Is an arbitrator’s disregard of the law a valid basis to overturn an arbitration award? A federal appeals court recently reiterated that “manifest disregard of the law” is not a proper basis for a court to overturn an arbitration award. In Jones v. Michaels Stores Inc., the U.S. Fifth Circuit held that arbitration awards may only be vacated for the reasons set forth in the Federal Arbitration Act, 9 U.S.C. § 10 (FAA), which does not include manifest disregard of the law.
The plaintiff, Tiffany Jones, agreed to arbitrate employment disputes with her former employer, Michaels Stores, Inc. (Michaels). She invoked the arbitration agreement after she was fired. After the arbitrator ruled against her, the plaintiff sued Michaels in federal court, challenging the same termination on a different theory. The parties agreed to stay the lawsuit pending a second arbitration. The new arbitrator ruled that the doctrine of res judicata barred the new claim because it arose from the same termination at issue in the first arbitration. The plaintiff then asked the court to vacate the arbitrator’s res judicata ruling, arguing that the arbitrator manifestly disregarded Louisiana law in finding her new claim was precluded.
The Jones court emphasized an earlier ruling that held “manifest disregard of the law as an independent, nonstatutory ground for setting aside an award must be abandoned and rejected.” In further support of its ruling, the court cited the U.S. Supreme Court decision in Hall St. Assocs. L.L.C. v. Mattel, Inc., where the court held that an arbitration agreement could not establish a ground for vacatur or modification of an arbitration award apart from those listed in the FAA. In rejecting the notion that a contract could create a new vacatur standard, Hall Street reasons that the statutory grounds for vacatur and modification are the “exclusive grounds.” Because the plaintiff did not invoke a statutory ground for vacatur, her appeal could not overcome the court’s instruction that “arbitration awards under the FAA may be vacated only for reasons provided in [the statute].”