An arbitration award may be vacated for “manifest disregard of the agreement” if the award does not draw its essence from the contract and instead reflects the arbitrator’s own notions of economic or industrial justice. (See, e.g., here, here, here, here.) Such an award exceeds the arbitrator’s powers within the meaning of Section 10(a)(4) of the Federal Arbitration Act. 9 U.S.C. § 10(a)(4) and federal common law in Labor Management Relations Act Section 301 cases (which tracks Section 10(a)(4)).
Arbitration awards do not qualify for vacatur under this manifest disregard of the agreement standard unless the arbitrator did not even arguably interpret the agreement. And if you have any doubts about how much extensive leeway arbitrators have to “arguably interpret” contracts, go back and review the U.S. Supreme Court’s decision in Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 566-70 (2013).
The margins for a reasonable argument for manifest disregard of the agreement vacatur are slim, for once the arbitrator offers—or the award is otherwise susceptible to—an even barely plausible interpretation supporting the arbitrator’s award, then it’s game over, even if the barely plausible interpretation is one a court would almost certainly not adopt as its own.
But in StoneMor, Inc. v. The Int’l Bhd. Of Teamsters, Local 469, ___ F.4d ___, No. 23-1489, slip op. (3d Cir. July 10, 2024), the Third Circuit reminds everyone that, while it is “‘a steep climb to vacate an . . . award[,]’” slip op. at 6 (quoting France v. Bernstein, 43 F.4th 210, 219 (3d Cir. 2022)), the Court’s “review is ‘not toothless,’ and [it] will reverse if the arbitrator ‘rewrites the contract[.]’” Slip op. at 6 (quoting Independent Lab’y Employees’ Union, Inc. v. ExxonMobil Research & Engineering Co., 11 F.4th 210, 219 (3d Cir. 2021)). (You can read our France v. Bernstein post here.)
The award before the Court in StoneMor, was the product of an arbitrator who “did just that[,]” and the Court affirmed the district court’s judgment vacating that award—an award which resulted from manifest disregard of the agreement. Slip op. at 6 & 3. Because the Court was able to conclude that the award was not based on—and did not otherwise reflect—an even barely colorable interpretation of the contract, vacatur was warranted. Continue Reading »
Most challenges to arbitration awards—including attorney fees awards— fail because the standards of review are so demanding. The bar is exceedingly high by design. Otherwise—the reasoning goes—courts would “open[] the door to the full-bore legal and evidentiary appeals that can rende[r] informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process and bring arbitration theory to grief in post-arbitration process.” 
