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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: October 26, 2018

Court Refuses to Vacate Arbitral Award for Manifest Disregard of the Law

On October 2, 2018, Justice Ramos of the New York County Commercial Division issued a decision in NSB Advisors, LLC v. C.L. King & Assoc., Inc., 2018 NY Slip Op. 32533(U), refusing to vacate an arbitral award for manifest disregard of the law, explaining:

It is well settled that judicial review of arbitration awards is extremely limited. An arbitration award must be upheld when the arbitrator offers even a barely colorable justification for the outcome reached. Indeed, we have stated time and again that an arbitrator’s award should not be vacated for errors of law and fact committed by the arbitrator. and the courts should not assume the role of overseers to mold the award to conform to their sense of justice. A party seeking to vacate an arbitration award therefore faces a heavy burden.

This approach is only limited by exceptional circumstances. Under Section 10 of the FAA, an award can be vacated on grounds involving fraud, corruption or misconduct of the arbitrators. These grounds do not apply here. Under federal law, an arbitration award may also be vacated where it exhibits a manifest disregard of the law.

While Petitioner NSB moves to confirm the Award, CL King contends that the Award was issued in manifest disregard of the law. To vacate an arbitration award on this basis, a court must find that (1) the arbitration panel knew of a governing law yet refused to apply it or ignored it, and (2) the governing law was well defined, explicit, and clearly applicable.

The manifest disregard of the law doctrine is severely limited and offers extreme deference to arbitrators. An arbitration award should be enforced even if there is only a barely colorable justification for the outcome reached. A party challenging confirmation of an arbitration award carries the burden of showing that no reading of the facts can support the arbitration award. Judicial relief on this basis is rare.

An explicit rejection of controlling precedent can constitute manifest disregard of the law. As can a decision that is logically impossible. But manifest disregard of the facts is not a permissible ground for vacatur of an award. Likewise, an arbitral panel’s refusal or neglect to apply a governing legal principle clearly means more than error or misunderstanding with respect to the law.

(Internal quotations and citations omitted) (emphasis added).

Commercial litigation involves more than courts. Disputes often are–by agreement–decided by private arbitrators. And as this decisions shows, the decisions of those arbitrators are subject to only very limited review by the courts. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.

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