The latter half of the twentieth century generated a commercial environment friendly to dispute resolution outside the judicial arena. Evolving as a creature of contract, arbitration arose from the ashes of failing business relationships to promote efficiency, economy, and finality in disagreements by placing an ultimate resolution in the hands of a third-party neutral. Federal and state governments fostered this movement by codifying arbitration standards and adopting uniform policies favoring this form of dispute management. Arbitration awards are generally unavailable for review because the process remains a private risk-management tool. Statutes provide the primary limitation on substantive inquiry into an arbitrator’s decision. Typical grounds for vacatur include corruption, fraud, awards procured by undue means, evidence of partiality, procedural deficiencies resulting from arbitrator misconduct, or arbitrators’ excessive use of power. Interestingly enough, errors of law, even those so egregious as to indicate a disregard for substantive governing principles in a particular jurisdiction, are not grounds for statutory vacatur in most jurisdictions.
A recent movement within the United States circuit courts, however, produced a common-law category of award vacatur suitable for situations in which an arbitrator acts in “manifest disregard of the law.” This trend also influences arbitration in state courts as an increasing number of jurisdictions entertain the common-law “manifest disregard” standard to evaluate vacatur requests. Courts supporting this movement prohibit arbitrators from functioning in a “legal vacuum,” and thus act in a supervisory capacity by catching material errors even where parties waived adherence to applicable principles of law. Typically, in examining whether an arbitrator “manifestly disregarded” the law, courts employ a two-part analysis, coupling the clarity of an applicable legal principle and the degree to which it was known and ignored by the arbitrator. Critics of this practice note the difficulty in uniformly applying the “manifest disregard” standard and point to its erosion of the finality and legitimacy of arbitration proceedings.
The inconsistent treatment of the “manifest disregard” standard among the states may result from judicial and legislative failure to define the standard consistently. To alleviate this obstacle, many states, including Massachusetts, prefer strict adherence to statutorily prescribed occasions for vacatur. Jurisdictions have reacted to the eroding finality of arbitration awards in four specific ways: reducing the “manifest disregard” standard to mere words that lack force; creating a “manifest disregard” subheading within the common-law realm of arbitration evaluation; utilizing the “manifest disregard” standard while disguising it as another statutory ground for vacatur; and legislatively providing for substantive review of particular errors via statute, including those made in “manifest disregard” of the applicable law.
This Note analyzes the efficacy of applying a common-law “manifest disregard of the law” award vacatur ground in jurisdictions that have not yet adopted it. Additionally, it explores the implications of applying “manifest disregard of the law” in Massachusetts, particularly in light of the state’s long history of preserving the autonomy and integrity of arbitrators’ awards. Part II begins by exploring the arbitration process and the general expectations created by entering into agreements to arbitrate. Part II continues by describing arbitration’s success as a method of alternative dispute resolution in the United States, due largely to the legitimacy and finality associated with the arbitration process. Parts II.D and II.E discuss the origin of “manifest disregard of the law,” its place in the federal common law associated with award vacatur, and its various applications in state courts. Part III examines the benefits and disadvantages of applying the “manifest disregard” standard to arbitration appeals. Part III.B weighs the practical difficulties in applying “manifest disregard” analysis to vacatur claims, and Part III.C suggests evaluating “manifest disregard” allegations using a misconduct-focused standard. . . .