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Fifth Circuit Addresses Manifest Disregard Review Under Federal Arbitration Act

March 26, 2009

By James E. Berger and Charlene Sun

Introduction

Since the U.S. Supreme Court issued its ruling in Hall Street Associates, L.L.C. v. Mattel, in which it held that the four grounds for vacatur of an arbitration award under Section 10 of the Federal Arbitration Act (FAA) are exclusive, practitioners and commentators have speculated whether the manifest disregard standard of judicial review which is not set forth in Section 10, but has nonetheless been recognized as a ground for vacatur by each of the federal circuits for several decades remains viable. In the year since Hall Street was decided, four federal courts of appeals have had occasion to address the question directly. The first three courts to address the question the Court of Appeals for the Second, Sixth, and Ninth Circuits analyzed the issue differently, but each nonetheless reached the conclusion that while manifest disregard may not be cognizable as a separate ground for vacatur, the substance of the doctrine nonetheless remains available to ensure that arbitrators observe any well-settled rules of law of which they are aware that govern the disputes referred to them. The Fifth Circuit, an instrumental court in the arbitral arena (due in part to the number of energy companies based in Texas and Louisiana, two of the states within its geographical jurisdiction) and the most recent appellate court to address the question, appears to have reached this conclusion as well, despite expressly holding that the manifest disregard doctrine is incompatible with the Supreme Courts Hall Street decision.