA does not allow courts to look at the merits of an arbitration award. Instead, courts should look only to the award itself, determining its enforceability exclusive of the merits of the arbitrator’s or tribunal’s decision. Inquiry into the merits of the decision violates the FAA and damages arbitration’s finality and efficiency, two of the most important benefits of the arbitration bargain. Excluding the merits from judicial review conforms to FAA requirements and retains these two critical benefits. In other words, this article proposes a resolution to the circuit split that maintains the integrity of both the FAA and the arbitration process without excluding concerns surrounding a full abandonment of judicial review.

Keywords: Hall Street, Manifest Disregard, Federal Arbitration Act