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1 Manifest Disregard of the LawManifest Disregard of the Law
How Will This New Standard forHow Will This New Standard for VacaturVacatur Change the Arbitral Process?Change the Arbitral Process?
2 ContextContext -- Applicable LawApplicable Law
nn FederalFederal –– USAA or FAA, 9 U.S.C.USAA or FAA, 9 U.S.C. §§§§11--16 16 nn StateState –– GAC, O.C.G.A.GAC, O.C.G.A. §§§§99--99--1 through 181 through 18 nn General ruleGeneral rule –– Choice of law clause governs, but if interstate commerceChoice of law clause governs, but if interstate commerce involved in underlying transaction, federal arbitration law supeinvolved in underlying transaction, federal arbitration law supercedesrcedes conflicting provisions of state arbitration law that are anticonflicting provisions of state arbitration law that are anti--arbitrationarbitration
3 Statutory Grounds forStatutory Grounds for VacaturVacatur
nn FAA / USAA 9 U.S.C.FAA / USAA 9 U.S.C. §§ 10 (a)10 (a) nn Award by corruption, fraud, undue meansAward by corruption, fraud, undue means nn Evident partiality or corruption in arbitratorsEvident partiality or corruption in arbitrators nn Procedural prejudiceProcedural prejudice nn Arbitrators exceed their powers or imperfectly executed awardArbitrators exceed their powers or imperfectly executed award
4 Statutory Grounds forStatutory Grounds for VacaturVacatur
nn GACGAC –– O.C.G.A.O.C.G.A. §§ 99--99--13(b) (2002)13(b) (2002) nn Award by corruption, fraud, misconductAward by corruption, fraud, misconduct nn Partiality of arbitratorPartiality of arbitrator nn Overstepping of authority or imperfect execution of awardOverstepping of authority or imperfect execution of award nn Failure to follow procedure of GAC unless waivedFailure to follow procedure of GAC unless waived
5 Statutory Grounds forStatutory Grounds for VacaturVacatur
nn RUAA Section 23RUAA Section 23 –– M/D not included because:M/D not included because: 1.1. Not in FAA and U.S. Sup. Ct. or Congress may eventually limit toNot in FAA and U.S. Sup. Ct. or Congress may eventually limit to statutory groundsstatutory grounds 2.2. Difficult to fashion unambiguous, "bright line" test for the staDifficult to fashion unambiguous, "bright line" test for the standard when case law sondard when case law so unsettled and conflicting; few states have addressedunsettled and conflicting; few states have addressed nn No other state has in statuteNo other state has in statute
6 Evolution of M/DEvolution of M/D
nn WilkoWilko v. Swanv. Swan (1953)(1953) –– “…the interpretations of the law by the arbitrators in“…the interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal ccontrast to manifest disregard are not subject, in the federal courts, toourts, to judicial review for error in interpretation.”judicial review for error in interpretation.” nn Mere dictaMere dicta –– subsequently noted w/o elaboration insubsequently noted w/o elaboration in MitsubishiMitsubishi ,, McMahonMcMahon ,, andand First OptionsFirst Options
7 Federal Courts of Appeal Finding M/DFederal Courts of Appeal Finding M/D
nn Ten FederalTen Federal CtsCts of Appeals have either adopted or stated the standard inof Appeals have either adopted or stated the standard in dicta seemingly with approvaldicta seemingly with approval nn Only two have actually used to vacate or upholdOnly two have actually used to vacate or uphold vacaturvacatur
nn Montes v. Shearson Lehman Bros., IncMontes v. Shearson Lehman Bros., Inc. (11. (11thth^ Cir. 1997)Cir. 1997) nn HalliganHalligan v. Piperv. Piper JaffrayJaffray, Inc, Inc. (2. (2ndnd^ Cir. 1998)Cir. 1998)
8 Georgia Cases on M/DGeorgia Cases on M/D
nn Bartlett DesignsBartlett Designs (1990)(1990)–– applying old CAC,applying old CAC, Ct.AppCt.App. agrees with 9. agrees with 9thth^ Cir (Cir ( FrenchFrench ) general) general rule that "an arbitrator's decision must be upheld unless it isrule that "an arbitrator's decision must be upheld unless it is completely irrational or itcompletely irrational or it constitutes a manifest disregard of the law,” while also citingconstitutes a manifest disregard of the law,” while also citing C.J.S. for proposition thatC.J.S. for proposition that arbitrators may “disregard traditional rules of law.”arbitrators may “disregard traditional rules of law.” nn AmerispecAmerispec (1994)(1994)–– citingciting BartlettBartlett ,, Ct.AppCt.App. refers to M/D standard in context of new. refers to M/D standard in context of new GAC.GAC.
9 Ga. CasesGa. Cases –– Con’tCon’t
nn GreenGreen (1996)(1996)–– Sup.CtSup.Ct. says O.C.G.A.. says O.C.G.A. §§99--99--13(b) provides four exclusive13(b) provides four exclusive grounds forgrounds for vacaturvacatur.. nn Atlanta Gas LightAtlanta Gas Light (1998)(1998)–– citingciting GreenGreen , Ct. App. approaches M/D standard as, Ct. App. approaches M/D standard as implicit in O.C.G.A.implicit in O.C.G.A. §§99--99--13(b)(3), but doesn13(b)(3), but doesn’’t apply, citingt apply, citing §§99--99--13(d) as13(d) as providing broad latitudeproviding broad latitude
10 Ga. CasesGa. Cases –– con’tcon’t
nn RalstonRalston (1999)(1999)–– Ct.AppCt.App. questions whether M/D valid after. questions whether M/D valid after GreenGreen .. nn Jefferson Randolph Corp v. Progressive Data Sys., Inc.Jefferson Randolph Corp v. Progressive Data Sys., Inc. (2001)(2001)–– Ct.AppCt.App. finds. finds M/D and vacates award underM/D and vacates award under §§99--99--13(b)(3)13(b)(3).. nn Progressive Data Sys., Inc. v. Jefferson Randolph CorpProgressive Data Sys., Inc. v. Jefferson Randolph Corp (2002)(2002)–– S.CtS.Ct.. overturnsoverturns Ct.AppCt.App. stating that no M/D in Georgia law.. stating that no M/D in Georgia law.
11 Ga. CasesGa. Cases –– Con’tCon’t
nn Progressive Data Sys., Inc. v. Jefferson Randolph CorpProgressive Data Sys., Inc. v. Jefferson Randolph Corp ((con’tcon’t)) –– M/D notM/D not implicit in GAC, “[implicit in GAC, “[o]versteppingo]verstepping the arbitrator’s authority…only comes intothe arbitrator’s authority…only comes into play when an arbitrator determines matters beyond the scope of tplay when an arbitrator determines matters beyond the scope of the case,”he case,” and does not include the concept of manifest disregard.and does not include the concept of manifest disregard.
12 Ga. CasesGa. Cases –– con’tcon’t
nn Progressive Data Sys., Inc. v. Jefferson Randolph CorpProgressive Data Sys., Inc. v. Jefferson Randolph Corp ((con’tcon’t)) –– Very strongVery strong dissent bydissent by CarleyCarley, J.: cites to federal cases on M/D; maybe inferred by, J.: cites to federal cases on M/D; maybe inferred by “exceeding authority”“exceeding authority”
13 2003 General Assembly2003 General Assembly
nn HB 91 proposes adding a fifth grounds forHB 91 proposes adding a fifth grounds for vacaturvacatur –– manifest disregard ofmanifest disregard of the law.the law. nn Bill passes House, and Senate Judiciary Committee.Bill passes House, and Senate Judiciary Committee. nn State Bar Bd. of Gov’s opposes, bill stalls.State Bar Bd. of Gov’s opposes, bill stalls. nn Bill’s language is added to Tort Reform Package and is passed inBill’s language is added to Tort Reform Package and is passed in HB 793.HB 793. nn Governor signs into lawGovernor signs into law –– June 2003June 2003
nn MontesMontes andand HalliganHalligan
nn Presumed, through different devices, awareness of lawPresumed, through different devices, awareness of law
nn Based on above, inferred conscious disregardBased on above, inferred conscious disregard
21 Montes v. Shearson Lehman Bros., IncMontes v. Shearson Lehman Bros., Inc ..
nn Shearson urged arbitrators to ignore the lawShearson urged arbitrators to ignore the law [presumed awarene[presumed awareness, burden shifts]ss, burden shifts] nn “[“[t]heret]here is nothing in the award or elsewhere in the record to indicateis nothing in the award or elsewhere in the record to indicate that they did notthat they did not heed this plea. In the absence of any stated reasons for the decheed this plea. In the absence of any stated reasons for the decision and in light of theision and in light of the marginal evidence presented to it, we cannot say that this is nomarginal evidence presented to it, we cannot say that this is not what the panel did...”t what the panel did...” [bootstrapping element of intention][bootstrapping element of intention]
22 MontesMontes StandardStandard
nn Carnes’ concurrence: case is aberration, ruling limited to situaCarnes’ concurrence: case is aberration, ruling limited to situation in which alltion in which all elements are there:elements are there: nn Award favors party conceding law not in favorAward favors party conceding law not in favor nn Party urged arbitrators to ignore lawParty urged arbitrators to ignore law nn Award noted such urging but record shows nothing to indicate arbAward noted such urging but record shows nothing to indicate arbitrators ignoreditrators ignored urgingurging nn Evidence in support of decision was marginalEvidence in support of decision was marginal
23 HalliganHalligan v. Piperv. Piper JaffrayJaffray, Inc, Inc ..
nn Clearly concerned with “mandatory”Clearly concerned with “mandatory” arbarb nn Counsel for both parties advised as to applicable lawCounsel for both parties advised as to applicable law nn Proof of discrimination “overwhelming”Proof of discrimination “overwhelming” nn Therefore, “we are inclined to hold that [the arbitrators] ignorTherefore, “we are inclined to hold that [the arbitrators] ignored the law ored the law or thethe evidenceevidence or both.”or both.”
24 Will this happen?Will this happen?
nn Wallace v.Wallace v. ButtarButtar, 239 F. Supp. 2d 388 (2003), 239 F. Supp. 2d 388 (2003) nn Manifest disregard of the facts occurs when award runs contraryManifest disregard of the facts occurs when award runs contrary to “strong” evidenceto “strong” evidence favoring the petitionerfavoring the petitioner nn “Clearly the arbitrators could not have found that [defendants]“Clearly the arbitrators could not have found that [defendants] possessed thepossessed the requisite intention to defraud the [plaintiffs]requisite intention to defraud the [plaintiffs] withutwithut manifestly disregarding themanifestly disregarding the evidence or lack of evidence.” Id. at 394evidence or lack of evidence.” Id. at 394--95 95
25 QuestionQuestion
nnHow are the Georgia Courts likely to apply theHow are the Georgia Courts likely to apply the standard?standard?
26 QuestionQuestion
nnWill context matter in the application? Should it?Will context matter in the application? Should it?
27 QuestionQuestion
nnWhat arbitral traditions are at risk under this standard?What arbitral traditions are at risk under this standard?
28 QuestionsQuestions –– Arbitral PracticeArbitral Practice
nn Will this affect choice of arbitrator?Will this affect choice of arbitrator? nn Will this affect arbitral process with respect to:Will this affect arbitral process with respect to: nn Unreasoned awards?Unreasoned awards? nn Use of transcripts?Use of transcripts?
29 QuestionQuestion –– Reasoned Awards?Reasoned Awards?
nn Arbitrators are not required to give reasons for their awardsArbitrators are not required to give reasons for their awards -- UnitedUnited Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.SSteelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593,598,. 593,598, 80 Sup. Ct 1358, 136180 Sup. Ct 1358, 1361--62, 462, 4 L.EdL.Ed. 2d 1424 (1960). 2d 1424 (1960) nn an arbitratoran arbitrator’’s “silence cannot be used to infer a grounds for vacating thes “silence cannot be used to infer a grounds for vacating the award.award.”” RobbinsRobbins (11(11thth^ Cir. 1992)Cir. 1992)
30 QuestionsQuestions -- DraftingDrafting
nn In light of the M/D standard, how should lawyers approachIn light of the M/D standard, how should lawyers approach
drafting arbitration agreements?drafting arbitration agreements?
31 QuestionsQuestions –– International ArbitrationInternational Arbitration
nn How will this affect amiable composition [disregard law only toHow will this affect amiable composition [disregard law only to reach justreach just result] and exresult] and ex aequoaequo et bono [explicit power to ignore law]?et bono [explicit power to ignore law]? nn Enforcement of foreign awards?Enforcement of foreign awards?
32 QuestionQuestion
nn “When a claim arises under specific laws, however, the arbitrato“When a claim arises under specific laws, however, the arbitrators are boundrs are bound to follow those laws in the absence of a valid and legal agreemeto follow those laws in the absence of a valid and legal agreement not to dont not to do so.so.”” GilmerGilmer
What constitutes a valid and legal agreement for the arbitratorsWhat constitutes a valid and legal agreement for the arbitrators not to benot to be bound by the law?bound by the law?
33 QuestionQuestion –– Broad Remedial Powers?Broad Remedial Powers?
nn AAA Rule 43 (a): “The arbitrator may grant any remedy for reliefAAA Rule 43 (a): “The arbitrator may grant any remedy for relief that thethat the arbitrator deems just and equitable and within the scope of thearbitrator deems just and equitable and within the scope of the agreement ofagreement of the parties…”the parties…”
Is the use of the broad powers under this rule more constrained?Is the use of the broad powers under this rule more constrained?
34 QuestionQuestion –– Broad Remedial Powers?Broad Remedial Powers?
nn O.C.G.A. § 9O.C.G.A. § 9--99--13 (d) provides: "The fact that the relief was such that it13 (d) provides: "The fact that the relief was such that it could not or would not be granted by court of law or equity is ncould not or would not be granted by court of law or equity is not ground forot ground for vacating or refusing to confirm the award."vacating or refusing to confirm the award."
Is this section now irrelevant?Is this section now irrelevant?
