Client Alert
Supreme Court Denies Certiorari in Three Cases Concerning Judicial Review of Arbitral Awards
October 14, 2009
James E. Berger and Charlene Sun
Introduction
On October 5, 2009, the Supreme Court denied petitions for certiorari in three cases, Comedy Club, Inc. v. Improv West Assocs., Grain v. Trinity Health, and Coffee Beanery, Ltd. v. WW, L.L.C., each concerning the proper scope of judicial review of an arbitration award under the Federal Arbitration Act (FAA). The petitions in Comedy Club and Coffee Beanery both questioned whether, following the Supreme Courts decision in Hall Street Assocs. L.L.C. v. Mattel, Inc. (in which the Court held that the four grounds for vacatur of an arbitral award set forth in Section 10 of the FAA are exclusive and not subject to judicial modification), courts retained the authority to refuse to recognize an arbitral award on the ground that it was rendered in manifest disregard of the law, while the Grain petition asked whether an award could be modified under the FAA on that ground.
Since Hall Street was decided in March 2008, several federal appellate courts have considered whether that decision necessarily eliminated manifest disregard as a valid ground for vacatur of arbitral awards, since manifest disregard has long been understood as a nonstatutory ground for vacatur that was developed by lower federal courts in the wake of the Supreme Courts 1953 decision in Wilko v. Swan. Specifically, the Courts of Appeals for the Second, Fifth, Sixth and Ninth Circuits have given careful consideration to whether manifest disregard remains a viable ground for vacatur after Hall Street. While these courts have employed different analyses to reach their respective conclusions, those conclusions reflect a broad consensus that courts retain the ability to vacate an arbitral award based on an arbitrators manifest disregard of the law, as an award that is so legally flawed as to meet that standard may be seen as violative of Section 10(a)(4) of the FAA, which permits vacatur in a case where the arbitrator exceeds his authority.