Robert Lewis Rosen Associates Ltd. v. Webb
Issue Discussed: Judicial Review/Manifest Disregard
Submitted by Michele L. Jacobson, Esq., Regan A. Shulman, Esq.
Date Promulgated: July 7, 2008
Issue Decided: Whether manifest disregard of the law remains a viable basis for vacatur of an arbitration award in the Second Circuit after the Supreme Court’s decision in Hall Street Associates, LLC v. Mattel, Inc., __ U.S. __, 128 S. Ct. 1396 (2008)?
In Robert Lewis Rosen Associates, Ltd. v. Webb, 2008 WL 2662015 (S.D.N.Y. 2008), the United States District Court for the Southern District of New York held that, after the foundation of the Second Circuit’s adoption of the manifest disregard standard of review for vacatur was eroded by the Supreme Court’s decision in Hall Street Associates, LLC v. Mattel, Inc., manifest disregard of the law was no longer a viable ground for vacatur in the Second Circuit. 2008 WL 2662015 at * 4.
Petitioner Robert Lewis Rosen Associates, Ltd. (“RLR”) and Respondent William Webb (“Webb”) had a seven year history of arbitration and litigation relating to RLR’s contractual performance of career management services for Webb. 2008 WL 2662015 at * 1-2. This history culminated in RLR’s filing a petition to vacate the arbitration award that dismissed its claim for attorneys’ fees incurred in enforcing a judgment awarded in connection with an earlier arbitration between RLR and Webb. 2008 WL 2662015 at * 2. Rejecting RLR’s contention that the award rendered was in manifest disregard of the law, the Court denied the petition for vacatur and granted Webb’s cross-motion to confirm the award. 2008 WL 2662015 at * 4, 6.
The Court explained that the Second Circuit’s adoption of the manifest disregard of the law standard of review for arbitration awards stemmed from its interpretation of Supreme Court dicta in Wilko v. Swan, 346 U.S. 427 (1953), which suggested that “‘manifest disregard of the law’ provide[d] an additional judicial basis for vacatur” that was not found in the federal arbitration law. 2008 WL 2662015 at * 3-4. The Court noted, however, that the Supreme Court’s rejection of contractual expansion of judicial review of arbitration awards in Hall Street was based on two essential propositions that clashed with the Second Circuit’s interpretation of Wilko: (1) that the FAA’s statutory grounds for vacatur are exclusive; and (2) that “the Supreme Court ha[d] never endorsed manifest disregard as an independent basis for vacatur.” 2008 WL 2662015 at * 4. Concluding that, after Hall Street, Wilko could no longer support application of the manifest disregard standard, and that the Second’s Circuit adoption of that standard was based on Wilko, the Court held that “the manifest disregard of the law standard [was] no longer good law.” 2008 WL 2662015 at * 4.
The Court also pointed out that application of the ‘severely limited’ manifest disregard standard as articulated by the Second Circuit would mandate denial of the petition for vacatur. 2008 WL 2662015 at * 4. The Court confirmed that even when the manifest disregard standard is applied, vacatur is only appropriate where “(1) the arbitrator knew of a governing legal principle yet refused to apply it or ignored it altogether; and (2) the law ignored by the arbitrator was well defined, explicit and clearly applicable to the case.” Id. In rejecting RLR’s claim that the arbitrator acted in manifest disregard of the law, the Court reasoned that that: (1) the arbitrator was not alerted to any applicable and governing legal principle which he ignored (2008 WL 2662015 at * 4-5); (2) the manifest disregard standard of review does not permit a court to substitute its own interpretation of an agreement for that of the arbitrator (2008 WL 2662015 at * 5); and (3) an arbitrator’s refusal to have an evidentiary hearing before dismissing a claim as a matter of law does not satisfy the requirements for vacatur based on manifest disregard of the law (Id.). Finally, chiding both parties for their exploitation of the right to publicly air their grievances “to an excessive degree,” the Court denied that portion of Webb’s cross-motion that sought sanctions and attorneys’ fees. 2008 WL 2662015 at * 6.
* Michele L. Jacobson is a partner, and Regan A. Shulman is special counsel, in the litigation department of Stroock & Stroock & Lavan LLP, concentrating on insurance and reinsurance litigation and arbitration.