Legal Definitions - manifest-disregard doctrine

The manifest-disregard doctrine is a very specific and narrow legal principle that allows a court to overturn, or "vacate," an arbitration award. It applies only when an arbitrator clearly understood the relevant law that should have governed their decision but then intentionally chose to ignore or disregard it, leading to a ruling that goes against that known law.

It's crucial to understand that this doctrine does not apply if the arbitrator simply made a mistake, misunderstood the law, or made a questionable legal interpretation. For an award to be vacated under the manifest-disregard doctrine, the arbitrator's deliberate choice to disregard the law must be evident and not merely a legal error.

• Example 1: Contractual Obligation

  Imagine a dispute between a software company and a client over a custom development project. Their contract explicitly states that any changes to the project scope must be documented in writing and signed by both parties. During arbitration, the arbitrator acknowledges this clause multiple times. However, in the final award, the arbitrator rules in favor of the client based on an alleged *oral* agreement to expand the project, stating in the award that they found the written modification clause "too restrictive for agile development."

  This illustrates the manifest-disregard doctrine because the arbitrator clearly knew and understood the binding contractual term requiring written modifications but deliberately chose to ignore it, substituting it with their own judgment about what they considered "restrictive." This is not a misunderstanding of the contract, but an intentional disregard of its clear terms.

• Example 2: Employment Law Statute

  An employee files an arbitration claim against their former employer for wrongful termination. The applicable state law unequivocally requires employers to provide a minimum of 60 days' severance pay for employees terminated without cause after a certain tenure. The arbitrator is presented with this specific statute and confirms their understanding of it during the hearing. Despite this, the arbitrator issues an award granting only 30 days of severance pay, explicitly stating in the award that they believe 60 days is "excessive for the current economic climate."

  Here, the arbitrator was fully aware of the specific legal requirement regarding severance pay but consciously decided to set it aside based on their personal opinion about economic conditions. This demonstrates a deliberate disregard for a clear statutory mandate, rather than a misinterpretation of the law.

• Example 3: Binding Precedent in Business Dispute

  Two businesses are in arbitration over a complex intellectual property licensing agreement. One party presents a recent, directly applicable Supreme Court precedent from their jurisdiction that clearly defines how royalties must be calculated in such agreements. The arbitration panel confirms they have reviewed and understand this binding precedent. However, their final award completely ignores this precedent, instead applying a different, non-binding legal theory from another state, and notes that they found the binding precedent "outdated for modern technology licensing."

  This scenario exemplifies manifest disregard because the arbitrators were fully aware of the controlling legal authority (the Supreme Court precedent) but intentionally chose not to apply it. They substituted it with a different, inapplicable legal standard based on their subjective view, indicating a deliberate disregard for the established law.