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Abstract

The Federal Arbitration Act (FAA) enables parties to obtain quick and final resolution to disputes without incurring the costs, delays, and occasional publicity of litigation. Indeed, section 10 of the FAA enumerates four specific grounds on which courts may vacate arbitral awards: corruption, fraud, impartiality, and misconduct or incompetence. Yet over the past 60 years, a debate has raged over the existence of an additional ground: the arbitrator’s manifest disregard of the law.

The Supreme Court first enounced this standard in dicta in its 1953 decision in Wilko v. Swan. Over next four decades, every federal circuit court slowly adopted the standard as binding law. However, in 2008, the Court cast doubt on the standard’s universal acceptance when it issued its decision in Hall Street Associates, L.L.C. v. Mattel, Inc. The majority in Hall Street questioned whether Wilko’s use of the term “manifest disregard” merely referred to the aggregate effect of the enumerated section 10 grounds rather than a new standard of review. The Court’s equivocation has inevitably led to a circuit split, with three circuits permitting vacatur based on an arbitrator’s manifest disregard of the law, four circuits holding that Hall Street invalidated the manifest disregard standard, another circuit holding that the standard both is and is not valid, and four circuits refusing to decide the issue altogether.

This Article examines the evolution of the manifest disregard standard and the ramifications of Hall Street, including the current circuit split and the practical effect of the standard’s availability on arbitration decisions at both the federal and state levels. The Article asserts that until the Supreme Court addresses the issue, an incentive to shop for a jurisdiction that entertains a manifest disregard challenge will exist, thereby defeating the bedrock principle of the FAA: finality.

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