News & Events

Arbitrators become yet a little more infallible in the Sixth Circuit

“We are not final because we are infallible, but we are infallible only because we are final.”  So said U.S. Supreme Court Justice Robert Jackson. Arbitrators in the Sixth Circuit became just a little more infallible the other day, when the Sixth Circuit handed down Schafer v. Multiband Corp

Schafer came before the Sixth Circuit when the party that won an arbitration lost the subsequent fight, in the federal district court, to confirm the award.  The district court vacated the award on the grounds that the arbitrator had ignored “‘clearly established legal precedent (including that of the Sixth Circuit,’” “‘refus[ing to] heed” a “‘clearly defined” legal principle.  The Sixth Circuit agreed, but reversed anyway.

It reversed because the Federal Arbitration Act makes arbitration awards almost immune from judicial review.  Assuming, without deciding, that the district court would have been authorized to vacate the award upon finding that the arbitrator had “manifest[ly] disregard[ed]” the law, the Sixth Circuit held that simply being wrong — even manifestly wrong– about the law did not amount to “manifest disregard” for the law.

“It is true,” the Sixth Circuit admitted, “that the arbitrator’s analysis appears to be legally unsupportable under this circuit’s precedents, such that we would reverse the decision if it had been made by a district court.”  But, it continued, “Legal error by the arbitrator—even clear legal error—is however not by itself sufficient for vacatur of an arbitration agreement.”

Citing “efficient and speedy” (as opposed to correct) dispute resolution as “one of the primary goals of the Arbitration Act,” the Sixth Circuit went on observe that “the arbitrator is not necessarily bound by legal holdings of this court”:

Moreover, the very idea that an arbitral decision is not appealable for legal error leads to the conclusion that the arbitrator is not necessarily bound by legal holdings of this court. If an arbitrator relies on a colorable meaning of the words of the statute—as the arbitrator did here—the fact that there is Sixth Circuit precedent to the contrary is not necessarily determinative.  Sixth Circuit holdings are binding in courts and on agencies whose decisions are appealable to the Sixth Circuit, ultimately because of that appealability. An arbitrator cannot reject the law, but can disagree with nonbinding precedent without disregarding the law.

 —Robert ("Bob") M. Frey