Arbitration: Alabama's Top Court Disregards 'Manifest Disregard' (Web)

The Alabama Supreme Court this spring rejected “manifest disregard of the law” as an independent standard of review for arbitration awards in Volvo Trucks North America Inc. v. Dolphin Line Inc., Nos. 1081277, 1081713, 2010 WL 1641017 (Apr. 23, 2010)(available here).

The unanimous decision, written by Associate Justice Champ Lyons Jr.,  follows the U.S. Supreme Court case, Hall Street Associates LLC v. Mattel Inc., 552 U.S. 576 (2008).

Dolphin Line filed suit against Volvo Trucks for breach of a sales contract with a repurchase provision. Volvo had failed to repurchase vehicles from Dolphin.                          

Volvo moved to compel arbitration according to the predispute agreement. Then, prior to the arbitration, the parties agreed that the arbitration would be governed by “controlling Alabama laws and precedents.”

After the tribunal awarded Dolphin nearly $1.25 million, Volvo appealed, claiming that the award should be vacated because the arbitrator acted in “manifest disregard of the law.”  Similar to the Federal Arbitration Act, the Alabama Arbitration Act allows for vacating an award for “fraud, partiality, or corruption” (AAA  § 6-6-14).  But Volvo argued that manifest disregard for the law is an additional ground for vacating.

The Alabama Supreme Court rejected this argument, clarifying that the state statute's three enumerated grounds are exclusive, and that there is no additional manifest disregard standard.

Although Alabama’s top Court had used this standard, it cited the U.S. Supreme Court's Hall Street Associates decision in rejecting manifest disregard as a separate standard of review for arbitrations conducted under the FAA.

Volvo had claimed that post-Hall Street Associates, the standard was still available for arbitrations under Alabama state law. The Court responded that previous state decisions using “manifest disregard” had been governed by the FAA, and that the standard had not been incorporated into state law.                    

This case is interesting because federal circuit courts are split over whether Hall Street Associates completely rejected the manifest disregard standard, or whether it remains an independent ground for review. The U.S. Supreme Court left this question unresolved in its recent decision, Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., No. 08–1198 (April 27, 2010)(available here).  The Supreme Court took the case to deal with the limits of ordering class arbitration in the face of a contract silent on the issue, although much of the appellate court opinion in the case dealt with manifest disregard. 

While a number of circuits hold that Hall Street Associates officially rejected the standard (see, e.g., Citigroup Global Mkts. Inc. v. Bacon, 562 F.3d 349, 350 (5th Cir. 2009); Frazier v. CitiFinancial Corp., 2010 WL 1727446 (11th Cir. 2010); Ramos-Santiago v. United Parcel Service, 524 F.3d 120, 124 n.3 (1st Cir. 2008) (dicta)), other circuits hold that it is a viable ground for review as an interpretive gloss on the term “exceeded their powers” in FAA § 10(a)(4). Stolt-Nielsen v. AnimalFeeds Int'l, 548 F.3d 85 (2d Cir. 2008)(linked above); ComedyClub Inc. v. Improv West Associates, 553 F.3d 1277 (9th Cir. 2009) (cert. denied); Coffee Beanery Ltd. v. WW, LLC, 300 Fed. Appx. 415, 418 (6th Cir. 2008) (cert. denied).

In contrast to the Alabama ruling, the California Supreme Court has held that even if manifest disregard is impermissible after Hall Street Associates, the California Arbitration Act  allows for such review under CAA § 1286.2(a)(4), which also uses the term “exceeded their powers,” and that it is not preempted by the FAA. Cable Connection Inc. v. DIRECTV Inc., 44 Cal. 4th 1334 (Cal. 2008)(see also “California’s Top Court: This Isn’t Hall Street, So Judicial Review Is OK,” 26 Alternatives 175 (October 2008)).  The Alabama law, however, does not contain similar language.

--David Perechocky, CPR Intern