Fifth Circuit Abandons Manifest Disregard of the Law as a Ground for Overturning an Arbitration Decision

Citigroup v. Bacon is not an employment case but it is a very important case for employment lawyers nonetheless, as we all do a fair amount of arbitration work these days. 

Following an arbitration panel's order that Citigroup Global Markets pay Debra M. Bacon $256,000 in damages and attorney's fees, Citigroup sought to overturn that award in the District Court. Finding that the arbitrators had "manifestly disregarded the law," the District Court vacated the award. Bacon then appealed to the Fifth Circuit.

The question presented on appeal was whether, under the Federal Arbitration Act, "manifest disregard of the law" remains valid, as an independent ground for vacating an arbitration decision, after the Supreme Court's decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, 1403 (2008). Hall, which was decided after the District Court issued its opinion in this case, unequivocally held that the 4 statutory grounds set forth in section 10 of the FAA are the exclusive means for vacatur of arbitration awards.  The Court held that Hall had effectively overruled Fifth Circuit case law recognizing "manifest disregard of the law" as a nonstatutory ground for vacatur.

What this means to practitioners is that it is now even harder to overturn an arbitration award, even when the arbitrator completely ignores applicable law (which happens more often than you might think).  Thus, under §10 of the FAA, courts are only permitted to vacate an arbitration award for four reasons. They are:

  1. If the award was procured by corruption, fraud or undue means;
  2. If there was evident partiality or corruption by the arbitrator;
  3. If the arbitrator was guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced or;
  4. If the arbitrator exceeded his/her powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter was not made.

Insufficient evidence or even wholesale disregard of evidence by an arbitrator is not a sufficient basis for a court to vacate an award.

As a result of this decision and many many like it, both individuals and large corporations are increasingly coming to the conclusion that arbitration is not a very good substitute for the normal judicial process.  The fact that there is no viable appeal mechanism even if an arbitrator blatantly disregards applicable law should serve as a strong warning to companies that are considering implementing or continuing binding arbitration procedures with regard to employment or other types of disputes.  Arbitration can appear appealing at first but the complete lack of checks and balances in the system can, and often does, leave one side or the other stuck to pay a costly award that 99 our of 100 lawyers would agree is wrong under the law.

That's where Citigroup now potentially finds itself in this case. 


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