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The Sanwan Trust v. Lindsay, Inc.

United States District Court, D. Massachusetts

May 5, 2017

THE SANWAN TRUST
v.
LINDSAY, INC.

          MEMORANDUM AND ORDER

          RYA W. ZOBEL UNITED STATES SENIOR DISTRICT JUDGE.

         Petitioner The Sanwan Trust (“Sanwan”) petitions the court to vacate a November 4, 2016, arbitration award (the “Award”), which respondent Lindsay, Inc. (“Lindsay”), separately moves to confirm.[1] For the following reasons, Sanwan's petition is denied and Lindsay's motion is allowed.

         I. Standard of Review

         “[A] district court's review of an arbitral award must be ‘extremely narrow and exceedingly deferential.'” Bull HN Info. Sys., Inc. v. Hutson, 229 F.3d 321, 330 (1st Cir. 2000) (quoting Wheelabrator Envirotech Operating Services Inc. v. Mass. Laborers Dist. Council Local 1144, 88 F.3d 40, 43 (1st Cir. 1996)). “We have found arbitral awards ‘nearly impervious to judicial oversight' because both parties ‘have contracted to have disputes settled by an arbitrator' and therefore ‘it is the arbitrator's view of the facts and the meaning of the contract that they have agreed to accept.'” UMass Mem'l Med. Ctr., Inc. v. United Food and Commercial Workers Union, 527 F.3d 1, 5 (1st Cir. 2008) (quoting Teamsters Local Union No. 42 v. Supervalu, Inc., 212 F.3d 59, 61 (1st Cir. 2000); United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 37-38 (1987)). The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1-16, provides four specific grounds for which federal courts can vacate an arbitration award:

(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceed their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

See 9 U.S.C. § 10(a)(1)-(4). In Hall Street Assoc., LLC v. Mattel, Inc., 552 U.S. 576 (2008), the Supreme Court held that “§ 10 . . . provide[s] the FAA's exclusive grounds for expedited vacatur [of an arbitral award].” 552 U.S. at 585; see Kashner Davidson Sec. Corp. v. Mscisz, 601 F.3d 19, 22 (1st Cir. 2010) (explaining that “the Supreme Court held that the grounds for prompt vacatur or modification of an arbitral award enumerated in [the FAA], 9 U.S.C. §§ 10-11, are exclusive and may not be supplemented by contract”).

         “To obtain vacatur of an arbitration award, ‘[i]t is not enough for [a party] to show that the panel committed an error-or even a serious error.'” Raymond James Fin. Serv., Inc. v. Fenyk, 780 F.3d 59, 63 (1st Cir. 2015) (quoting Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 671 (2010)). Rather, A[t]he challenging party has the burden to establish ‘substantially more than an erroneous conclusion of law or fact.=@ Rogers v. Ausdal Fin. Partners, Inc., 168 F.Supp.3d 378, 385 (D. Mass. 2016) (quoting Local Union No. 251 v. Narragansett Imp. Co., 503 F.2d 309, 312 (1st Cir. 1974)).

         II. Analysis

         Sanwan moves to vacate the Award “pursuant to 9 U.S.C. § 1 et seq., ” Docket # 2, at 1, but fails to cite to any particular provision of section 10 under which it seeks vacatur. It states that it seeks vacatur of the Award on two grounds: (1) manifest disregard of the law; and (2) public policy, which it acknowledged are “not listed within § 10.” Docket # 3, at 5. Indeed, it argued that the FAA “establishes most, but not all grounds for vacatur of an arbitration award. Courts ‘retain a very limited power to review arbitration awards outside of section 10[.]'” Id. at 4 (emphasis added) (quoting Advest, Inc. v. McCarthy, 914 F.2d 6, 8 (1st Cir. 1990)). In response, Lindsay contends that following Hall Street neither ground, independent of any provision under section 10, is an appropriate basis for vacatur under the FAA. Lindsay is correct.

         A. Manifest Disregard of the Law

         Prior to Hall Street, the First Circuit recognized that “manifest disregard of the law” is a “non-statutory standard of review.” See McCarthy v. Citigroup Global Markets Inc., 463 F.3d 87, 91 n.6 (1st Cir. 2006) (quoting P.R. Tel. Co., Inc. v. U.S. Phone Mfg. Corp., 427 F.3d 21, 25 (1st Cir. 2005) (explaining that earlier case law holding that “‘[u]nder the FAA, an award may be vacated for legal error only when in ‘manifest disregard of the law' . . . means that the FAA does not foreclose extra-statutory judicial review of arbitration awards on a limited basis, ” and not that this standard of review “is part of the FAA itself”). Following Hall Street, the First Circuit has not “squarely determined whether [its] manifest disregard case law can be reconciled with Hall Street.” Kashner, 601 F.3d at 22. It has, however, stated, in dicta, that “[w]e acknowledge the Supreme Court's recent holding in [Hall Street] that manifest disregard of the law is not a valid ground for vacating or modifying an arbitral award in cases brought under the [FAA].” Ramos-Santiago v. United Parcel Serv., 524 F.3d 120, 124 n.3 (1st Cir. 2008). Further, to the extent the standard survives, “Hall Street ...


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