The Future of Manifest Disregard

Abstract

Manifest disregard of the law is a "non-statutory" or "judicially-created" ground for vacating arbitration awards. It does not appear in the Federal Arbitration Act, but instead has been developed by courts - which typically derive the doctrine from dictum in the overruled Supreme Court case of Wilko v. Swan. The usual test for manifest disregard - that the arbitrator knows the applicable law but intentionally refuses to apply it - is based on a literal reading of the Wilko dictum and is directly contrary to the common law authorities cited by the Wilko Court. Indeed, in seeking to ensure that arbitrators correctly apply mandatory rules of law in their awards, lower courts have distorted the doctrine further, in ways that undercut the arbitration process itself. In short, manifest disregard of the law, as currently applied, leaves much to be desired.

Nonetheless, in “Rethinking the Federal Arbitration Act,” manifest disregard of the law should be codified as a ground for vacatur. The justification for codifying manifest disregard is not to ensure that arbitrators follow mandatory rules of law in their awards. Instead, the justification is to protect the integrity of the judicial process - by enabling courts to avoid putting their power and authority behind arbitral awards that openly flaunt the law. As codified, challenges to arbitration awards for manifest disregard of the law will rarely, if ever, succeed. But the need to protect the integrity of the court system justifies codifying manifest disregard, even if the doctrine only rarely is applied.