Wachovia Securities, LLC v. Frank Brand, II

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
WACHOVIA SECURITIES, LLC, a 
Delaware Corporation and
successor in interest to AG
Edwards & Sons, Inc.,
Plaintiff-Appellant,
v.  No. 10-2111
FRANK J. BRAND, II, individual;
MARVIN SLAUGHTER, individual;
STEPHEN N. JONES, individual;
GEORGE W. STUKES, individual,
Defendants-Appellees.

Appeal from the United States District Court
for the District of South Carolina, at Florence.
Terry L. Wooten, District Judge.
(4:08-cv-02349-TLW)
Argued: December 8, 2011
Decided: February 16, 2012
Before DUNCAN, DAVIS, and WYNN, Circuit Judges.
Affirmed by published opinion. Judge Duncan wrote the opin-
ion, in which Judge Davis and Judge Wynn joined.
2 WACHOVIA SECURITIES v. BRAND
COUNSEL
ARGUED: Stephen Montgomery Cox, ROBINSON, BRAD-
SHAW & HINSON P.A., Rock Hill, South Carolina, for
Appellant. Joseph A. Dougherty, BUCHANAN, INGER-
SOLL & ROONEY, PC, Philadelphia, Pennsylvania, for
Appellees. ON BRIEF: J. Rene Josey, TURNER PADGET
GRAHAM & LANEY, P.A., Florence, South Carolina;
Andrew J. Shapren, BUCHANAN, INGERSOLL &
ROONEY, PC, Philadelphia, Pennsylvania, for Appellees.
OPINION
DUNCAN, Circuit Judge:
Wachovia Securities, LLC ("Wachovia")1 appeals from the
district court’s refusal to vacate an arbitration award entered
against it after it sued several former employees on what the
arbitrators determined were frivolous claims. Wachovia
argues that the arbitrators (the "Panel") violated § 10(a)(3) of
the Federal Arbitration Act (the "FAA") and "manifestly dis-
regarded" the law when they awarded $1.1 million in attor-
neys’ fees and costs under the South Carolina Frivolous Civil
Proceedings Act (the "FCPA"), codified at S.C. Code Ann.
15-36-10. For the reasons that follow, we affirm.
I.
A.
Wachovia initiated an arbitration proceeding by filing a
Statement of Claim with the Financial Industry Regulatory
1
Wachovia Securities, LLC is now known as Wells Fargo Advisors,
LLC. Wachovia Securities, LLC is a wholly owned subsidiary of
Wachovia Securities Financial Holdings, LLC, which is, in turn, a wholly
owned subsidiary of Wells Fargo and Company.
WACHOVIA SECURITIES v. BRAND 3
Authority ("FINRA")2 against four former employees—Frank
J. Brand, Stephen N. Jones, Marvin E. Slaughter, and George
W. Stukes (collectively, the "Former Employees")—on June
27, 2008. The Former Employees, all individual financial
advisors, were previously employees of A.G. Edwards &
Sons, Inc. ("A.G. Edwards"), which merged with Wachovia
on October 1, 2007. After the merger, the Former Employees
became employees of Wachovia’s Florence, South Carolina
branch office. Wachovia terminated their employment on
June 26, 2008. Following their termination by Wachovia, the
Former Employees went to work for a competitor brokerage
firm, Stifel Nicolaus & Co., Inc. ("Stifel").
In the arbitration proceeding, Wachovia alleged that the
Former Employees had violated their contractual and com-
mon law obligations when they joined Stifel.3 Specifically,
Wachovia claimed that the Former Employees conspired with
Stifel to open a competitor office in Florence, South Carolina,
and that they had misappropriated confidential and propri-
etary information in the process. Wachovia further com-
2
FINRA is a private corporation that succeeded the National Associa-
tion of Securities Dealers and the enforcement divisions of the New York
Stock Exchange as the self-regulatory organization for the securities
industry. It sets rules governing both the business of securities firms and
governing disputes arising from alleged violations of these rules. FINRA’s
rules governed the underlying arbitration proceeding because it was
between a brokerage that is a member of FINRA and its employees. All
of the parties signed FINRA Uniform Submission Agreements, which
manifest their consent to arbitrate the present "matter in controversy"
according to FINRA’s rules.
3
The same day it initiated FINRA arbitration, Wachovia sought injunc-
tive relief in the United States District Court for the District of South Car-
olina during the pendency of the arbitration. Wachovia sought to prevent
the former employees from soliciting Wachovia customers or employees
and from using any other "Wachovia information" that they had acquired
during their employment with Wachovia. The district court refused to
enjoin the Former Employees from soliciting current Wachovia clients and
employees but granted an injunction requiring that they cease using and
return any of Wachovia’s information, including client lists.
4 WACHOVIA SECURITIES v. BRAND
plained that the Former Employees were soliciting current
Wachovia clients and employees to join their new firm. In
addition, Wachovia sought a permanent injunction, the return
of records, and an award of costs and attorneys’ fees associ-
ated with the arbitration. It repeated these requests in its
amended Statement of Claim filed on July 23, 2008.
The Former Employees’ Answer described this dispute as
"meritless" and an effort "to punish former [A.G. Edwards]
employees for leaving in the wake of Wachovia’s acquisition
of A.G. Edwards, to intimidate and deter its current employ-
ees from making similar decisions, to prevent customers from
obtaining information necessary to make an informed deci-
sion as to whether the customer wishes to do business, and to
otherwise stifle legitimate competition." J.A. 460. The Former
Employees requested that the Panel award them attorneys’
fees and costs incurred in defending themselves "from
Wachovia’s baseless and unwarranted claims." J.A. 461. They
also asserted counterclaims under the South Carolina Wage
Payment Act ("Wage Act"), codified at S.C. Code Ann. § 41-
10-80, and the common law doctrines of unjust enrichment
and conversion. They did not assert any claims under the
FCPA.
The arbitration proceeded before a panel of three arbitrators
in accordance with FINRA’s rules for "industry disputes." See
FINRA R. 13000. The first month of arbitration proceedings,
during which both sides presented evidence, was unremark-
able. Then, on October 22, 2009, the panel asked the parties
to submit accountings or proposals regarding requested attor-
neys’ fees, forum fees, expert fees and any costs or expenses
during the final two days of hearings, scheduled for Novem-
ber 23 and 24, 2009. Wachovia requested that the parties brief
the fees issues and the Panel agreed, asking that the parties
submit their briefs by November 23. There was no discussion
of response briefs.
WACHOVIA SECURITIES v. BRAND 5
Despite the deadline, Wachovia was unprepared to submit
its brief on fees on November 23, 2009 and requested a one-
day extension.4 The Panel permitted the extension, and the
parties therefore submitted their briefs on November 24,
2009, the last planned day of hearings. Both parties’ briefs
contained new arguments regarding attorneys’ fees. Wachovia
argued, despite its own request for attorneys’ fees in its State-
ment of Claim, that under the South Carolina Arbitration Act,
neither party was entitled to attorneys’ fees. The Former
Employees argued for the first time that they were entitled to
attorneys’ fees under the FCPA.
As its name suggests, the Frivolous Civil Proceeding Act
provides a mechanism for litigants to seek sanctions against
attorneys who file frivolous claims. It contains a number of
procedural safeguards for litigants facing sanctions. Signifi-
cantly for our purposes, the statute provides for a notice
period affording the accused 30 days to respond to a request
for sanctions and a separate hearing on sanctions after the ver-
4
The record suggests that such last-minute tactics were not atypical of
Wachovia’s behavior throughout this dispute. For example, when seeking
a preliminary injunction in anticipation of the arbitration, Wachovia told
the district court that it had a DVD of surveillance footage showing the
Former Employees transferring Wachovia materials from their offices at
Wachovia to their offices at Stifel. This DVD was not part of the record,
however, because Wachovia claimed to have received it on the day of the
hearing on the preliminary injunction. Nonetheless, the district court
admitted the DVD into the record along with Wachovia’s statement about
what the DVD showed. Wachovia Sec., LLC v. Brand, No. 4:08-cv-2349,
2010 U.S. Dist. LEXIS 88505, at *4 (D.S.C. Aug. 26, 2010). As a result
of Wachovia’s late acquisition of this DVD, the Former Employees did
not have a chance to review it before the preliminary injunction hearing.
Appellee’s Br. 3. More troubling, Wachovia later admitted that its descrip-
tion of the video—the statement on which the district court relied before
issuing the injunction—was inaccurate and that the attorney who submit-
ted the DVD had not watched it herself. Wachovia now concedes that the
DVD shows only the Former Employees removing boxes from its offices,
not ferrying information from Wachovia to Stifel. Brand, 2010 U.S. Dist.
LEXIS 88505, at *50.
6 WACHOVIA SECURITIES v. BRAND
dict. S.C. Code 15-36-10(C)(1). No such procedures were fol-
lowed here.
Upon learning that the Former Employees were seeking
sanctions under the FCPA, Wachovia expressed concern that
the arbitrators were not affording them 30 days’ response time
or a post-verdict hearing on the issue of fees. Toward the end
of the hearing on November 24, the chairman of the Panel
asked Wachovia if "you have been given a fair opportunity to
present your case in its entirety in these proceedings." J.A.
201. Wachovia responded that it had not been given a fair
opportunity with respect to "the issues raised and argued as to
attorneys’ fees." J.A. 201-02. The Panel then asked whether
additional briefing would cure the concerns. Wachovia
replied:
I don’t know. Because the standard and the [FCPA]
from what I saw, there’s notice and opportunity to be
heard. So that means in other words, we need some
evidence. That’s why I don’t think it’s appropriate at
the end, after our record is closed, that new issues
have been injected. The statute is not referred to in
the pleadings. So it’s not just the element of surprise.
It’s a complete surprise.
J.A. 202-B.
After listening to Wachovia’s objections to the Panel reach-
ing any decision on the issue of attorneys’ fees, the Panel
stated: "The issue on attorneys’ fees, I’m sure there will be
something that will occur to the panel where we need to seek
clarification from parties. And if that becomes necessary, be
assured we will be in touch with you." J.A. 203-B. The Panel
subsequently asked the parties for an accounting of their
November fees but did not hold any additional hearings or
request additional briefing. Nor, however, did Wachovia
request additional briefing.
WACHOVIA SECURITIES v. BRAND 7
On December 18, 2009, the Panel issued an award in which
it denied all of Wachovia’s claims. It awarded the Former
Employees $15,080.67 in treble damages on their Wage Act
claims, as well as $1,111,553.85 for attorneys’ fees under the
FCPA. Although the Former Employees had also sought
attorneys’ fees under several South Carolina statutes, the
Panel awarded them fees only under the FCPA and indicated
that "any and all claims not specifically addressed herein"
were denied. J.A. 86.
B.
Following arbitration, the Former Employees filed a motion
to confirm the Panel’s award in the District of South Carolina.
Wachovia filed its own motion to vacate that portion of the
Panel’s award granting relief to the Former Employees on
January 19, 2010. It argued for vacatur on two grounds. First,
it contended that the Panel exceeded its authority and mani-
festly disregarded the law under 9 U.S.C. § 10(a)(4) by
awarding sanctions under the FCPA, for, inter alia, ignoring
the FCPA’s conditions precedent. To further support its argu-
ment that the Panel violated § 10(a)(4), Wachovia argued that
the FCPA authorized a "court" to award fees after a "verdict"
in a "trial" and was therefore inapplicable in arbitration pro-
ceedings since there is no "court" or "trial." Second, it con-
tended that the Panel "deprived Wachovia of a fundamentally
fair hearing, by denying [it] the procedural safeguards guaran-
teed by the FCPA and by not allowing [it] to review (much
less rebut) critical evidence that [the Former Employees] sub-
mitted to the Panel in support of their fee claim." J.A. 94.
Wachovia claimed that this denial provided grounds for vaca-
tur under § 10(a)(3). The district court considered these
claims in turn.
The district court began by rejecting Wachovia’s argument
that the arbitrators violated § 10(a)(4), which allows a district
court to vacate an arbitration award "where the arbitrators
exceeded their powers, or so imperfectly executed them that
8 WACHOVIA SECURITIES v. BRAND
a mutual, final, and definite award upon the subject matter
submitted was not made." 9 U.S.C. § 10(a)(4). It reasoned that
arbitrators violate this provision when they decide issues not
properly before them. Since the record supported the conclu-
sion that the question of fees was properly before the Panel,
the district court held that they had not violated § 10(a)(4).
The district court also disagreed with Wachovia’s argument
that a statute must mention arbitration in order to be applica-
ble in arbitration. It further rejected Wachovia’s claim that the
language of the FCPA supported vacatur under a manifest dis-
regard standard because the statute only applied to "courts"
following a "verdict." It reasoned that Wachovia had not
shown that the arbitrators understood the law as having a
meaning that they chose to ignore.
Turning to Wachovia’s claim that the Panel was "guilty of
misconduct in refusing to postpone the hearing . . . or in refus-
ing to hear evidence pertinent and material to the controversy;
or of any other misbehavior by which the rights of any party
[had] been prejudiced" in violation of § 10(a)(3), the court
noted that any deficiencies in the hearing were of Wachovia’s
own creation since it missed the deadline for filing its brief
and declined the Panel’s offer to consider additional briefing.
Wachovia appealed.
II.
Wachovia appeals the district court’s holding that the arbi-
trators neither violated § 10(a)(3) nor that they manifestly dis-
regarded the law. Wachovia has not made any claims directly
under § 10(a)(4) in this appeal, but instead argues that mani-
fest disregard is a "judicial gloss" on §§ 10(a)(3) and (4).
We begin our examination of Wachovia’s claims by first
looking at the narrow standard of review that guides our anal-
ysis. Next, we consider Wachovia’s contention that § 10(a)(3)
requires that we overturn the award. Finding that the plain
WACHOVIA SECURITIES v. BRAND 9
language of the statute offers Wachovia no relief, we then
turn to its argument that it is entitled to vacatur because the
arbitrators "manifestly disregarded" the law. We reject that
contention as well.
A.
On appeal from a district court’s denial of vacatur, "we
review de novo the court’s legal rulings." Three S Del., Inc.
v. DataQuick Info. Sys., Inc., 492 F.3d 520, 527 (4th Cir.
2007) (citing Patten v. Signator Ins. Agency, Inc., 441 F.3d
230, 234 (4th Cir. 2006)). "Any factual findings made by the
district court in affirming such an award are reviewed for
clear error." Id. (citing Peoples Sec. Life Ins. Co. v. Monu-
mental Life Ins. Co., 991 F.2d 141, 145 (4th Cir. 1993)). We
note that judicial review of an arbitration award in federal
court "is severely circumscribed." Apex Plumbing Supply, Inc.
v. U.S. Supply Co., 142 F.3d 188, 193 (4th Cir. 1998). "A
court sits to ‘determine only whether the arbitrator did his
job—not whether he did it well, correctly, or reasonably, but
simply whether he did it.’" U.S. Postal Serv. v. Am. Postal
Workers Union, 204 F.3d 523, 527 (4th Cir 2000) (quoting
Mountaineer Gas Co. v. Oil, Chem. & Atomic Workers Int’l
Union, 76 F.3d 606, 608 (4th Cir. 1996)).
B.
Turning now to Wachovia’s argument that § 10(a)(3)
requires vacatur, we begin by noting that the FAA limits
courts’ ability to vacate arbitral awards as part of its compre-
hensive scheme to replace judicial hostility to arbitration with
a national policy favoring it. Hall Street Assocs. v. Mattel,
Inc., 552 U.S. 576, 581 (2008).5 We are, therefore, hesitant to
5
The FAA notably does not authorize a district court to overturn an arbi-
tral award just because it believes, however strongly, that the arbitrators
misinterpreted the applicable law. United Paperworkers Int’l Union v.
Misco, Inc., 484 U.S. 29, 38 (1987). When parties consent to arbitration,
10 WACHOVIA SECURITIES v. BRAND
read any of § 10’s grounds for vacatur too broadly. By its
terms, § 10(a)(3) allows courts to vacate arbitration awards
only "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." 9 U.S.C. § 10(a)(3).
In this appeal, Wachovia argues that the Panel was "guilty
of misconduct in refusing to postpone the hearing . . . or in
refusing to hear evidence" in violation of § 10(a)(3) when it
failed to hold a separate hearing on the issue of attorneys’
fees. Wachovia complains that the FCPA provides for certain
procedural safeguards, which the Panel did not follow, and
that it was denied the opportunity to present evidence on this
issue. This argument fails for several reasons.
First, Wachovia has cited no authority for the proposition
that state procedural requirements must be imported into arbi-
tration. In International Union Mine Workers v. Marrowbone
Development Co., 232 F.3d 383, 389 (4th Cir. 2000), we said
that "[a]n arbitrator typically retains broad discretion over
procedural matters and does not have to hear every piece of
evidence that the parties wish to present." Wachovia argues
that it was entitled to 30 days to respond after the Former
Employees requested FCPA sanctions on November 24, 2009,
and that the Panel should have scheduled a hearing at which
it could present evidence about attorneys’ fees. In short,
and thereby consent to extremely limited appellate review, they assume
the risk that the arbitrator may interpret the law in a way with which they
disagree. Cf. Remmey v. PaineWebber, Inc., 32 F.3d 143, 146 (4th Cir.
1994) (explaining that arbitration is an alternative to litigation); Safeway
Stores v. Am. Bakery & Confectionery Workers, 390 F.2d 79, 84 (5th Cir.
1968) ("The arbiter was chosen to be the Judge. That Judge has spoken.
There it ends."). Any more probing review of arbitral awards would risk
changing arbitration from an efficient alternative to litigation into a vehi-
cle for protracting disputes.
WACHOVIA SECURITIES v. BRAND 11
Wachovia argues that the Panel must comply with the
FCPA’s procedural provisions if it relies on the FCPA’s sub-
stantive provisions when awarding attorneys’ fees. In AT&T
Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which
held that the FAA preempted a California rule holding that
any contract that disallowed class proceedings was unconscio-
nable, the Supreme Court explained that "the informality of
arbitral proceedings is itself desirable, reducing the cost and
increasing the speed of dispute resolution." Id. at 1749. Par-
ties may, of course, consent to particular procedures in arbi-
tration, but it is inconsistent with the FAA for one party to
demand ex post particular procedural requirements from state
law. Id. at 1750. We similarly conclude that the Panel was not
compelled to follow the FCPA’s procedural mandates insofar
as Wachovia attempts to import them into this arbitration.
Second, even if we were to hold that FCPA procedures do
apply in arbitration, Wachovia’s challenge to the Panel’s pro-
cedure would nevertheless fail because it does not allege mis-
conduct. In Marrowbone, this court held that "an arbitrator’s
procedural ruling may not be overturned unless it was in bad
faith or so gross as to amount to affirmative misconduct." 232
F.3d at 390 (quotation marks omitted). This ruling closely
tracks the plain language of § 10(a)(3), which authorizes
vacatur "where the arbitrators were guilty of misconduct in
refusing to postpone the hearing . . . or in refusing to hear evi-
dence . . .; or of any other misbehavior by which the rights of
any party have been prejudiced." In the context of § 10(a)(3),
"misconduct" and "misbehavior" are different from "mistake."
The former two imply that the arbitrators intentionally contra-
dicted the law. Wachovia has not argued any such intentional-
ity. Instead, it argues that the arbitrators made a mistake in
how they handled the Former Employees’ FCPA claim. Mis-
takes lack the requisite intentionality to fall within
§ 10(a)(3)’s reach. Because Wachovia did not allege inten-
tional misconduct, § 10(a)(3) offers it no relief.
Wachovia attempts to get around this deficiency in its reli-
ance on § 10(a)(3) by pointing to our decision in Marrow-
12 WACHOVIA SECURITIES v. BRAND
bone, in which we said that "courts owe no deference to an
arbitrator who has failed to provide the parties with a full and
fair hearing." 232 F.3d at 388. We interpreted Marrowbone
and § 10(a)(3) in Three S Delaware, where we said "a federal
court is entitled to vacate an arbitration award only if the arbi-
trator’s refusal to hear pertinent and material evidence
deprives a party to the proceeding of a fundamentally fair
hearing." 492 F.3d at 531. Wachovia argues that the Panel’s
refusal to schedule another day of hearings at which it could
present evidence on the question of attorneys’ fees deprived
it of a fundamentally fair hearing. We disagree.
To the contrary, we find that Wachovia is the architect of
its own misfortune. Wachovia, not the arbitrators, cut short
the hearing on the issue of attorneys’ fees. The arbitrators set
the deadline for submitting briefs on the issue of attorneys’
fees for the penultimate day of hearings. Wachovia inexplica-
bly missed this deadline and submitted its brief on the final
day of arbitration, thereby leaving no time for the parties to
debate the issue. Moreover, after Wachovia complained that
it had not received a fair hearing on the issue of fees, the arbi-
trators asked Wachovia if it wanted to submit additional
briefs. Wachovia turned down this opportunity. Even if
Wachovia is correct in its contention that the FCPA requires
a hearing in the context of arbitration, it could have used the
additional briefing to explain why a hearing was necessary.
As noted above, arbitrators have broad discretion to set
applicable procedure. See Marrowbone, 232 F.3d at 388.
Accordingly, we will not overturn an award for violating
§ 10(a)(3)’s protection against "any other misbehavior by
which the rights of any party have been prejudiced" where the
arbitrators attempted to address one party’s unhappiness with
the fairness of the hearing and that party refused to take
advantage of the opportunity provided.
C.
We turn now to Wachovia’s argument that it is entitled to
vacatur under a "manifest disregard" standard. Specifically,
WACHOVIA SECURITIES v. BRAND 13
Wachovia argues that the Panel "manifestly disregarded" the
law when it refused to import the FCPA’s procedural require-
ments into the arbitration. "Manifest disregard" is, as we will
explain, an old yet enigmatic ground for overturning arbitral
awards. Wachovia contends the Supreme Court’s 2008 deci-
sion in Hall Street rendered "manifest disregard" a judicial
gloss on §§ 10(a)(3) and (4)—rather than a separate common
law ground for relief—perhaps hoping that this "gloss" would
help it where the text of the statute offers little relief. We do
not find Wachovia’s argument persuasive.
To lay a foundation for our analysis, we look first at "mani-
fest disregard" as a basis for vacatur and our interpretation of
the doctrine pre-Hall Street. We then consider how the
Supreme Court’s decisions in Hall Street and, more recently,
Stolt-Nielsen v. AnimalFeeds, 130 S. Ct. 1758 (2010), have
affected this analysis. Although we find that manifest disre-
gard did survive Hall Street as an independent ground for
vacatur, we conclude that Wachovia has not demonstrated
that the arbitrators manifestly disregarded the law here.
1.
The origins of modern manifest disregard as an indepen-
dent basis for reviewing American arbitration decisions likely
lie in dicta from the Supreme Court’s decision in Wilko v.
Swan, 346 U.S. 427 (1953). In Wilko, the Court explained that
when interpreting the agreements at issue, "the interpretations
of the law by the arbitrators in contrast to manifest disregard
are not subject, in the federal courts, to judicial review for
error in interpretation." Id. at 456. We have read Wilko as
endorsing manifest disregard as a common law ground for
vacatur, separate and distinct from § 10’s statutory grounds.6
6
Pre-Hall Street, most other circuits agreed. See e.g., Cytyc Corp. v.
Deka Prods. Ltd., 439 F.3d 27, 33 (1st Cir. 2006)(describing "manifest
disregard" as a "second set of exceptions [that] flow from the federal
courts’ inherent power to vacate arbitral awards"); Collins v. D.R. Horton,
14 WACHOVIA SECURITIES v. BRAND
Patten v. Signator Ins. Agency, Inc., 441 F.3d 230, 234 (4th
Cir. 2006). Before Hall Street, we stated that for a court to
vacate an award under the manifest disregard theory, the arbi-
tration record must show that "‘(1) the applicable legal princi-
ple is clearly defined and not subject to reasonable debate;
and (2) the arbitrator[ ] refused to heed that legal principle.’"
Long John Silver’s Rests., Inc. v. Cole, 514 F.3d 345, 349-50
(4th Cir. 2006) (quoting Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. Jaros, 70 F.3d 418, 421 (6th Cir. 1995)). We
note that under this standard, proving manifest disregard
required something beyond showing that the arbitrators mis-
construed the law, especially given that arbitrators are not
required to explain their reasoning.
2.
The Supreme Court’s decision in Hall Street has been
widely viewed as injecting uncertainty into the status of mani-
fest disregard as a basis for vacatur. There, a commercial
landlord and tenant had contracted for greater judicial review
of any arbitral award during a dispute about the tenant’s
Inc., 505 F.3d 874, 879 (9th Cir. 2007) ("Although § 10 does not sanction
judicial review of the merits of arbitration awards, we have adopted a nar-
row ‘manifest disregard of the law’ exception under which a procedurally
proper arbitration award may be vacated."); LaPrade v. Kidder, Peabody
& Co., 246 F.3d 702, 706 (D.C. Cir. 2001) ("In addition to the limited stat-
utory grounds on which an arbitration award may be vacated, arbitration
awards can be vacated only if they are in manifest disregard of the law."
(internal quotation marks omitted)).
The Seventh Circuit alone took a more limited approach to manifest dis-
regard. In Wise v. Wachovia Securities, LLC, 450 F.3d 265 (7th Cir.
2006), the Seventh Circuit explained that "although courts will also set
aside arbitration awards that are in manifest disregard of the law, and this
is often described as a nonstatutory ground, we have defined ‘manifest dis-
regard of the law’ so narrowly that it fits comfortably under the first clause
of the fourth statutory ground—‘where the arbitrators exceeded their pow-
ers.’" Id. at 268 (citations omitted). This approach rejected the notion that
"manifest disregard" was a common law ground for vacatur.
WACHOVIA SECURITIES v. BRAND 15
alleged failure to comply with applicable environmental laws.
The Supreme Court concluded that, by permitting review for
legal errors, this contract impermissibly circumvented the
FAA’s limited review for procedural errors. Hall Street, 552
U.S. at 586-87. The Court rejected this approach and held that
the FAA prohibited parties from contractually expanding judi-
cial review on the theory that the grounds for vacatur in the
FAA are "exclusive." Id. This circuit has not yet interpreted
manifest disregard in light of Hall Street, although it has
acknowledged the uncertainty surrounding the "continuing
viability of extra-statutory grounds for vacating arbitration
awards." Raymond James Fin. Servs. v. Bishop, 596 F.3d 183,
193 n.13 (4th Cir. 2010); see also MCI Constructors, LLC v.
City of Greensboro, 610 F.3d 849, 857 (4th Cir. 2010).7
We find that the Supreme Court’s more recent decision in
Stolt-Nielsen sheds further light on the operation of "manifest
7
Our sister circuits have split into three camps about the meaning of the
word "exclusive" in Hall Street. The Fifth and Eleventh Circuits have read
Hall Street as holding that the common law standards are no longer valid
grounds for vacatur because the FAA’s grounds are exclusive. Citigroup
Global Mkts., Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009); Frazier
v. CitiFinancial Corp., 604 F.3d 1313, 1323-24 (11th Cir. 2010). Simi-
larly, the First Circuit has noted in dicta that Hall Street held that manifest
disregard was not a valid ground for vacating or modifying an arbitral
award in cases brought under the FAA. Ramos-Santiago v. UPS, 524 F.3d
120, 124 n.3 (1st Cir. 2008). The Second and Ninth Circuits have held that
since Hall Street, manifest disregard exists as a shorthand or judicial gloss
for §§ 10(a)(3) and (4). See Stolt-Nielsen SA v. AnimalFeeds Int’l Corp.,
548 F.3d 85, 93-94 (2d Cir. 2008), rev’d on other grounds by Stolt-Nielsen
S. A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010); Comedy Club,
Inc. v. Improv W. Assocs., 553 F.3d 1277, 1290 (9th Cir. 2009). The Sixth
Circuit, in an unpublished opinion, has read Hall Street narrowly and
found that it only prohibited private parties from contracting for greater
judicial review. Coffee Beanery, Ltd. v. WW, L.L.C., 300 F. App’x 415,
419 (6th Cir. 2008). It reasoned that "[i]n light of the Supreme Court’s
hesitation to reject the "manifest disregard" doctrine in all circumstances,
we believe it would be imprudent to cease employing such a universally
recognized principle," then applied the manifest disregard standard. Id. at
419.
16 WACHOVIA SECURITIES v. BRAND
disregard" post-Hall Street. In Stolt-Nielsen, a raw-ingredient
supplier began arbitration proceedings against a parcel tanker
company when it learned that the Department of Justice was
investigating the company for illegal price-fixing. 130 S. Ct.
at 1765. The arbitration clause in the parties’ agreement was
silent as to whether class arbitration was allowed, so the arbi-
trators heard evidence, "including testimony from petitioners’
experts regarding arbitration customs and usage in the mari-
time trade," and looked to the Supreme Court’s previous deci-
sion in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444(2003), to determine whether the arbitration agreement per-
mitted class arbitration. Id. at 1766. The arbitrators eventually
permitted class arbitration based on Bazzle and without mak-
ing a determination regarding which of the potentially appli-
cable bodies of law—the FAA, federal maritime law, or New
York law—applied. Id. The district court vacated the award
for manifest disregard, reasoning that the arbitrators "failed to
make any meaningful choice-of-law analysis." Stolt-Nielsen
SA v. AnimalFeeds Int’l Corp., 435 F. Supp. 2d 382, 385
(S.D.N.Y. 2006). The Second Circuit reversed, finding that
although manifest disregard survived as a "judicial gloss" of
the FAA after Hall Street, it was inapplicable because the
arbitrators had not cited authority contrary to the position that
they adopted. Stolt-Nielsen SA v. AnimalFeeds Int’l Corp.,
548 F.3d 85, 97-98 (2d Cir. 2008).
The Supreme Court reversed the Second Circuit, finding
that the arbitrators had improperly rested their decision on
AnimalFeeds’ public policy arguments. 130 S. Ct. at 1768. It
reasoned that "because the parties agreed their agreement was
‘silent’ in the sense that they had not reached any agreement
on the issue of class arbitration, the arbitrator’s proper task
was to identify the rule of law that govern[ed]." Id. It then
criticized the panel for "proceed[ing] as if it had the authority
of a common-law court to develop what it viewed as the best
rule to be applied in such a situation." Id. at 1769. The Court
explained that the panel "exceeded its powers" when it failed
to apply "a rule of decision derived from the FAA or either
WACHOVIA SECURITIES v. BRAND 17
maritime or New York law" and instead "imposed its own
policy choice." Id. at 1770.
The Supreme Court’s reasoning in Stolt-Nielsen closely
tracked the majority of circuits’ approach to manifest disre-
gard before Hall Street: it noted that there was law clearly on
point, that the panel did not apply the applicable law, and that
the panel acknowledged that it was departing from the appli-
cable law. Nonetheless, the Court said,
We do not decide whether "manifest disregard" sur-
vives our decision in Hall Street Associates, as an
independent ground for review or as a judicial gloss
on the enumerated grounds for vacatur set forth at 9
U.S.C. § 10. AnimalFeeds characterizes that stan-
dard as requiring a showing that the arbitrators knew
of the relevant [legal] principle, appreciated that this
principle controlled the outcome of the disputed
issue, and nonetheless willfully flouted the govern-
ing law by refusing to apply it. Assuming, arguendo,
that such a standard applies, we find it satisfied.
Id. at 1768, n.3 (citations and quotation marks omitted). We
read this footnote to mean that manifest disregard continues
to exist either "as an independent ground for review or as a
judicial gloss on the enumerated grounds for vacatur set forth
at 9 U.S.C. § 10." Therefore, we decline to adopt the position
of the Fifth and Eleventh Circuits that manifest disregard no
longer exists.
3.
Although we find that manifest disregard continues to exist
as either an independent ground for review or as a judicial
gloss, we need not decide which of the two it is because
Wachovia’s claim fails under both. Wachovia argues that the
Panel acknowledged that it was applying the substantive pro-
visions of the FCPA but did not follow the statute’s proce-
18 WACHOVIA SECURITIES v. BRAND
dural provisions when it declined to give Wachovia 30 days
to respond to the request for fees or hold a separate hearing
on the issue of fees. However, as discussed above, we find
that the Panel was not compelled to import these procedural
requirements if it found a different procedure to be better
suited to the needs of the arbitration. In Long John Silver’s,
we adopted a two-part test that a party must meet in order for
a reviewing court to vacate for manifest disregard: "(1) the
applicable legal principle is clearly defined and not subject to
reasonable debate; and (2) the arbitrator[ ] refused to heed that
legal principle." 514 F.3d at 349 (quotation marks omitted).
We do not read Hall Street or Stolt-Nielsen as loosening the
carefully circumscribed standard that we had previously artic-
ulated for manifest disregard. Whether manifest disregard is
a "judicial gloss" or an independent ground for vacatur, it is
not an invitation to review the merits of the underlying arbi-
tration. See United Paperworkers Int’l Union v. Misco, Inc.,
484 U.S. 29, 38 (1987). Therefore, we see no reason to depart
from our two-part test which has for decades guaranteed that
review for manifest disregard not grow into the kind of prob-
ing merits review that would undermine the efficiency of arbi-
tration. In this case, we find that whether the Panel erred by
not applying the FCPA’s procedural requirements is a ques-
tion that was itself not clearly defined and was certainly sub-
ject to debate. Accordingly, we cannot hold that the
arbitrators manifestly disregarded the law when they awarded
Appellees $1.1 million in attorneys’ fees and costs under the
FCPA.
III.
For the foregoing reasons, the decision of the district court
is
AFFIRMED.