End of an Error: Replacing Manifest Disregard with a New Framework for Reviewing Arbitration Awards, The
Guided by the purposes of the FAA, its legislative history, and the role of commercial arbitration in modern society, this Article proposes a new framework for the judicial review of arbitration awards. Awards deciding federal statutory rights such as those conferred by securities law and civil rights law should be reviewed for errors of law. As recognized in Wilko and McMahon, federal rights deserve protection, even in arbitration. There is one other type of award that requires judicial correction. Despite the statements in Hall Street and Concepcion that the FAA provides the exclusive grounds for vacatur, the courts must correct awards that violate well-defined federal public policy, particularly those that endanger public health, safety, or welfare, or condone unlawful acts. All other awards should not be reviewed, on the federal level, for errors of law. Where an award does not decide a federal right or violate federal public policy, the FAA policy favoring efficiency in arbitration trumps any need of judicial review for errors of law. Part II of this Article discusses Wilko and First Options of Chicago, Inc. v. Kaplan, the Supreme Court decisions, which, perhaps unwittingly, led to the establishment and confirmation of the manifest disregard standard. This Part also examines the reaction of the lower federal courts to this dubious standard of review. Part III analyzes Hall Street, a perplexing decision which provided alternative interpretations of what "manifest disregard" might mean. The unfortunate result of Hall Street is that some courts have declared the manifest disregard standard dead while others have held that it is still viable. Part IV explores the McMahon and Gilmer v. Interstate/Johnson Lane Corp., decisions in which the Supreme Court contradicted its dicta in Wilko and stated that errors of law in cases involving federal statutory rights were reviewable. Part IV shows that such review finds support in both the legislative history of the FAA and the evolution of arbitration since passage of the Act. Part V begins with a discussion of Stolt-Nielsen, observing that the Supreme Court, though asserting that it was applying the manifest disregard standard arguendo, applied de novo review to nullify a partial award that would have violated FAA policy. Stolt-Nielsen therefore suggested that the Court might be receptive to an expanded scope of review under the proper circumstances. In Concepcion, however, the Court seemed to reject this possibility. Despite Concepcion, Part V advocates that awards violating well-defined federal public policy be subject to judicial correction at the federal level. This Part goes on to propose that there should be no federal judicial review for awards not determining federal statutory rights or violating well-defined federal public policy. Finally, this Part addresses the potential objection that the framework proposed in this Article would reduce the efficiency of arbitration. The Article concludes with Part VI, which emphasizes the need to balance the policies of the FAA to promote the efficiency of arbitration with the policies of other federal laws. The approach proposed in this Article achieves a suitable balance. The Supreme Court has floundered on this issue for nearly sixty years. The jurisprudence of arbitration cannot withstand another sixty. It is time for Congress to set things right.
Kenneth R. Davis,
End of an Error: Replacing Manifest Disregard with a New Framework for Reviewing Arbitration Awards, The,
60 Clev. St. L. Rev.
available at https://engagedscholarship.csuohio.edu/clevstlrev/vol60/iss1/4