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The circuit courts make up a sort of family tree if one charts their positions on extra-statutory grounds for vacating arbitration decisions. At least that’s the impression created by a June 28 decision. In Brabham v. A.G. Edwards & Sons Inc., No. 03-60679, the 5th U.S. Circuit Court of Appeals surveyed the lines of lineage and the family squabbles. At the root is a group of Supreme Court cases interpreting the Federal Arbitration Act (FAA). The act was passed in 1925 to give arbitration a secure footing against widespread judicial opposition. For the most part, the act instructs the courts to take a hands-off approach to arbitration. That is, in reviewing arbitration decisions, courts should not hold arbitrators to the same high standards of due process and fidelity to the letter of the law required in a judicial setting. But the act does set out explicit exceptions, such as where the arbitrator or the process itself was corrupt or where the arbitrator exceeded his powers. However, in decisions that the 7th Circuit has described as “opaque,” the Supreme Court has seemed to allow some room for judicially created, extra-statutory grounds for vacating an arbitration award. For instance, in Wilko v. Swan, 346 U.S. 427 (1953), the court suggested that an arbitrator’s “manifest disregard” of the law would justify overturning a decision. ( Wilko was overturned in a 1989 decision, but on other grounds.) The branches While there is widespread acceptance of the “manifest disregard” standard, the 7th Circuit does branch off from the main body. For most circuits, an arbitrator runs afoul of the standard if he “appreciated the existence of a clearly governing principle but decided to ignore it or pay no attention to it,” to give the Brabham court’s formulation. However, the 7th Circuit-in George Watts & Son Inc. v. Tiffany and Co., 248 F.3d 577 (2001)-said that formulation was a recipe for protracted litigation, the very thing arbitration was designed to avoid: “Every arbitration could be followed by a suit, seeking review of legal errors.” The 7th Circuit instead said that manifest disregard means that “an arbitrator may not direct the parties to violate the law.” Aside from manifest disregard, the Supreme Court’s FAA cases have also led several circuits to craft additional extra-statutory exceptions of their own. The Brabham court paid particular attention to “arbitrary and capricious” because that was the ground invoked by the plaintiff. The 5th Circuit ruled that while it recognized “arbitrary and capricious” in collective-bargaining arbitration, it would not import that standard into arbitration conducted under the act. (That would appear to put it at odds with the 7th Circuit, which relied on collective bargaining decisions in its 2001 case.) Almost alone among its sisters, the 11th Circuit has recognized arbitrary and capricious in cases brought under the act. It is perhaps not entirely alone because some commentators have treated the “completely irrational” standard of the 3d, 8th and 9th circuits as equivalent. The 4th and 7th circuits have suggested that manifest disregard is the only valid exception. At least two circuits, the 2d and the 10th, have given the nod to violation of public policy. In addition, the 10th Circuit will overturn a decision if there was a denial of a fundamentally fair hearing. Young’s e-mail address is [email protected].

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