The grounds for vacating an arbitration award under the Federal Arbitration Act (“FAA”) are limited. For decades, however, parties have raised manifest disregard of the law as a ground for vacatur. Many courts have limited or rejected manifest disregard as a basis to vacate an arbitration award. In a recent decision, the Fifth Circuit Court of Appeals in a non-reinsurance case has relegated manifest disregard to the dustbin of history.
Read more: Fifth Circuit Definitively Rejects Manifest Disregard As a Ground for Vacatur of an Arbitration AwardIn United States Trinity Energy Services, L.L.C. v. Southeast Directional Drilling, L.L.C., No. 24-10823 (5th Cir. Apr. 28, 2025), parties to a pipeline construction contract arbitration cross-petitioned to confirm and vacate a final award. The Texas District Court denied the petition to vacate and granted the petition to confirm. The losing party appealed to the 5th Circuit on this basis:
Trinity Energy appeals on the grounds that “the arbitration panel
exceeded its authority and acted in manifest disregard of the law.” The
contractor specifically contends the arbitration panel “failed to harmonize
numerous subcontract provisions limiting Trinity’s obligation to pay
Southeast’s standby costs.”
In affirming the order confirming the arbitration award, the circuit court flatly rejected manifest disregard of the law as a basis for vacating an arbitration award under the FAA. The court stated what we all know: vacating an arbitration award happens only in very unusual circumstances and that judicial review of an arbitration award is extraordinarily narrow.
The court noted that only limited circumstances allow for vacatur of an arbitration award. Indeed, stated the court, Section 10 of the FAA provides the exclusive statutory grounds. In addressing the argument that the arbitration panel exceeded its powers, the court held as follows:
The final award reveals the arbitration panel reviewed the evidence presented, considered the effects of various provisions in the subcontract, and concluded that Trinity Energy
owed Southeast Drilling for stand-by costs. Vacatur is therefore unjustified under § 10(a)(4) because Trinity Energy failed to show the arbitration panel exceeded its powers by disregarding the subcontract entirely. The parties bargained for this dispute resolution arrangement, and we conclude this arbitration panel’s “construction holds, however good, bad, or ugly.” (citations omitted).
Getting to manifest disregard, the court noted that manifest disregard is not one of the statutorily enumerated grounds for vacatur and articulated the appellant’s argument as follows:
Although “manifest disregard of the law” is not a freestanding ground for vacatur of an arbitration award in our circuit (citation omitted), Trinity Energy alleges that manifest disregard of the law remains viable “as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10.” In other words, Trinity Energy essentially ignores its inapplicability as an independent basis while simultaneously attempting to subterfuge this non-statutory ground for vacatur within § 10(a)(4).
This the court rejected, holding that “[o]ur court has never held that “manifest disregard of the law” is a basis to establish that arbitrators “exceeded their powers” under § 10(a)(4).”
In short, we cannot substitute a court panel’s judgment in place of an arbitration panel’s decision by recognizing “manifest disregard of the law” as a basis for vacatur embedded within § 10(a)(4).
In the Fifth Circuit, any attempt to use manifest disregard as a basis to vacate an arbitration award will fail. Of course, this applies to arbitration awards rendered in reinsurance disputes as much as any other commercial arbitration.
