Exceeding Their Powers: A Critique of Stolt-Nielsen and Manifest Disregard, and a Proposal for Substantive Arbitral Award Review

Table of ContentsI. Introduction 1572II. Background: Historic and Contemporary Views of Arbitration and Manifest Disregard 1578A. The Goals and History of Arbitration in the United States 1579B. Arbitral Award Vacatur 1583C. Summary and History of Manifest Disregard 1585III. Hall Street & The Current State of Manifest Disregard 1594A. The Hall Street Decision 1594B. The Stolt-Nielsen Decision 1599C. The Current Federal Circuit Split Over Manifest Disregard 1605IV. A New Framework for Analyzing Challenges to Awards Based on Alleged Arbitrator Error 1608A. Is There a Record of the Proceeding and a Reasoned Opinion? If not, were a Reasoned Opinion and a Record Required? 1611B. Which Bodies of Law or Rules Govern the Arbitration? 1614C. Did the Arbitrator Apply a Principle or Rule from a Governing Body of Law? 1618D. Did Governing Bodies of Law Conflict on the Issue Decided by the Arbitrator?If So, Did the Arbitrator Perform a Conflict of Laws Analysis? 16211. First Exception: Frustration of Statutory Rights 16222. Second Exception: Federal Preemption-State Laws Singling Out Arbitration 16233. Third Exception: Federal Preemption-State Laws Invalidating Agreements to Arbitrate 16264. The Exception to the Federal Preemption Exceptions: Party Agreement 1628E. Did the Arbitrator Correctly Identify a Legal Principle as Controlling, and Yet Refuse to Apply It? 1633F. If the Arbitrator Committed No Legal Error Warranting Vacatur, Did the Petitioning Party Have a Reasonable Basis for Believing Such an Error Existed? 1635VI. Conclusion 1637I. IntroductionArbitration has its roots deep in antiquity1 and has long enjoyed widespread use in the United States and across the globe.2 In essence, it is a contractual form of dispute resolution used primarily as an alternative to litigation.3 The parties to a dispute agree to argue the issue before a neutral third-party arbitrator or panel of arbitrators and to be legally bound to honor the arbitrator's decision.4 The parties decide how arbitrators are selected,5 and they control which issues will be resolved and which rules shall be applied to resolve them.6 Agreements to arbitrate are construed liberally to encompass almost any possible claim arising under them.7 These agreements, then, can even encompass statutory claims relating to public regulation and civil rights,8 including discrimination claims.9 While the prevalence of arbitration agreements varies by context,10 it cannot be disputed that arbitration itself is an enormously important component in the field of contractual relationships, particularly commercial transactions.11 Considering the high stakes often involved in contemporary arbitration, any uncertainty regarding the validity of arbitral awards is at best frustrating and at worst disastrous.Courts have long struggled to develop a stable framework for review and recognition of arbitral awards.12 Early arbitral review in this country was often characterized by judicial suspicion of the procedural protections and legal competence provided by arbitration proceedings.13 Many courts were willing to vacate awards for any number of reasons, including the court's belief that the arbitrator had misapplied the applicable law or drawn an incorrect legal conclusion.14The lack of coherency in the enforcement of arbitral awards was a driving force behind the passage of the Federal Arbitration Act (FAA)15 in 1925. With this statute, Congress sought to provide a nationwide framework for the evaluation and enforcement of arbitral awards. …