Friday, August 5, 2016

In the U.S. Fifth Circuit, It Remains Undecided Whether Manifest Disregard of the Law or an Award’s Violation of Public Policy Are Grounds to Vacate an Arbitration Award

While most posts on this blog usually discuss notable court decisions that resolve otherwise undecided issues, this post discusses a recent case that is notable because the court did not resolve an undecided issue of law in that circuit, deciding the case instead on a factual ground and never reaching legal question presented. 

In McKool Smith, P.C. v. Curtis International, Limited, 2016 WL 2989241 (5th Cir. 2016), the U.S. Fifth Circuit addressed a party’s claim that an arbitrator’s alleged manifest disregard of the law and the award’s alleged violation of public policy remained grounds for vacating an arbitrator’s award. 

The case arose from an arbitration award in favor of a law firm, McKool Smith, P.C. (“McKool”) against its client, Curtis International, Limited (“Curtis”), following McKool’s representation of Curtis in a prior patent litigation.  Curtis sought to vacate the award, claiming that the arbitrator manifestly disregarded the law by allowing McKool to recover for block-billed time entries and that the award violated Texas public policy for similar reasons.

The court noted that, since the U.S. Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S.576, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008), the court had acknowledged that arbitration awards only could be overturned on statutory grounds under the Federal Arbitration Act.  However, Curtis urged the Fifth Circuit to rule - as other courts have ruled - that an arbitrator’s manifest disregard of the law or an award’s violation of public policy were statutory grounds because in those situations arbitrator has “exceeded [his or her] powers” within the meaning of 9 U.S.C. § 10(a)(4).

The 5th Circuit, however, held that, even if the court were to consider that manifest disregard of the law or violation of public policy were statutory grounds to vacate an arbitration award, the arbitrator in the pending case had not manifestly disregarded the law and the award did not violate Texas state public policy.  Therefore, in the 5th Circuit, whether manifest disregard of the law or violation of public policy are statutory grounds for vacating an award remains unresolved.

For your reference, linked here is a copy of the 5th Circuit’s unpublished decision.

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