In construing the Supreme Court’s recent decision in Hall Street, a federal district court in Minnesota found that "manifest disregard of the law" is no longer a viable basis for vacating an arbitration award under the Federal Arbitration Act. Accordingly, the Court did not even entertain a "manifest disregard" challenge to an arbitration award.

In Prime Therapeutics LLC v. Omnicare, Inc., No. 08-375, 2008 WL 2152207 (D. Minn. May 21, 2008), Prime Therapeutics (Prime) and Omnicare entered into a Pharmacy Network Agreement (the Agreement) whereby Omnicare, a pharmacy chain, would check with Prime, a benefits manager, to see whether an individual seeking a prescription was exempt from any copayment obligations under the Medicare Part D program.

The eligibility data, which was supplied by the Centers for Medicare and Medicaid Services (CMS), was not always current. As such, CMS instructed plan sponsors to make eligibility determinations using a Best Available Evidence (BAE) policy. When Omnicare sought reimbursement on copayments for individuals who were believed to be eligible for the Part D program but were ineligible according to the CMS data, Prime denied reimbursement, arguing that Omnicare had to support is reimbursement claim using BAE.

Omnicare filed an arbitration claim pursuant to the Agreement. The arbitrator found that Prime, not Omnicare, was responsible for the BAE showing. Accordingly, the arbitrator ordered Prime to reimburse Omnicare for the copayments. Prime filed a motion to vacate the arbitration award, arguing (1) that the arbitrator exceeded their powers and (2) that the arbitrator’s decision was in manifest disregard of the law.

The Court held that manifest disregard of the law is no longer a viable basis for vacatur in wake of Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S.Ct. 1396 (2008), in which the Supreme Court held that where the Federal Arbitration Act (FAA) applies, the statutory grounds for vacatur are exclusive. Accordingly, the Court rejected, without further analysis, Prime’s argument that the award should be vacated for manifest disregard of the law.

The Court also rejected Prime’s argument that the arbitrator exceeded their powers by "invad[ing] CMS’s exclusive authority to determine eligibility for copayment subsidies." In rejecting this argument, the Court explained that under the parties’ arbitration agreement, the arbitrator had authority to decide all questions of law.

In this case, the Court construed Hall Street as though it foreclosed manifest disregard of the law as a basis for vacatur. There is a competing interpretation that is equally plausible, if not more persuasive. Under this competing interpretation, manifest disregard of the law remains a viable basis for vacatur, but one derived from the FAA grounds for vacatur – either collectively or as an instance of the arbitrator exceeding their powers.

This alternate approach to manifest disregard, which actually antedates Hall Street, is premised on the notion that an arbitrator does not have authority to disregard a governing legal principle that is brought to arbitrator’s attention. See Wise v. Wachovia Securities, LLC, 450 F.3d 265, 268 (7th Cir. 2006) ("[W]e have defined ‘manifest disregard of the law’ so narrowly that it fits comfortably under the first clause of the fourth statutory ground – ‘where the arbitrators exceeded their powers.’").