On April 28, 2025, the 5th Circuit Court of Appeals issued a decision rejecting “manifest disregard of the law” as a potential basis to vacate an unfavorable arbitration award. In United States Trinity Energy Services, L.L.C. v. Southeast Directional Drilling, L.L.C., the Appellate Court wrote: “‘the statutory grounds are the exclusive means for vacatur under the FAA’[.]” Citing prior case law and the Federal Arbitration Act (FAA), the Court stated that FAA § 10(a)(4), calling for arbitration award vacatur where arbitrators exceed their authority, has never accepted “‘manifest disregard of the law’ as a basis to establish arbitrators ‘exceed[ing] their powers’” and vacating an arbitration award on such a basis would run contrary to the congressional intent of the FAA and would “force [the Court] to conduct a less deferential review of [arbitration awards] than the FAA contemplates.”
Trinity Energy and Southeast Drilling retained the contractual option to arbitrate potential disputes. When a dispute over stand-by costs arose, Southeast Drilling sought and obtained an award from the arbitration panel. Trinity Energy unsuccessfully petitioned to vacate the award in the United States District Court for the Northern District of Texas. On appeal, Trinity Energy again challenged the arbitration award, claiming that the arbitration panel “‘exceeded its authority and acted in manifest disregard of the law.’” However, the Fifth Circuit stressed the notion that “‘arbitration is a matter of contract,’” and that courts reviewing the arbitral decision must give a high amount of deference to an arbitration award.
The Circuit Court reiterated the holding of the U.S. Supreme Court decision in Oxford Health Plans L.L.C. v. Sutter, stating, “‘an arbitral decision ‘even arguably construing or applying the contract’ must stand [. . .] Only when ‘the arbitrator acts outside of the scope of [their] contractually delegated authority – issuing an award that simply reflects [their] own notions of economic justice[’] . . . may a court vacate this determination.”
Notably, Section 10 of the FAA provides the following “exclusive statutory grounds” for vacatur of an arbitration award:
- Where the award was procured by corruption, fraud, or undue means;
- Where there was evident partiality or corruption in the arbitrators, or either of them;
- 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
- Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
9 U.S.C. § 10(a)(1)-(4).
To read the 5th Circuit Court of Appeals decision in United States Trinity Energy Services, L.L.C. v. Southeast Directional Drilling, L.L.C., click here.
For more information on how to enforce or challenge an arbitration award, please contact: info@chaloslaw.com.