“Manifest disregard of the law” is no longer a valid basis to challenge arbitration awards, at least not in the federal courts of Texas, Mississippi and Louisiana. Rather, according to the Fifth Circuit’s decision in U.S. Trinity Energy Services v. Southeast Directional Drilling, 2025 WL 1218096 (Apr. 28, 2025, No. 24-10833), the grounds for challenging an arbitration award are limited to those grounds enumerated by Congress in the Federal Arbitration Act. Those include:
- 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.
Manifest disregard of the law, which is not included among the grounds for vacatur in the FAA, requires a party to demonstrate the arbitrator correctly stated or understood a proposition of law but then ignored it. Courts have historically been receptive to this argument and have recognized it as an additional, limited basis to set aside erroneous arbitration awards if none of the above-listed FAA grounds applied. This judge-made doctrine opened the door for losing parties to argue that an arbitrator’s decision should be set aside for ignoring the law in favor of the arbitrator’s “own brand of industrial justice.”
In U.S. Trinity Energy Services, the Fifth Circuit held that “manifest disregard of the law” is not a valid basis for vacatur and could not be used as “a backdoor for a party to seek judicial review of the arbitrator’s interpretations.” The Fifth Circuit also explained that the fourth statutory basis – where the arbitrators exceed their power – does not include “manifest disregard of the law”:
Grafting “manifest disregard of the law” as a basis for a losing party at arbitration to prevail under § 10(a)(4) would risk tension with Hall Street—and would run headlong into Oxford Health—by forcing us to conduct a less deferential review of a panel’s award than the FAA contemplates. Indeed, adopting Trinity Energy’s reading essentially would rewrite the question a judge must ask from “whether the arbitrators construed the contract at all” to “whether they construed it correctly.”
…
Like our court has held before, “the statutory grounds are the exclusive means for vacatur under the FAA.” Jones, 991 F.3d at 615 (quoting Citigroup, 562 F.3d at 355); see Dream Med. Grp., L.L.C., Old South Trading Co., L.L.C., No. 22-20286, 2023 WL 2366982, at *2 (5th Cir. Mar. 6, 2023) (per curiam) (“These limited circumstances do not include vacating an arbitration award based upon the merits of the claims that were heard by arbitrators.”). The text Congress enacted means what it says throughout § 10(a), and judicial reconfiguration of § 10(a)(4) would betray congressional intent. See Dream Med. Grp., 2023 WL 2366982, at *3 (appellant’s “§ 10(a)(4) arguments amount to an invitation for us to reassess the merits of the Panel’s decision, which does not fall under the limited text of § 10(a)(4) or support vacatur”). In short, we cannot substitute a court panel’s judgment in place of an arbitration panel’s decision by recognizing “manifest disregard of the law” as a basis for vacatur embedded within § 10(a)(4).
The U.S. Trinity Energy Services case involved a subcontract for construction of a natural gas pipeline. The arbitrators awarded the drilling subcontractor over $1.6 million in standby costs caused by COVID-19 and other delays. The prime contractor challenged the award claiming that it was inconsistent with certain provisions of the subcontract. The district court rejected that argument, and the Fifth Circuit affirmed. The arbitrators had considered the evidence, recited the relevant subcontract provisions, and considered their effects. The prime contractor failed to show that the arbitrators exceeded their power “by disregarding the subcontract entirely.” As such, the Fifth Circuit held that the arbitrators’ decision must stand, “however good, bad, or ugly.”
A full copy of the court’s decision is located here.