by Andrew Flake
One of the classic conventions of the scary movie is a villain or monster’s “last gasp,” a frightening reappearance after what should have been an antagonist’s definitive end. In the arbitration context, we have such a creature in the doctrine of “manifest disregard,” one that parties summon and that continually tries to rise, again and again, only to receive another dose of appellate holy water or garlic. I wrote about the last such banishment, the Court of Appeals Wells opinion, and just recently, at the very end of 2021, our Supreme Court has again weighed in, again making clear that “manifest disregard” is such a narrow basis for challenge as to be virtually non-existent.
In Reinsurance, Ltd. et al. v. Interstate National Dealer Services, a contract dispute involving motor-vehicle service agreements, the losing party (INDS) challenged the arbitration award on multiple bases, including that in his interpretation of the contract’s fee struture, the arbitrator manifestly disregarded applicable law. The Supreme Court disagreed, and in an opinion by Judge Ellington, took the opportunity to emphasize that whether there are competing interpretations of a contract, whether the trial court reviewing the arbitration award would have resolved the issue differently, and even whether there was a “misapplication of law,” there is still is no “manifest disregard.”
Part of the Court’s discussion in Reinsurance, Ltd. will give you a sense of the doctrine’s disfavor:
This showing [of manifest disregard] is “an extremely difficult one to make” and requires evidence in the transcript of the arbitration proceeding (if the hearing is transcribed) or in the arbitrator’s written findings (if made) or other “concrete evidence” in the record that would indicate “a specific intent” of the arbitrator to disregard the appropriate law … For example, if an arbitration award were to make “an explicit recital of the winning party’s argument that the correct law should be ignored rather than followed,” there would be sufficiently clear evidence on the face of the award showing the arbitrator’s intent to purposefully disregard applicable law to vacate the award. [cits] On the other hand, an arbitrator who “incorrectly interprets the law has not manifestly disregarded it. [The arbitrator] has simply made a legal mistake”…Even if the reviewing court “were convinced that [it] would have decided [a] contractual dispute differently, that would not be nearly enough to set aside the [arbitrator’s] award.”
In fact, the way Georgia courts have framed the situation in which manifest disregard might occur is one that is really hard to imagine: an award in which an arbitrator expressly describes the correct legal principle, and then expressly confirms her intention not to follow it. Given that, with the number of times that stakes, burning brands, and silver bullets have hit the manifest disregard doctrine, why does it continue to come up? There’s a historical reason: Ironically, given the judicial aversion to it, it began as common law exception to the Federal Arbitration Act, one that the Georgia Legislature then wrote in to the Georgia Arbitration Act. So long as it remains in the statute, that status confers some continuing life on the doctrine, no matter how little.
And until and unless the Legislature makes a revision, its twilight existence will continue…
[The case is Reinsurance, Ltd. et al. v. Interstate National Dealer Services, Georgia Supreme Court Case No. S21G0008, 2021 WL 5893247 (decided December 14, 2021).]