We all know how difficult it is to obtain a vacatur of an arbitration award, and the Sixth Circuit’s decision yesterday in Schafer v. Multiband Corp. only underscores the point. The case involved an indemnification issue considered against the backdrop of ERISA. Although the Sixth Circuit recognized that the arbitrator’s decision was clearly wrong under existing Sixth Circuit precedent, it nevertheless reversed the district court’s decision to vacate that award as a manifest disregard of the law.
The Sixth Circuit’s opinion, written by Judge Rogers, was unpublished and expressly noted the uncertainly as to whether manifest disregard of the law remained a viable basis for vacating an arbitrator’s award. However, it concluded that it did not need to reach this issue because even if the legal standard endured, the proponent of vacatur in this case would be unable to satisfy it. Despite the fact that the arbitrator declined to follow Sixth Circuit precedent on ERISA and indemnification, the Court held this to be not enough to satisfy the manifest disregard of the law standard. In so ruling, the Sixth Circuit seemed particularly cognizant of the potential ramifications for a contrary result: “Legal error by the arbitrator – even clear legal error – is however not by itself sufficient for vacatur of an arbitration agreement. One of the advantages of arbitration is the avoidance of the expensive appeals, and the avoidance of such costs would be undermined by permitting appeals based on clear error of law.” As a result, any manifest disregard of the law standard “has to be very narrow.”
This opinion is yet another reminder of the uphill battle that parties face in seeking to vacate an arbitration award – even when you have binding Sixth Circuit authority on your side.
