Opinion ID: 29604
Heading Depth: 5
Heading Rank: 3

Heading: Vacatur of Arbitration Award to Affiliates

Text: In the Affiliates’ Lawsuit, the district court ignored the waiver of appeal, ignored our long-standing rejection of manifest disregard of the law as grounds for vacatur in commercial contract cases, and proceeded to consider the merits of the arbitration award against the TransAtlantic Affiliates under the manifest error doctrine, ultimately reversing the arbitration ruling and vacating the award. It is anything but clear, however, that we have ever 8 See supra n.3. 13 accepted the manifest error doctrine as a ground for vacating arbitration awards in commercial contract cases in which the substantive law of Texas is applicable under the Federal Arbitration Act (“FAA”). Indeed, we expressly rejected that doctrine in McIlroy v. PaineWebber, Inc.9 and R.M. Perez & Associates., Inc. v. Welch.10 Those precedents not only recognize the exclusivity of the list of four grounds for vacatur expressly set forth in § 10 of the FAA, to wit, (1) The award was procured by corruption, fraud, or undue means; (2) there is evidence of partiality or corruption among the arbitrators; (3) the arbitrators were guilty of misconduct which prejudiced the rights of one of the parties; or (4) the arbitrators exceeded their powers.11 They also eschew manifest disregard as either an additional ground for vacatur or a manifestation of arbitrator misconduct. We acknowledge that the subsequent statement in Williams v. Cigna Financial Advisers, Inc.,12 to the effect that “clear approval of the ‘manifest disregard’ of the law standard in the review of arbitration awards under the FAA” was signified by the Supreme 9 989 F.2d 817, 820 n.2 (5th Cir. 1993)(noting this circuit’s refusal to adopt manifest disregard for the law as a ground for vacatur). 10 960 F.2d 534, 539 (5th Cir. 1992)(“[T]his circuit never has employed a ‘manifest disregard of the law’ standard in reviewing arbitration awards”). 11 See id. at 540 (quoting Forsyth Int’l, S.A. v. Gibbs Oil Co. of Texas, 915 F.2d 1017, 1020 (5th Cir. 1990)). 12 197 F.3d 752, 759 (5th Cir. 1999). 14 Court in First Options,13 sent a somewhat conflicting signal by referring to dicta included in the parenthetical citation to an earlier case. The above-quoted statement from Williams is likewise dicta, as the controversy there involved employment discrimination, to which a different standard might apply. Furthermore, the arbitration award in that case was affirmed, not vacated. But even if the subject pronouncement in Williams were not dicta and no distinction could be drawn on the basis of that being an employment case, we would remain bound to follow the pronouncements in Perez and McIlroy as earlier precedents,14 in the absence of an unequivocal and unambiguous reversal by the Supreme Court —— and, we cannot read First Options to qualify as such for issues such as those under consideration here. It is no longer necessary to repeat the jurisprudential authority for the universally recognized proposition that arbitration is favored. When it comes to an order of the district court that vacates an arbitration award, our review is plenary.15 And, in conducting our plenary review, we defer to the arbitrator’s 13 First Options of Chicago, Inc. v. Kaplan, 517 U.S. 938, 942 (1995). 14 See Smith v. Penrod Drilling Corp., 960 F.2d 456, 459 n. 2 (5th Cir. 1992)(acknowledging that the earlier of prior conflicting panel decisions control). 15 Forsythe Int’l, S.A. v. Gibbs Oil Co. of Texas, 915 F.2d 1017, 1020-21 (5th Cir. 1990). 15 resolution of the dispute whenever possible.16 But even if we were to assume arguendo that the district court did not err in applying the manifest error standard (or that we could affirm for other reasons by applying, de novo, one of the four standards of § 10 of the FAA), we would reverse that court’s vacatur in the Affiliates Lawsuit. As noted, the Agreement specifies that the substantive law of Texas is controlling. Without reiterating the extensive case law cited by the parties in their respective appellate briefs, we are convinced that the arbitrator’s award against the TransAtlantic Affiliates cannot be reversed and vacated on the basis of manifest disregard of Texas law. If we were authorized to review the substance of the arbitrator’s award under a less deferential standard, we, like the district court, might find the damages too speculative; but we have no such authority and neither did the district court. Furthermore, even if we were to conclude that, under the evidence here, the damages awarded by the arbitrator were indeed speculative, we would not view this putative error as rising to the level of manifest disregard of the law. A difference of opinion between courts as to the degree of speculation required to cross that line does not even approach the level of egregiousness required to constitute manifest disregard; it amounts to nothing more than a difference of opinion among jurists of reason. 16 Anderman/Smith Operating Co. v. Tennessee Gas Pipeline Co., 918 F.2d 1215, 1218 (5th Cir. 1990). 16 But the boundaries of federal courts’ latitude in this respect are far too narrow to permit such a review and ruling by a court that is considering enforcement of an arbitrator’s award under circumstances such as these. Moreover, there is a surfeit of Texas common law to the effect that majority shareholders may owe a fiduciary-like duty to minority shareholders, casting significant doubt on the clarity and certainty of the Texas law applicable to this issue.17 As Texas law is, at a minimum, unclear on the underlying contractual cause of action asserted by the Plaintiffs in the instant arbitration proceedings, neither we nor the district court are legally positioned to say that the arbitrator was guilty of prejudicial misconduct, exceeded his powers, or otherwise opened his award to the possibility of reversal by the court. We repeat for emphasis that, even though we might disagree with the arbitrator’s analysis and even though we might judge the damages to be speculative, the acts of the arbitrator in this case fall well short of the kind of misconduct required to constitute grounds for vacatur. There is no hint of arbitrariness, caprice, or reckless disregard for the provisions of Texas law governing this matter. As such, the district court erred as a matter of law in vacating the arbitration award against the TransAtlantic Affiliates on grounds of arbitrator misconduct. 17 See, e.g., Patton v. Nicholas, 279 S.W.2d 848 (Tex. 1955); Davis v. Sheerin, 754 S.W.2d 375 (Tex. App.——Houston [ISD Dist.] 1988, writ denied); Duncan v. Lichtenberger, 671 S.W.2d 948 (Tex. App.——Fort Worth 1984, writ ref’d n.r.e.). 17 In summary, on the basis of the parties’ waiver of the right to appeal any aspect of an arbitration award and, alternatively, on the basis of the court’s legal errors, first in applying the manifest-disregard-of-the-law standard and then in misapplying it to the instant facts, we reverse the court’s vacatur, reinstate the award to the Bettis Affiliates, and remand for enforcement by the court after conducting any ministerial proceedings, consistent herewith, that might be needed to effectuate enforcement of the award.