Opinion ID: 1643072
Heading Depth: 1
Heading Rank: 3

Heading: standard of review

Text: Section 6-6-14, Ala.Code 1975, of the Alabama Arbitration Act, § 6-6-1 et seq., Ala.Code 1975 (AAA), sets out the factors to be considered in determining whether an arbitration award is conclusive: An award made substantially in compliance with the provisions of this division is conclusive between the parties thereto and their privies as to the matter submitted and cannot be inquired into or impeached for want of form or for irregularity if the award determines the matter or controversy submitted, and such award is final, unless the arbitrators are guilty of fraud, partiality, or corruption in making it. The News does not argue that the arbitration awards in this appeal were the product of fraud, partiality, or corruption on the part of the arbitrators. It contends, however, that our review of the awards should be governed by the standards prescribed by the FAA, as well as by several nonstatutory grounds, including allowing an arbitration award to be vacated when the arbitrators have been guilty of a manifest disregard of the law. The News asserts that the awards are due to be set aside pursuant to § 10(a)(4) of the FAA, which provides that an award may be vacated if the arbitrators exceeded their powers. The News argues that the arbitrators here exceeded their powers (1) by consolidating the arbitration cases for hearing; (2) by rewriting paragraph 8 of the agreement in such a way as to ignore its plain meaning; and (3) by ignoring the provisions in paragraph 10 limiting the types of damages recoverable. The News further asserts that the panel manifestly disregarded the law (1) by ignoring and disregarding Alabama law on when a limitation-of-damages provision in an arbitration clause is unenforceable as against public policy; (2) by disregarding basic contract law; (3) by disregarding the law on the issue of fraud; (4) by disregarding the law on the issue of conversion; (5) by disregarding the law on the issue of fiduciary duty; (6) by disregarding the law on the issue of damages; and (7) by awarding punitive damages far out of proportion to the actual compensatory damages even arguably sustained by the plaintiffs, resulting in a multiple [which is] irrational and in manifest disregard of the law. The News claims finally that each award fails to derive its essence from the underlying contract, was arbitrary and capricious, and was completely irrational. Because, as set forth in Part IV.E. of this opinion, we must affirm the awards predicated on the fraud claim upon application of the appropriate standard of review, subject to reductions to eliminate duplicative damages, and because the compensatory damages awarded for breach of contract, conversion, and breach of fiduciary duty are the same as those awarded on the fraud claim, we pretermit further discussion of those aspects of the standards of review urged upon us by the News applicable only to the breach-of-contract, breach-of-fiduciary-duty, and conversion claims.
The plaintiffs assert that the grounds for review set out in the FAA are procedural rules, and, therefore, under the reasoning of Chief Justice Moore's dissent in Selma Medical Center, Inc. v. Fontenot, 824 So.2d 668 (Ala.2001), should not govern our substantive review in these cases; rather, argue the plaintiffs, only the § 6-6-14 grounds should apply. The general structure of § 6-6-15 dates back more than 130 years. Before that, there were other statutory procedures for appealing an arbitration award; there was even a period between 1852 and 1868 when there were no provisions for taking an appeal from an arbitration award. Wright v. Bolton & Stracener, 8 Ala. 548 (1845); Wilbourn v. Hurt, 139 Ala. 557, 36 So. 768 (1904). Section 6-6-15 provides that either party may appeal from an arbitration award made under this division [Arbitration and Award], specifying the sequence and effect of the procedures to be followed. When, as in the present cases, an action is already pending in the circuit court, upon the filing of the notice of appeal with the circuit clerk, together with a copy of the award, signed by the arbitrators or a majority of them ... the clerk or register shall enter the award as the judgement of the court. (Emphasis supplied.) (For many decades, the predecessors to § 6-6-15, up through Tit. 7 § 843 of the Code of Alabama of 1940 (Recomp.1958), assigned the duty of entering the judgment to the clerk, register or judge of the court. (Emphasis supplied.)) Section 6-6-15 states that if, within 10 days following the clerk's entry of the judgment, the circuit court does not set aside the award for one or more of the causes specified in Section 6-6-14, the judgment shall become final and an appeal shall lie as in other cases. The News filed with the circuit clerk its Motion to Vacate and Set Aside Arbitration Award in each case, stating various grounds, but acknowledging its intention to pursue an appeal, and it contemporaneously filed its notice of appeal. The trial judge did not act within the 10-day period following the filing of the notices of appeal, but nothing in the record suggests that any of the motions to vacate were actually called to his attention. The AAA has had throughout its history, until the last decade, a field of operation only with respect to post-dispute agreements to arbitrate. See Stone v. Dennis, 3 Port. 231 (Ala.1836); Bozeman v. Gilbert, 1 Ala. 90 (1840); and Headley v. Aetna Ins. Co., 202 Ala. 384, 80 So. 466, 467 (1918). Predispute agreements to arbitrate were invalid at common law, as the United States Supreme Court explained in Home Insurance Co. of New York v. Morse, 87 U.S. (20 Wall.) 445, 451, 22 L.Ed. 365 (1874): [A]greements in advance to oust the courts of the jurisdiction conferred by law are illegal and void.... [A citizen] cannot... bind himself in advance by an agreement, which may be specifically enforced, thus to forfeit his rights at all times and on all occasions, whenever the case may be presented. Under the common law, even when the parties entered into a post-dispute agreement to arbitrate, either could back out of that agreement at any time before the dispute was actually submitted to arbitration and an award determined. See Aspinwall v. Tousey, 2 Tyl. 328 (Vt.1803); Allen v. Watson, 16 Johns. 205 (N.Y.Sup.Ct.1819); and Smith v. Compton, 20 Barb. 262 (N.Y. Gen. Term 1855). Beginning with the Code of Alabama of 1923, the Alabama Code has included a statutory prohibition (now codified as § 8-1-41(3)) against the specific enforcement of a predispute agreement to submit a controversy to arbitration. However, through the combined holdings of several decisions of the United States Supreme Court, the application of that prohibition has been relegated to the rare case of a purely intrastate transaction that could not be said to involve commerce in any way. See Southland Corp. v. Keating, 465 U.S. 1, 16, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984); Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995); and Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 123 S.Ct. 2037, 156 L.Ed.2d 46 (2003). This Court held in Stewart, and Horn, supra, that the FAA preempted state law in the transactions between the News and the plaintiffs. Having held that the FAA is applicable to this case, we point out that its application is controlled by principles of `substantive federal law.' Ex parte Costa & Head [(Atrium), Ltd., 486 So.2d 1272], at 1275 [(Ala.1986)]. In cases governed by the FAA, the federal substantive law of arbitration governs, despite contrary state law or policy. Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984); H.L. Fuller Construction Co. v. Industrial Development Board of the Town of Vincent, 590 So.2d 218 (Ala.1991). Further, the provisions of the FAA govern all questions of the validity, interpretation, construction and enforceability of the arbitration agreement. See Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ; Willoughby Roofing & Supply Co. v. Kajima International, Inc., 598 F.Supp. 353 (N.D.Ala.1984), affirmed, 776 F.2d 269 (11th Cir.1985) . Maxus, Inc. v. Sciacca, 598 So.2d 1376, 1379 (Ala.1992). In Fuller Construction, supra, decided the year before Maxus, the Court understood one of the appellant's contentions to be that the arbitration award is due to be vacated because it allegedly did not comply with the FAA, which permits the vacation of an arbitration award in the following instance: `(d) Where the arbitrators exceeded their powers or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.' 9 U.S.C. § 10(d) [redesignated by amendment as 9 U.S.C. § 10(a)(4)]. 590 So.2d at 223. The Court determined, however, that on the limited record presented in that appeal, it was unable to say that the arbitrators had either exceeded their powers or imperfectly executed them. In Maxus, after concluding that the FAA controlled its review, the Court went on to say: The FAA, specifically 9 U.S.C. § 10, permits the vacation of an arbitration award in the following instances: `(a) Where the award was procured by corruption, fraud, or undue means. `(b) Where there was evident partiality or corruption in the arbitrators, or either of them. `(c) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced. `(d) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.' Where parties, as in this case, have agreed that disputes should go to arbitration, the role of the courts in reviewing the arbitration award is limited. Transit Casualty Co. v. Trenwick Reinsurance Co., 659 F.Supp. 1346 (S.D.N.Y.1987), affirmed, 841 F.2d 1117 (2d Cir.1988); Saxis Steamship Co. v. Multifacs International Traders, Inc., 375 F.2d 577 (2d Cir.1967). On motions to confirm or to vacate an award, it is not the function of courts to agree or disagree with the reasoning of the arbitrators. Application of States Marine Corp. of Delaware, 127 F.Supp. 943 (S.D.N.Y.1954). Courts are only to ascertain whether there exists one of the specific grounds for vacation of an award. Saxis Steamship Co. A court cannot set aside the arbitration award just because it disagrees with it; a policy allowing it to do so would undermine the federal policy of encouraging the settlement of disputes by arbitration. United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960); Virgin Islands Nursing Association's Bargaining Unit v. Schneider, 668 F.2d 221 (3d Cir.1981). An award should be vacated only where the party attacking the award clearly establishes one of the grounds specified above. Catz American Co. v. Pearl Grange Fruit Exchange, Inc., 292 F.Supp. 549 (S.D.N.Y.1968). 598 So.2d at 1380-81. More recently, in Mason v. Acceptance Loan Co., 850 So.2d 289 (Ala.2002), after determining that the FAA was applicable to the arbitration provisions in the agreements between the parties, we commented in a footnote that the FAA, 9 U.S.C. § 10, would be applicable to a review of the arbitrators' award. 850 So.2d at 302 n. 10. In accord with Maxus and Fuller, supra, the Court of Civil Appeals has also concluded that the standards for reviewing an arbitration award set out in the FAA apply to an appeal of an arbitration award in which the underlying transaction involved interstate commerce. McKee v. Hendrix, 816 So.2d 30 (Ala.Civ.App.2001). See also Sanderson Group, supra (four judges concurring in the result). Therefore, it is well established that the standards set out in the FAA for reviewing an arbitrator's award are applicable to our review in this case. To the extent that the limited grounds listed in § 6-6-14 (fraud, partiality, or corruption) might arguably govern judicial review of an arbitrator's award resulting from a post-dispute agreement to arbitrate when the parties have voluntarily opted for arbitration with full knowledge of the contours and significance of their dispute, those grounds do not provide adequate review of arbitrators' decisions in the numerous and varied commercial- and consumer-transaction disputes now being channeled to arbitration in this State through predispute agreements for arbitration. Most states have adopted a version of the Uniform Arbitration Act (UAA) drafted by the National Conference of Commissioners on Uniform State Laws in 1955. The UAA has undergone several revisions over the years, the most recent adopted by the Commissioners at their annual conference in 2000. However, since its promulgation in 1955 the UAA has always included a provision allowing for vacatur of an arbitration award where [t]he arbitrators exceeded their powers. (Section 12(a)(3) of the 1955 version; Section 23(a)(4) of the 2000 version.) The prefatory note to the 2000 version states that [f]orty-nine jurisdictions have arbitration statutes; 35 of these have adopted the UAA and 14 have adopted substantially similar legislation. Presumably Alabama is the excluded 50th jurisdiction, it being self-evident that the AAA is in no wise substantially similar to the UAA. Although § 10 of the FAA facially is applicable only to the federal district courts, a number of other state appellate courts have adopted the same approach as this Court by recognizing the applicability of the § 10 standards in appeals in state courts from arbitration awards. E.g., Hecla Mining Co. v. Bunker Hill Co., 101 Idaho 557, 561, 617 P.2d 861, 866 (1980) (federal law concerning the review of arbitrator's awards applies since the underlying factual situation here clearly concerns interstate commerce. Therefore we utilize the [FAA] and the cases thereunder instead of Idaho's enactment of the [UAA] . . . .); Edward D. Jones & Co. v. Schwartz, 969 S.W.2d 788 (Mo.Ct.App.1998); Dowd v. First Omaha Sec. Corp., 242 Neb. 347, 495 N.W.2d 36 (1993); and Allen & Co. v. Shearson Loeb Rhoades, Inc., 111 A.D.2d 122, 489 N.Y.S.2d 500 (1985), aff'd, 67 N.Y.2d 709, 490 N.E.2d 850, 499 N.Y.S.2d 931 (1986). In Edward D. Jones v. Schwartz, supra, the Missouri Court of Appeals concluded that the provisions of § 10 represent substantive law, such that the FAA governs the instant appeal. 969 S.W.2d at 795. Arguably, a similar approach is implicit in Fuller Construction, Maxus, and Mason, supra, but we need not stumble over the distinction between substantive law and procedural law in this particular context. This Court has adopted 9 U.S.C. § 10 as applicable to an appeal of an arbitration award in this state, and we see no need to retreat from that position. (It is to be noted that the three grounds listed in § 6-6-14 for vacating an arbitration award  fraud, partiality, or corruption in making the award  are replicated in 9 U.S.C. § 10(a)(1) and (2).) In general, the nature of the exceeded powers ground is described as follows: We have consistently accorded the narrowest reading to section 10(d) [currently section 10(a)(4)], especially when it has been invoked in the context of the arbitrators' alleged failure to correctly decide a question which all concede to have been properly submitted in the first instance. Our inquiry under § 10(a)(4) thus focuses on whether the arbitrators had the power, based on the parties' submissions or the arbitration agreement, to reach a certain issue, not whether the arbitrators correctly decided that issue. DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 824 (2d Cir.1997) (internal quotation marks and citations omitted).
The ground of review based on manifest disregard of the law emerges from a comment in a 1953 opinion of the Supreme Court of the United States. In Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), the Supreme Court, after noting that the power to vacate an arbitration award under § 10 of the FAA is limited, commented that [i]n unrestricted submission, such as the present margin agreements envisage, the interpretations of the law by the arbitrators[,] in contrast to manifest disregard[,] are not subject, in the federal courts, to judicial review for error in interpretation. 346 U.S. at 436-37, 74 S.Ct. 182 (footnote omitted). That comment was essentially dictum; the expression manifest disregard of the law did not resurface in the writings of any of the Justices, in the context of arbitration procedures, until Justice Stevens made reference to it in his dissent in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 656-57, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). Justice Stevens observed that [a]rbitration awards are only reviewable for manifest disregard of the law, 9 U.S.C. §§ 10, 207, and the rudimentary procedures which make arbitrations so desirable in the context of a private dispute often mean that the record is so inadequate that the arbitrator's decision is virtually unreviewable. (Footnote omitted.) In Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), the Supreme Court concluded that the rationales recited by the Wilko Court in its decision on the merits reflected a general suspicion of the desirability of arbitration difficult to reconcile with the Court's subsequent decisions involving the FAA and with intervening regulatory developments. The Court therefore refused to extend Wilko's reasoning. 482 U.S. at 234, 107 S.Ct. 2332. The Court did observe, however, that there is no reason to assume at the outset that arbitrators will not follow the law. 482 U.S. at 232, 107 S.Ct. 2332. Justice Blackmun concurred in part and dissented in part, joined by Justices Brennan and Marshall, stating in the process that [j]udicial review [of arbitration awards] is still substantially limited to the four grounds listed in § 10 of the [FAA] and to the concept of the `manifest disregard' of the law. 482 U.S. at 459, 107 S.Ct. 2502. In 1989, the Court expressly overruled Wilko in Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989), holding that Wilko had been incorrectly decided as a result of the Wilko Court's outmoded suspicion of arbitration as a method of resolving disputes. The Supreme Court rehabilitated the Wilko concept of manifest disregard of the law, however, by the following statement in its unanimous opinion in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995): The party [who has agreed to arbitrate] still can ask a court to review the arbitrator's decision, but the court will set that aside only in very unusual circumstances. See, e.g., 9 U.S.C. § 10 (award procured by corruption, fraud, or undue means; arbitrator exceeded his powers); Wilko v. Swan, 346 U.S. 427, 436-37 (1953) (parties bound by arbitrator's decision not in `manifest disregard' of the law), overruled on other grounds, Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989). In none of these cases, however, did the Supreme Court discuss the meaning of manifest disregard of the law, except to the extent of the discrimination in Wilko between interpretations of the law and error in interpretation, on the one hand, and manifest disregard of the law, on the other. 346 U.S. at 436, 74 S.Ct. 182. Thus, lower courts have been left to tease out the meaning of that phrase. When the United States Court of Appeals for the Eleventh Circuit elected to adopt the manifest-disregard-of-the-law standard in Montes v. Shearson Lehman Bros., 128 F.3d 1456, 1460 (11th Cir.1997), it observed that every other circuit except the Fifth (which has declined to adopt any non-statutory grounds for vacating arbitration awards), [7] has expressly recognized that `manifest disregard of the law' is an appropriate reason to review and vacate an arbitration panel's decision. The Montes court emphasized that the Supreme Court had reiterated in First Options, supra, that a party to arbitration can obtain relief from a federal court where the arbitration award was made in manifest disregard of the law. 128 F.3d at 1460. The court consequently concluded that a manifest disregard for the law, in contrast to a misinterpretation, misstatement or misapplication of the law, can constitute grounds to vacate an arbitration decision. 128 F.3d at 1461-62. In embracing the standard, the court emphasized that [a]n arbitration board that incorrectly interprets the law has not manifestly disregarded it. It has simply made a legal mistake. To manifestly disregard the law, one must be conscious of the law and deliberately ignore it. 128 F.3d at 1461. It may now be said that every federal circuit has expressly recognized manifest disregard of the law as a basis for vacating an arbitration award. Representative cases are as follows: First Circuit  Bull H.N. Info. Sys., Inc. v. Hutson, 229 F.3d 321 (1st Cir.2000); JCI Communications, Inc. v. International Bhd. of Elec. Workers, Local 103, 324 F.3d 42 (1st Cir.2003). Second Circuit  Halligan v. Piper Jaffray, Inc., 148 F.3d 197 (2d Cir.1998); GMS Group, LLC v. Benderson, 326 F.3d 75 (2d Cir.2003); Duferco Int'l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383 (2d Cir.2003); Hoeft v. MVL Group, Inc., 343 F.3d 57 (2d Cir.2003). Third Circuit  United Transp. Union Local 1589 v. Suburban Transit Corp., 51 F.3d 376 (3d Cir.1995) (the manifest-disregard-of-the-law standard was mentioned only in a quote from an earlier Third Circuit case quoting other labor-law cases that are accorded a special status in the area of arbitration); Tanoma Mining Co. v. Local Union No. 1269, 896 F.2d 745 (3d Cir.1990); Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287 (3d Cir.2001). Fourth Circuit  Upshur Coals Corp. v. United Mine Workers of America, Dist. 31, 933 F.2d 225 (4th Cir.1991); Remmey v. PaineWebber, Inc., 32 F.3d 143 (4th Cir.1994); Gallus Invs., L.P. v. Pudgie's Famous Chicken, Ltd., 134 F.3d 231 (4th Cir.1998). Fifth Circuit  Williams v. Cigna Fin. Advisors, Inc., 197 F.3d 752 (5th Cir.1999); Prestige Ford v. Ford Dealer Computer Servs., Inc., 324 F.3d 391 (5th Cir.2003); Bridas S.A.P.I.C. v. Government of Turkmenistan, 345 F.3d 347 (5th Cir.2003). Sixth Circuit  Glennon v. Dean Witter Reynolds, Inc., 83 F.3d 132 (6th Cir.1996); M & C Corp. v. Erwin Behr GmbH & Co., KG, 87 F.3d 844 (6th Cir.1996); Dawahare v. Spencer, 210 F.3d 666 (6th Cir.2000); Nationwide Mut. Ins. Co. v. Home Ins. Co., 330 F.3d 843 (6th Cir.2003). Seventh Circuit  Health Servs. Mgmt. Corp. v. Hughes, 975 F.2d 1253 (7th Cir.1992); Eljer Mfg. Co. v. Kowin Dev. Corp., 14 F.3d 1250 (7th Cir.1994). Eighth Circuit  Lee v. Chica, 983 F.2d 883 (8th Cir.1993); Schoch v. InfoUSA, Inc., 341 F.3d 785 (8th Cir.2003). Ninth Circuit  Barnes v. Logan, 122 F.3d 820 (9th Cir.1997); G.C. & K.B. Invs., Inc. v. Wilson, 326 F.3d 1096 (9th Cir.2003); Coutee v. Barington Capital Group, L.P., 336 F.3d 1128 (9th Cir.2003). Tenth Circuit  Jenkins v. Prudential-Bache Sec., Inc., 847 F.2d 631 (10th Cir.1988); Denver & Rio Grande Western R.R. v. Union Pacific R.R., 119 F.3d 847 (10th Cir.1997). Eleventh Circuit  Montes, supra; Scott v. Prudential Sec., Inc., 141 F.3d 1007 (11th Cir.1998). D.C. Circuit  Sargent v. Paine Webber Jackson & Curtis, Inc., 882 F.2d 529 (D.C.Cir.1989); Kanuth v. Prescott, Ball & Turben, Inc., 949 F.2d 1175 (D.C.Cir.1991). As exemplified by the variety of settings out of which arbitration cases come to this Court, mandatory arbitration clauses, which traditionally were utilized almost exclusively in the securities industry and arm's-length commercial transactions, are now prevalent in a variety of other areas, including employment, insurance policies, nursing home admissions, automobile purchases, and manufactured-home purchases. One need only consider the complexity of legal theories and the large sums of money involved in the cases now before us to realize that failure to provide the additional, albeit extremely limited, nonstatutory ground of review of a manifest disregard of the law for the review of an arbitration award could potentially conflict with the goals and policies of the FAA. Carte blanche judicial approval of decisions rendered by arbitrators not shown to have been guilty of fraud, partiality, or corruption and not made in excess of the arbitrator's powers, but that egregiously and manifestly depart from clearly established law of which the arbitrators were patently aware, would serve only to undermine the public's confidence in the arbitration process. See Saturn Constr. Co. v. Premiere Roofing Co., 238 Conn. 293, 305, 680 A.2d 1274, 1281 (1996). Like the federal courts of appeals discussed earlier, many state appellate courts have elected to adopt the manifest-disregard-of-the-law standard as a legitimate standard for review of arbitration awards. See, e.g., Saturn Constr. Co. v. Premier Roofing Co., 238 Conn. 293, 680 A.2d 1274 (1996); Amerispec Franchise v. Cross, 215 Ga.App. 669, 452 S.E.2d 188 (1994); Hecla Mining Co. v. Bunker Hill Co., 101 Idaho 557, 617 P.2d 861 (1980); Welch v. A.G. Edwards & Sons, Inc., 677 So.2d 520, 524 (La.Ct.App. 4th Cir.1996) (The doctrine implies that the arbitrator appreciates the existence of clearly governing legal principle but decides to ignore or pay no attention to it.) Edward D. Jones & Co. v. Schwartz, 969 S.W.2d 788 (Mo.Ct.App.1998); Geissler v. Sanem, 285 Mont. 411, 949 P.2d 234 (1997); Graber v. Comstock Bank, 111 Nev. 1421, 1428, 905 P.2d 1112, 1116 (1995) (ground established when arbitrators appreciate the significance of clearly governing legal principles but decide to ignore or pay no attention to those principles. The governing law alleged to have been ignored must be well-defined, explicit, and clearly applicable. (Citations omitted.)) Sawtelle v. Waddell & Reed, Inc., 304 A.D.2d 103, 754 N.Y.S.2d 264 (2003); Altieri v. Liberty Mut. Ins. Co., 697 A.2d 1104 (R.I.1997); City of Madison v. Madison Prof. Police Officers Ass'n, 144 Wis.2d 576, 425 N.W.2d 8 (1988); and Employers Ins. of Wausau v. Certain Underwriters at Lloyd's London, 202 Wis.2d 673, 689, 552 N.W.2d 420, 426 (Wis.Ct.App.1996) (our supreme court noted that [the Wisconsin statutory counterpart to FAA § 10] echoes the common law standards, implying that if an arbitrator manifestly disregarded the law, the arbitrator exceeded the scope of his powers, requiring vacatur under [that counterpart]). See also Buzas Baseball, Inc. v. Salt Lake Trappers, Inc., 925 P.2d 941, 951 (Utah 1996) (discussing nature of doctrine of manifest disregard of the law, and opining that [i]f arbitrators manifestly disregard the law in making their award, they can be said to have exceeded their authority, but reserving the issue whether the ground was recognized in Utah because there was no evidence indicating that the arbitration panel manifestly disregarded any aspect of the law). This Court joins the majority of other state appellate courts that have considered the matter in now recognizing manifest disregard of the law as a ground available for reviewing an arbitration award. As have all other courts, state and federal, that have recognized this ground, however, we emphasize that judicial review under it is severely limited and that the party challenging an award on this ground bears a heavy burden. GMS Group, LLC v. Benderson, supra; Prestige Ford v. Ford Dealer Computer Servs., Inc., supra; Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d 418, 421 (6th Cir.1995); Hoffman v. Cargill, Inc., 236 F.3d 458, 461 (8th Cir.2001); Montes v. Shearson Lehman Bros., supra; Edward D. Jones v. Schwartz, supra. Although there are variations of the standard as formulated by the various courts, those formulations share the commonality that an arbitration award should be vacated only if the arbitrators knew of a well-defined and explicit governing legal principle, clearly applicable to the circumstances at hand, yet chose to ignore that principle or refused to apply it. [A] party seeking to vacate an arbitration award on the basis of manifest disregard of the law must satisfy a two-pronged test. The party must prove that: `(1) the arbitrator[] knew of a governing legal principle yet refused to apply it or ignored it all together, and (2) the law ignored by the arbitrator[] was well defined, explicit, and clearly applicable to the case.' Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 202 (2d Cir.1998) (citation omitted). Hoeft v. MVL Group, Inc., 343 F.3d at 69. When faced with questions of law, an arbitration panel does not act in manifest disregard of the law unless (1) the applicable legal principle is clearly defined and not subject to reasonable debate; and (2) the arbitrators refuse to heed that legal principle. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d at 421. `Manifest' means `[e]vident to the senses, especially to the sight, obvious to the understanding, evident to the mind, not obscure or hidden, and is synonymous with open, clear, visible, unmistakable, undubitable, indisputable, evident, and self-evident.' Black's Law Dictionary 962 (6th ed. 1990). See also American Heritage Dictionary of the English Language 794 (New College ed. 1981) (`Clearly apparent to the sight or understanding; obvious.'). `Disregard,' in turn, means `[t]o treat as unworthy of regard or notice; to take no notice of; to leave out of consideration; to ignore; to overlook; to fail to observe,' Black's Law Dictionary at 472; see also American Heritage Dictionary at 381 (`To pay no attention or heed to; fail to consider; ignore.'). An arbitration board that incorrectly interprets the law has not manifestly disregarded it. It has simply made a legal mistake. To manifestly disregard the law, one must be conscious of the law and deliberately ignore it. See O.R. Sec.[, Inc. v. Professional Planning Assocs., Inc.], 857 F.2d [742] at 747 [(11th Cir.1988)] (`there must be some showing in the record, other than the result obtained, that the arbitrators knew the law and expressly disregarded it.').... We conclude that a manifest disregard for the law, in contrast to a misinterpretation, misstatement or misapplication of the law, can constitute grounds to vacate an arbitration decision. We emphasize again that this ground is a narrow one. Montes, 128 F.3d at 1461-62 (footnote omitted). To avoid summary confirmation of an arbitration award, a party must show that `a governing legal principle is well defined, explicit, and clearly applicable to the case, and ... the arbitrator ignored it after it was brought to the arbitrator's attention in a way that assures that the arbitrator knew its controlling nature.' GMS Group, LLC, 326 F.3d at 81 (quoting Goldman v. Architectural Iron Co., 306 F.3d 1214, 1216 (2d Cir.2002)). Manifest disregard of the law means something more than just an error in the law or a failure on the part of the arbitrators to understand or apply the law. It must be clear from the record that the arbitrators recognized the applicable law and then ignored it. There is no manifest disregard of the law where an arbitration panel distinguishes prior caselaw from the situation before them, or where there is substantial authority sustaining the arbitrators' assumption as to the law. Under the manifest disregard of the law standard of review, in order to prove that the arbitrator both recognized and ignored the applicable law, there must be a showing in the record other than the result reached by the arbitrator. 1 Gabriel M. Wilner, Domke on Commercial Arbitration § 38:9 (footnotes, citing to supporting caselaw, omitted). In Montes, supra, in deciding to depart from precedent, [8] the Eleventh Circuit Court of Appeals made the following pertinent observations: When a claim arises under specific laws, however, the arbitrators are bound to follow those laws in the absence of a valid and legal agreement not to do so. As the Supreme Court has stated, `[b]y agreeing to arbitrate a statutory claim, a party does not [forgo] the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.' Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 1652, 114 L.Ed.2d 26 (1991)(quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 3354-55, 87 L.Ed.2d 444 (1985)). Similarly, in Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), the Court stated `we have indicated that there is no reason to assume at the outset that arbitrators will not follow the law; although judicial scrutiny of arbitration awards necessarily is limited, such review is sufficient to ensure that arbitrators comply with the requirements of the statute,' id. at 232, 107 S.Ct. at 2340 (citing to and summarizing Mitsubishi Motors ). This does not mean that arbitrators can be reversed for errors or misinterpretations of law. In Wilko v. Swan, 346 U.S. 427, 436-37, 74 S.Ct. 182, 187-88, 98 L.Ed. 168 (1953), overruled on other grounds, Rodriguez de Quijas v. Shearson/American Exp., Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989), the Supreme Court indicated that although an erroneous interpretation of the law would not subject an arbitration award to reversal, a clear disregard for the law would. As the Wilko court stated, `[i]n unrestricted submission,. . . the interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation.' Wilko, 346 U.S. at 436-37, 74 S.Ct. at 187-88 (citation omitted). The Supreme Court has recently reiterated that a party that submits to arbitration may obtain relief from a federal court `only in very unusual circumstances,' but that a party to arbitration can obtain relief from a federal court where the arbitration award was made in manifest disregard of the law. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942, 115 S.Ct. 1920, 1923, 131 L.Ed.2d 985 (1995) (citing to Wilko ). 128 F.3d at 1459-60. Having considered all of the variations in wording of the standard different courts have employed, we find the most succinct statement of the standard to be as phrased by the United States Court of Appeals for the Second Circuit, in Halligan, 148 F.3d at 202: a party seeking to vacate an arbitration award on the basis of manifest disregard of the law must establish that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case, [9] citing DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 821 (2d Cir.1997); see also Hoeft, 343 F.3d at 69.
The News, in addition to asserting that the arbitrators exceeded their powers and acted in manifest disregard of the law, claims that each award fails to derive its essence from the underlying contract, was arbitrary and capricious, and was completely irrational. See William H. Hardie, Arbitration: Post-Award Procedures, 60 Ala. Law. 314, 322-23, for a general discussion of these grounds. We decline the News's invitation to adopt any of these other grounds of review. We deem these grounds too vague for application in the context of arbitration awards where the arbitrators have neither exceeded their powers nor manifestly disregarded the law. Professor Stephen L. Hayford, a recognized authority on judicial review of arbitration awards, after noting that only a few federal circuits have adopted these grounds, offered the following thoughtful analysis of their problematical nature: The case law from the several federal courts of appeals embracing the `other' nonstatutory grounds for vacatur reveals no unifying theory explaining or justifying that judicial tack. Nevertheless, it seems clear that the three nonstatutory grounds for vacatur of commercial arbitration awards beyond the `manifest disregard of the law' and `public policy' grounds are largely the product of judicial efforts to draw a line between `routine' arbitral missteps that do not warrant vacatur of the award and arbitral errors of law, contract interpretation, or fact so calamitous as to compel a reviewing court to intervene, presumably in the name of justice, and overturn the arbitral result. . . . . . . . The undisciplined approach to judicial decisionmaking reflected in the case law recognizing the `other' nonstatutory grounds for vacatur gives rise to the second primary problem they present. The mode of analysis described above has produced a number of imprecise legal standards that furnish the lower courts and the practicing bar with little useful guidance in their tasks of distinguishing between commercial arbitration awards that are seriously flawed and therefore likely subject to vacatur and those that are not. . . . Judicial attempts to clarify the precise parameters of a court's inquiry under the `other' nonstatutory grounds reflected in the case law reviewed above invariably fail to provide the lower courts and the commercial arbitration bar with objective, easily identifiable standards for determining when a petition for vacatur should succeed. Instead, these opinions have done little more than furnish rhetorical `hooks' for efforts at securing reversal of the offending arbitration awards. The preceding review of the relevant case law demonstrates that attempts at achieving vacatur under the `other' nonstatutory grounds are almost always futile. Why courts, when presented with petitions for vacatur intoning one or more of the `other' nonstatutory grounds, do not simply note that the standard(s) relied upon by the petitioner is (are) nowhere contemplated in the FAA or the law of commercial arbitration and then proceed to summarily dismiss the underlying petitions is puzzling indeed. Instead, the courts recognizing these grounds typically engage in an analysis of the cited ground for vacatur, endeavor to fashion standards for distinguishing between awards that warrant vacatur and those that do not, and then note that the articulated test for vacatur is not satisfied. After a circuit first addresses one of the `other' nonstatutory grounds, advocates who wish to take issue with the merits of an unfavorable commercial arbitration award are provided with ready-made commercial arbitration case authority upon which to base such a challenge. Given the imprecise, highly subjective character of the `arbitrary and capricious award,' the `clearly irrational award,' and the `essence of the agreement' standards, it is not surprising that a party dissatisfied with a commercial arbitration award often finds irresistible the temptation to attempt to convince a reviewing court that the arbitrator's resolution of the dispute before him was so seriously marred by an error of law, contract, or fact as to warrant vacatur in the interest of justice. Until the federal courts of appeals that have adopted the `other' nonstatutory grounds squarely confront and address this reality and the highly dubious presumption of an identity between commercial and labor arbitration, the destabilizing effect of these constructs on commercial arbitration is certain to limit the move toward institutionalizing the commercial arbitration process as a viable and effective substitute for traditional litigation. (Emphasis added.) Stephen L. Hayford, A New Paradigm for Commercial Arbitration: Rethinking the Relationship Between Reasoned Awards and the Judicial Standards for Vacatur, 66 Geo. Wash. L.Rev. 443, 489-93 (1998).