A federal district court in Texas held that Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S.Ct. 1396 (2008) did not expressly decide whether the "manifest disregard" standard is a ground for vacatur separate from the statutory grounds for vacatur under the Federal Arbitration Act (FAA) or a way of summarizing multiple statutory grounds. Consequently, the Court analyzed the arbitration award both ways and upheld the award.

In Halliburton Energy Services, Inc. v. NL Industries, Nos. H-05-4160 & H-06-3504, 2008 WL 906037 (S.D. Tex. Mar. 31, 2008), an extensive, bifurcated arbitration resulted in an award in favor of Tremont. Tremont moved to confirm the award, but Halliburton moved to vacate, arguing that the arbitrators manifestly disregarded the law.

Accordingly, the Court had to examine the holding of Hall Street to decide whether it: (1) limited judicial review of arbitration awards exclusively to the statutory grounds set forth in §§ 9-11 of the FAA, which would mean that the manifest disregard standard was simply a way of summarizing two or more of those statutory grounds; or (2) still recognized the Fifth Circuit's practice of using the manifest disregard standard as a separate basis for judicial review of arbitration awards in at least some circumstances.

fter citing language from Hall Street that would indicate that the statutory grounds for judicial review are exclusive, the Court held that the Fifth Circuit's manifest disregard standard is so extremely narrow that it is not necessarily inconsistent with Hall Street. Thus, the Court decided, "out of an abundance of caution," to review the award using manifest disregard as both a summary of some of the statutory grounds and as an additional, common law ground for vacatur.

Halliburton argued that the Court manifestly disregarded Delaware law on contract interpretation because the arbitrators "created an ambiguity where none existed," and thus considered extrinsic evidence when they should not have. The Court rejected that argument, holding that the arbitrators "clearly recognized and correctly stated Delaware contract law," and "[g]iven the deferential review standard for an arbitration award, it is not appropriate for this court to second-guess the arbitrators' determinations on the issues surrounding the contract interpretation."

The Court also held that it could not vacate the award on statutory grounds. The Court held that the arbitrators did not engage in misconduct because Halliburton was not deprived of a fair hearing, and that the arbitrators did not exceed their powers because the award was rationally inferable from the contracts.

In addition, Halliburton argued that the arbitrators manifestly disregarded procedural law by deciding issues in the second phase of the bifurcated hearing that should have been decided in the first phase. The Court rejected this argument, holding that "[e]ven if a reviewing court questions the procedures the panel followed, vacatur for procedural defects may not result unless the effect was to deprive a party of due process."