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In affirming an arbitration award issued in connection with a divorce proceeding, the Louisiana Court of Appeals held that “manifest disregard of the law” is not a legitimate basis for challenging an arbitration award.
In Wittich v. Wittich, No. 06-CA-418, 2006 WL 3421252 (La. Ct. App. Nov. 28, 2006), Beverly and Rainer Wittich divorced after twenty-three years of marriage. They stipulated to a division of community property, specifically agreeing not to partition their stock in The Brinson Company (Brinson). Rainer had acquired the Brinson stock by buying it from his father. Under the sales agreement, if Rainer predeceased his father, the agreement would terminate, and the stock would revert back to his father.
The stipulation entered into by Beverly and Rainer provided for arbitration, and several years after the divorce, the parties submitted a dispute to arbitration. The arbitrator issued an award finding that Beverly was entitled to an immediate partition of the Brinson stock.
Rainer filed a motion to vacate the award, arguing that the arbitrator’s decision that Beverly had a right to an immediate partition was in “manifest disregard of the law” because Rainer’s purchase of the Brinson stock would not be complete until his father died. The trial court denied Rainer’s motion and confirmed the award.
On appeal, Rainer again argued that the arbitrator’s award should be vacated for manifest disregard of the law. The Court did not even entertain this argument, noting that “[m]anifest error is not a judicially recognized ground for vacating or modifying an arbitration award.” In essence, the Court held that there are no common law grounds for vacating an award.
One of the judges wrote a dissenting opinion noting that Louisiana courts have previously recognized manifest disregard of the law as “a judicially created ground for vacating an arbitration award.” The dissenting judge further concluded that the award should have been vacated.
Though most courts treat manifest disregard of the law as a common law basis for vacating an arbitration award, some courts treat it as an instance of arbitrators exceeding their powers, which is a statutory basis for vacating an award. 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.’”); U.S. ex rel. Watkins v. AIT Worldwide Logistics, Inc., 441 F.Supp.2d 762 (E.D. Va. 2006).
Other courts have found that arbitrators exceeded their powers by misapplying the law without any reference to the “manifest disregard of the law” standard. See Smith v. Palm Harbor Homes, Inc., No. 05 CA 31, 2006 WL 3199608 (Ohio Ct. App. Nov. 6, 2006).
Ordinarily, this approach applies only if the parties have agreed that the arbitrator must follow the law, see, e.g., Rule 20D of the National Arbitration Forum Code of Procedure, or have placed similar limitations on the arbitrator’s authority. See KeyClick Outsourcing, Inc. v. Ochsner Health Plan, Inc., No. 06-CA-359, 2006 WL 3094077 (La. Ct. App. Oct. 31, 2006); Gueyffier v. Ann Summers, Ltd., 50 Cal.Rptr.3d 294 (Cal. Ct. App. Oct. 26, 2006).
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