Page 82 - M & A Disputes

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mu-
tual, final, and definite award upon the subject matter submitted was not made.

A cursory review of these grounds reveals that the FAA sets an extremely high bar for vacating awards.
Generally, courts look to affirm arbitration awards as part of an overall federal policy favoring the pri-
vate resolution of disputes.

Whereas the first two grounds involving corruption, fraud, or partiality are clear on their face and likely
obvious to all, the issues of misconduct and exceeding their powers are more difficult to define. Courts
construing these rules have more often than not preserved and expanded upon the wide discretion al-
lowed to arbitrators. For example, an arbitrator’s failure to hold a hearing or permit discovery, even up-
on the specific request of one of the parties, may not impact the award, as long as this failure does not
constitute the denial of a fundamentally fair hearing (see National Cas. Co. v. First State Ins. Group,
430 F.3d 492, 497 [1st Cir. 2005]).

In National Casualty, the arbitrators ordered First State to produce relevant documents during the course
of the arbitration. First State refused, and instead of pressing the issue further, the arbitrators acceded
and proceeded with the arbitration without those potentially significant documents. When National Cas-
ualty moved to vacate the arbitrators’ award for its refusal to force the production, the court refused be-
cause the failure of the arbitrators to compel evidence did not "so [affect] the rights of a party that it may
be said that he was deprived of a fair hearing."

Meanwhile, Gulf Coast Indus. Workers Union v. Exxon Co., 70 F.3d 847 (5th Cir. 1995), shows the
egregious behavior necessary for a court to vacate an arbitrator’s award. In Gulf Coast, the arbitrator
misled Exxon into believing that test results necessary to its case were already established as admissible
evidence, thereby cutting short the hearing. However, in its decision, the arbitrator took an about-face
and excluded the evidence, leading to a decision against Exxon. The reviewing court held that such mis-
conduct was of the type specifically referenced in Section 10 of the FAA; therefore, the court vacated
the arbitrator’s award.

Manifest Disregard of the Law

Another avenue for challenging an award is when there is an apparent manifest disregard of the law. Re-
cent case law has placed in doubt the viability of this theory; however, it still lives, making it important
for practitioners to be aware of it. Case examples are helpful to show the theory.

Perhaps the basis that has proven to be more fertile than the explicit Section 10 grounds for vacating an
arbitration award over the years is an implied gloss to the statute. Courts have construed Section 10 as
permissive of an overarching, nonstatutory standard of judicial review: manifest disregard of the law.
Under this judicially crafted standard, a court may vacate an arbitration award when the challenging par-
ty can show that the arbitrator or neutral knew the law and expressly disregarded it in rendering his or
her decision (see McCarthy v. Citigroup Global Markets Inc., 463 F.3d 87, 91–92 [1st Cir. 2006]). The
manifest disregard of the law standard has provided to aggrieved parties a possible, albeit improbable,
basis to reverse a bad decision at the arbitration level, even in the absence of outright fraud or funda-
mental unfairness.

Over the years, the manifest disregard of the law standard has always remained a very high bar to meet,
and it is one that is met infrequently. An example of how high the standard is can be found in a recent
federal appeals court decision upholding the decision of a neutral who failed to comply with the majority
interpretation of GAAP (see Hoeft v. MVL Group, Inc., 343 F.3d 57 [2nd Cir. 2003]).

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