Brabham v. A.G. Edwards & Sons Inc. , 376 F.3d 377 ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED JULY 16, 2004
June 28, 2004
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
No. 03-60679
THOMAS McDOWELL BRABHAM, Individually and as custodian of
the account of Thomas McDowell Brabham III, a minor, and
Erika Laine Brabham, a minor,
Plaintiff-Appellee,
versus
A.G. EDWARDS & SONS INCORPORATED, ET AL.,
Defendants,
A.G. EDWARDS & SONS INCORPORATED,
Defendant-Appellant.
--------------------
Appeal from the United States District Court
for the Southern District of Mississippi
--------------------
Before DAVIS, BENAVIDES, and PRADO, Circuit Judges.
BENAVIDES, Circuit Judge:
This interlocutory appeal requires us to consider when a
district court may vacate an arbitration award. Plaintiff-Appellee
Thomas Brabham and Defendant-Appellant A.G. Edwards & Sons
submitted a dispute to arbitration. The arbitrators awarded
damages to Brabham, but he sought to vacate the award as
insufficient. The district court refused to vacate the award on
the ground that the arbitrators manifestly disregarded the law but
did vacate the award as arbitrary and capricious.
We agree with the district court that the arbitrators did not
manifestly disregard the law. However, the district court erred in
identifying arbitrariness and capriciousness as an independent
ground for vacatur and in vacating the award on that ground.
Therefore, we reverse the order of vacatur and remand this case to
the district court.
I. Background
In 1996, Thomas Brabham opened several investment accounts,
including accounts for his two children, through A.G. Edwards. The
broker managing Brabham’s account, who was addicted to drugs and
alcohol, failed to follow Brabham’s instructions, purchased
speculative stocks, and made unauthorized trades. Nonetheless,
Brabham’s accounts were profitable, though not as profitable as
Brabham might have hoped given the stock market’s meteoric rise
during the late 1990s.
After the addiction and mismanagement came to light, Brabham
filed a federal suit alleging that A.G. Edwards had negligently
hired and failed to supervise the errant broker. A.G. Edwards
invoked an arbitration provision in Brabham’s investment contract,
and the district court compelled arbitration in accordance with the
Federal Arbitration Act (“FAA”), 9 U.S.C.A. §§ 1-16 (West 1999 &
Supp. 2004).
Brabham argued to the three-member arbitration panel that he
should receive a damage award commensurate with the gains his
2
accounts would have earned had the broker invested them in index
funds that track the Dow Jones Industrial Average and the Standard
and Poor’s 500. According to Brabham’s expert, this method of
damage calculation would yield an award between $529,711.34 and
$867,009.20. A.G. Edwards countered that the panel should award no
damages because Brabham’s accounts had been profitable and because
A.G. Edwards had apprised Brabham of the broker’s actions through
monthly statements. After hearing from several witnesses and
reviewing numerous documents, the panel found for Brabham and
awarded him $124,809.64 in actual damages. The arbitration panel
also ordered A.G. Edwards to pay Brabham $14,356.17 for expenses
and to bear the costs of arbitration. The panel did not give
reasons for its award.
Dissatisfied, Brabham sought to have the district court vacate
the award as arbitrary and capricious and in manifest disregard of
the law. Brabham v. A.G. Edwards & Sons, 265 F. Supp. 2d 720 (S.D.
Miss. 2003). The district court held that Fifth Circuit precedent
allows vacatur on either ground. Id. at 724-25. Addressing each
ground in turn, the court concluded that the arbitration panel did
not manifestly disregard the law but found no rational basis for
the award and therefore vacated it as arbitrary and capricious.
The court then remanded the case to the original arbitration panel
for reconsideration of damages. Id. at 725-26.
3
A.G. Edwards then requested permission to seek interlocutory
review of the vacatur pursuant to 28 U.S.C. § 1292(b) (West 1993).1
The district court granted this request, and we granted the
petition for interlocutory appeal.2
II. Discussion
We review de novo an order vacating an arbitration award.
Brook v. Peak Int’l, Ltd., 294 F.3d 668, 672 (5th Cir. 2002). Our
review of the award itself, however, is exceedingly deferential.
See Glover v. IBP, Inc., 334 F.3d 471, 473 (5th Cir. 2003). We can
permit vacatur of an arbitration award only on very narrow grounds,
see id. at 473-74.
1
Section 1292(b) provides for interlocutory review when a district court’s
non-final order “involves a controlling question of law as to which there is
substantial ground for difference of opinion and . . . an immediate appeal from
the order may materially advance the ultimate termination of the litigation.”
28 U.S.C.A. § 1292(b).
2
The district court specified two questions:
(1) whether the Fifth Circuit has adopted an arbitrary
and capricious standard for vacating arbitration awards
in all contexts; and
(2) if so, whether the arbitrary and capricious standard
was applied properly in this case, i.e., whether the
arbitrators’ damages award, which [the district court]
found had no factual basis in the record, was arbitrary
and capricious.
Brabham v. A.G. Edwards & Sons, No. 2:98-CV-280PG (S.D. Miss. July 11, 2003)
(order granting permission to pursue interlocutory appeal).
Because § 1292(b) provides for review of an order rather than review of a
particular question, we are not restricted to the questions specified by the
district court but “may address any issue fairly included within the certified
order.” Yamaha Motor Corp., U.S.A. v. Calhoun, 516 U.S. 199, 205 (1996). The
issue of manifest disregard, which could theoretically provide an alternative
basis for affirming the district court’s order of vacatur, is fairly included
within the certified order. Cf. Harley-Davidson, Inc. v. Minstar, Inc., 41 F.3d
341, 344 (7th Cir. 1994); Angle v. United States, 709 F.2d 570, 573 (9th Cir.
1983). Moreover, addressing the manifest-disregard standard in this opinion will
most expeditiously resolve this litigation. Therefore, we address manifest
disregard as part of this interlocutory appeal.
4
The parties dispute just what those narrow grounds for vacatur
include. A.G. Edwards contends that a district court may vacate an
arbitration award only on grounds explicitly listed in section 10
of the FAA, 9 U.S.C.A. § 10(a) (West Supp. 2004). These
“statutory” grounds include situations
(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 exceeded their
powers, or so imperfectly executed them that a
mutual, final, and definite award upon the
subject matter submitted was not made.
Id. Section 10 does not explicitly provide for vacatur when the
arbitrators manifestly disregard the statute or act arbitrarily and
capriciously. See id. Therefore, A.G. Edwards argues, the
district court improperly vacated the award based on a judicially-
created “nonstatutory” ground. In the alternative, A.G. Edwards
argues that even if a district court could vacate an award on
nonstatutory grounds, the arbitrators in this case neither
manifestly disregarded the law nor acted arbitrarily and
capriciously. Brabham responds that the district court properly
recognized manifest disregard and arbitrariness and capriciousness
5
as two nonstatutory grounds for vacating an award and that the
award can be vacated on either ground.
A. Manifest Disregard
We agree with the district court that manifest disregard is an
accepted nonstatutory ground for vacatur and that the arbitrators
in this case did not manifestly disregard the law.
Contrary to A.G. Edwards’ contention, an arbitration award may
be vacated if the arbitrators manifestly disregard the law. For
many years, section 10 of the FAA “describe[d] the only grounds on
which a reviewing court [could] vacate an arbitration award.”
McIlroy v. Painewebber, Inc., 989 F.2d 817, 820 (5th Cir. 1993)
(per curiam). A district court could not vacate an award for
manifest disregard. See R.M. Perez & Assocs. v. Welch, 960 F.2d
534, 539-40 (5th Cir. 1992). Subsequently, however, a panel of
this Circuit held that “clear approval of the ‘manifest disregard’
of the law standard in the review of arbitration awards under the
FAA was signaled by the Supreme Court’s statement in First Options
that ‘parties [are] bound by [an] arbitrator’s decision not in
“manifest disregard” of the law.’” Williams v. Cigna Fin. Advisors
Inc., 197 F.3d 752, 759 (5th Cir. 1999) (quoting First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995)). Since
Williams, we have noted the potential applicability of manifest
disregard in a number of contexts. See, e.g., Bridas S.A.P.I.C. v.
Government of Turkmenistan, 345 F.3d 347, 363 (5th Cir. 2003),
6
cert. denied, 124 S. Ct. 1660 (2004) (international petroleum
operations); Glover, 334 F.3d at 474 (workers’ compensation);
Prestige Ford v. Ford Dealer Computer Servs., 324 F.3d 391, 395
(5th Cir.), cert. denied, 124 S. Ct. 281 (2003) (sales and service
contract). Thus, this Circuit has already accepted manifest
disregard as a ground for vacating an arbitration award.3
In this case, however, the arbitrators did not manifestly
disregard the law. Manifest disregard “means more than error or
misunderstanding with respect to the law.” Prestige Ford, 324 F.3d
at 395 (quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Bobker, 808 F.2d 930, 933 (2d Cir. 1986)). The arbitrators must
have “appreciate[d] the existence of a clearly governing principle
but decided to ignore or pay no attention to it.” Id.
Furthermore, “the governing law ignored by the arbitrators must be
well defined, explicit, and clearly applicable.” Id. (quoting
Merrill Lynch, 808 F.2d at 934).
Brabham claims that the arbitration panel manifestly
disregarded Miley v. Oppenheimer & Co., which discusses the measure
of an investor’s damages in cases of broker misconduct. 637 F.2d
3
Brook v. Peak International, a case decided after Williams, reiterated our
Circuit’s prior rule that section 10 of the FAA lists the only grounds on which
an award may be vacated. See Brook, 294 F.3d at 672. We must follow Williams,
not Brook. A prior panel opinion controls until explicitly or implicitly
overruled by the Supreme Court or the Fifth Circuit sitting en banc. United
States v. Mask, 330 F.3d 330, 334 (5th Cir. 2003). Williams interprets the
Supreme Court as implicitly overruling our prior statements denying all
nonstatutory grounds for vacatur, see 197 F.3d at 759, and therefore requires
that we accept manifest disregard as a nonstatutory ground.
7
318, 326-29 (5th Cir. 1981). In Miley, we instructed district
courts to measure damages according to “how the investor’s
portfolio would have fared in the absence of the such [sic]
misconduct.” Id. at 328. We also stated that “in the absence of
either a specialized portfolio or a showing by either party that a
different method is more accurate,” it would be “preferable” for
district courts to use “the average percentage of performance of
the Dow Jones Industrials or the Standard & Poor’s Index during the
relevant period as the indicia of how a given portfolio would have
performed in the absence of the broker’s misconduct.” Id. Brabham
points out that his expert used the Dow Jones and S&P to estimate
damages and contends that A.G. Edwards offered no evidence in
rebuttal. Therefore, Brabham argues, the panel could only have
departed from his expert’s estimates by disregarding Miley.4
The district court properly rejected this argument. As
Brabham admits, Miley did not impose a procrustean measure for use
in every case of broker misconduct. Because there are “countless
legitimate ways” to manage a portfolio, “it is impossible to
compute the exact amount of trading losses” after the fact. Id. at
327. A number of factors, including the instructions given the
broker or the nature of the portfolio at issue, may affect the
4
Brabham also points to an exchange during the arbitration hearing in which
one of the three arbitrators expressed doubt concerning the expert’s damage
calculations and Brabham’s application of Miley. The arbitrator explicitly noted
that he was not prejudging the application of Miley to Brabham’s case, so we
cannot infer from these comments that the arbitrators chose to depart from any
settled legal rules.
8
proper measure of damages in a particular case. Id. at 327-28. We
find no indication that the arbitrators’ departure from the damage
calculations urged by Brabham resulted from a disregard of Miley’s
flexible rule rather than a tailoring of the damages to the
specific circumstances of this case. The district court correctly
determined that the arbitrators did not manifestly disregard the
law.5
B. Arbitrary and Capricious
Unlike manifest disregard, arbitrariness and capriciousness is
not an accepted nonstatutory ground for vacatur in FAA cases in
this Circuit.6
5
Because the arbitrators did not manifestly disregard the law, we do not
reach the second part of the manifest disregard test established in Williams,
i.e., whether the arbitrators’ disregard of the law resulted in “significant
injustice.” 197 F.3d at 762.
6
The other circuits are in disarray on this question. Cf. George Watts &
Son v. Tiffany & Co., 248 F.3d 577, 580 (7th Cir. 2001) (recounting confusion in
the Seventh Circuit and commenting that “[t]he law in other circuits is similarly
confused, doubtless because the Supreme Court has been opaque”). The Eleventh
Circuit has accepted that an award may be vacated as arbitrary and capricious.
See Lifecare Int’l, Inc. v. CD Med., Inc., 68 F.3d 429, 435 (11th Cir. 1995).
The Eleventh Circuit, however, stands alone. See Larry E. Edmondson, 1 Domke on
Commercial Arbitration § 39:10 (3d ed. 2003) (characterizing the idea that an
award may be vacated as arbitrary and capricious as a “construct of the Eleventh
Circuit”).
The Fourth, Seventh, and Tenth Circuits have implicitly rejected the
Eleventh Circuit’s position by enunciating accepted grounds for vacatur and
rejecting all others. See, e.g., Sheldon v. Vermonty, 269 F.3d 1202, 1206 (10th
Cir. 2001); IDS Life Ins. Co. v. Royal Alliance Assocs., 266 F.3d 645, 650 (7th
Cir. 2001); Apex Plumbing Supply, Inc. v. U.S. Supply Co., 142 F.3d 188, 193 (4th
Cir. 1998). (However, these three circuits do not agree on what those accepted
nonstatutory grounds for vacatur are. The Fourth Circuit accepts only manifest
disregard. Apex, 142 F.3d at 193. The Seventh Circuit accepts only a limited
version of manifest disregard. See IDS, 266 F.3d at 650. The Tenth Circuit
accepts manifest disregard, violation of public policy, and denial of a
fundamentally fair hearing. See Sheldon, 269 F.3d at 1206.)
The First, Second, and D.C. Circuits have neither accepted nor rejected
arbitrariness and capriciousness but have emphasized that vacatur is available
(continued...)
9
Our cases have recognized that a district court may vacate as
arbitrary and capricious an arbitration award that arises from the
terms of a collective bargaining agreement. See, e.g., Oil, Chem.
& Atomic Workers, Int’l Union, Local No. 4-228 v. Union Oil Co. of
Cal., 818 F.2d 437, 440-41 (5th Cir. 1987); Teamsters Local Union
657 v. Stanley Structures, Inc., 735 F.2d 903, 905 (5th Cir. 1984);
Safeway Stores v. Am. Bakery & Confectionery Workers Int’l Union,
Local 111, 390 F.2d 79, 81 (5th Cir. 1968). Drawing on this
precedent, the court in Williams observed that “[p]anels of this
circuit have recognized . . . nonstatutory grounds for vacatur of
arbitration awards in [Labor-Management Relations Act] and FAA
cases,” including vacaturs of “arbitrary and capricious award[s].”
197 F.3d at 758.
6
(...continued)
only in very limited circumstances. See, e.g., Greenberg v. Bear, Stearns & Co.,
220 F.3d 22, 27 (2d Cir. 2000); Morani v. Landenberger, 196 F.3d 9, 11 (1st Cir.
1999); Al-Harbi v. Citibank, N.A., 85 F.3d 680, 682 (D.C. Cir. 1996).
The Third, Eighth, and Ninth Circuits have recognized that an award may be
vacated as completely irrational. See, e.g., Schoch v. InfoUSA, Inc., 341 F.3d
785, 788 (8th Cir. 2003), cert. denied, 124 S. Ct. 1414 (2004); G.C. & K.B. Invs.
v. Wilson, 326 F.3d 1096, 1105 (9th Cir. 2003), cert. dismissed, 124 S. Ct. 980
(2004); Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287, 292 n.2 (3d Cir.
2001). This test is “similar in nature in thrust to the ‘arbitrary and
capricious’ test of the Eleventh Circuit.” 1 Domke, supra, § 39:11. Some cases
from these Circuits, however, suggest that “complete irrationality” is simply a
subset of a statutory ground for vacatur. See, e.g., Kyocera Corp. v.
Prudential-Bache Trade Servs., 341 F.3d 987, 997 (9th Cir. 2003) (en banc) (“We
have held that arbitrators ‘exceed their powers’ [under section 10(a)(4) of the
FAA] not when they merely interpret or apply the governing law incorrectly, but
when the award is ‘completely irrational’ or exhibits ‘manifest disregard of
law.’”) (internal citations omitted); Mut. Fire, Marine & Inland Ins. Co. v.
Norad Reinsurance Co., 868 F.2d 52, 56 (3d Cir. 1989) (considering in context of
challenge under § 10(a)(4) whether award was completely irrational).
10
But neither this observation nor the precedent underlying it
establishes that district courts may vacate an award as arbitrary
and capricious in FAA cases. Previous opinions that have
recognized review of awards for arbitrariness and capriciousness,
including the two opinions cited in Williams, reviewed awards
arising from collective bargaining agreements. See Manville Forest
Prods. Corp. v. United Paperworkers Int’l Union, 831 F.2d 72, 73-
74;7 Oil, Chem. & Atomic Workers, 818 F.2d at 440-43; Teamsters,
735 F.2d at 905; Int’l Ass’n of Machinists, Dist. No. 145 v. Modern
Air Transport, Inc., 495 F.2d 1241, 1244-45 (5th Cir. 1974); Bhd.
of R.R. Trainmen v. Cent. of Ga. Ry. Co., 415 F.2d 403, 411-12 (5th
Cir. 1969); Safeway, 390 F.2d at 81-83. Judicial review of labor
arbitration is not authorized by the FAA, but by section 301 of the
Labor-Management Relations Act (“LRMA”), 29 U.S.C.A. § 185 (West
1998). Brown v. Witco Corp., 340 F.3d 209, 217-18 (5th Cir. 2003).
As Williams itself recognizes, review under the LMRA and review
under the FAA, while often similar, are not interchangeable. See
197 F.3d at 761; see also Witco Corp., 340 F.3d at 217-18 & n.8;
Int’l Chem. Workers Union v. Columbian Chems. Co., 331 F.3d 491,
494 (5th Cir. 2003). Thus, our LMRA cases do not require that
7
Manville did not use the phrase “arbitrary and capricious,” but Williams
nonetheless cited Manville as an example of a case recognizing vacatur of
arbitrary and capricious awards.
11
awards in FAA cases be subject to review for arbitrariness and
capriciousness.
The district court found support for adoption of arbitrariness
and capriciousness as a separate ground in Valentine Sugars, Inc.
v. Donau Corp., 981 F.2d 210 (5th Cir. 1993). In Valentine, an FAA
case, the court stated that “[i]f the award is rationally inferable
from the facts before the arbitrator, we must affirm the award.”
981 F.2d 210, 214 (5th Cir. 1993). This statement mirrors the
Eleventh Circuit’s holding that a decision may not be vacated as
arbitrary and capricious under the FAA “unless no ground for the
decision can be inferred from the facts,” Brown v. ITT Consumer
Fin. Corp., 211 F.3d 1217, 1223 (11th Cir. 2000). Based on this
similarity, the district court surmised that this Circuit has “in
effect stated an ‘arbitrary and capricious’ standard of review.”
Brabham, 265 F. Supp. 2d at 724.
Valentine is part of a line of cases in which we have held
that an award must be affirmed unless it is rationally inferable
from the language and purpose of the agreement before the
arbitrators, see, e.g., Glover, 334 F.3d at 474; Executone
Information Sys., Inc. v. Davis, 26 F.3d 1314, 1320 (5th Cir.
1994); Anderman/Smith Co. v. Tenn. Gas Pipeline Co., 918 F.2d 1215,
1218 (5th Cir. 1990). This principle explicates the rule,
sometimes called the “essence test,” that an arbitration decision
must “draw its essence” from the agreement it construes. See
12
Executone, 26 F.3d at 1324. As Valentine’s citation of
Anderman/Smith suggests, see Valentine, 981 F.2d at 214, the idea
that an award should be rationally inferable from the facts and the
idea that an award should be rationally inferable from the contract
are simply two sides of the same coin. Every arbitration award
results from an application of the contract to the facts before the
panel, so any award that is rationally inferable from the contract
will also be rationally inferable from the facts applied to the
contract. Thus, Valentine does not support the adoption of
arbitrariness and capriciousness as a separate and independent
ground for vacatur, but simply restates the well-established
essence test.8
As a matter of first impression, then, we reject arbitrariness
and capriciousness as an independent nonstatutory ground for
vacatur under the FAA. Because we must remain exceedingly
8
The essence test originally sprang from our LMRA cases. See Executone, 26
F.3d at 1324-25 (tracing history of test). Perhaps for this reason, Williams
categorizes the essence test as a ground for vacatur independent of both the
“arbitrary and capricious” ground and section 10's statutory grounds. See
Williams, 197 F.3d at 758. Lest our discussion of the essence test be viewed as
the endorsement of another independent nonstatutory ground for vacatur, we add
that this statement from Williams is arguably dictum and certainly debatable.
The history of the essence test does not suggest that we have adopted this test
as a nonstatutory ground for vacatur. Such an interpretation would have placed
Executone, Valentine, and Anderman/Smith in conflict with the then-controlling
rule that there were no nonstatutory grounds for vacatur, see McIlroy, 989 F.2d
at 820. Rather, a close reading of Glover and Executone suggests that the
essence test is simply a facet of the statutory ground for vacatur established
by 9 U.S.C.A. § 10(a)(4), which permits vacatur when arbitrators exceed their
authority. See Glover, 334 F.3d at 474-75; Executone, 26 F.3d at 1320, 1329.
After all, an arbitrator derives her authority from the contract between the
disputing parties, so an award that cannot be rationally inferred from the
contract is necessarily beyond the arbitrator’s authority. Cf. Bhd. of R.R.
Trainmen, 415 F.2d at 411-12 (LMRA case) (characterizing award that fails to draw
its essence from the contract as exceeding the authority of the arbitrators).
13
deferential to arbitration, we can permit vacatur of an award only
on very narrow grounds. See Glover, 334 F.3d at 473-74.
Multiplying the grounds for vacatur would be inconsistent with the
deference we must accord an arbitrator’s decisions, see id. at 473.
Therefore, courts should carve out new grounds for vacatur
reluctantly and carefully. See Westerbeke Corp. v. Daihatsu Motor
Co., 304 F.3d 200, 222 (2d Cir. 2002).
We see no compelling reason to recognize arbitrariness and
capriciousness as an independent nonstatutory ground for vacatur.
Our established rules of deference foreclose all but the most
limited review. Arbitrators need not give reasons for their
awards. McIlroy, 989 F.2d at 821. Even when arbitrators do
provide a rationale for their awards, courts may not review that
reasoning. See Anderman/Smith, 918 F.3d at 1219 n.3. Uncertainty
about arbitrators’ reasoning cannot justify vacatur, for a court
must resolve all doubts in favor of arbitration. See Action Inds.,
Inc. v. U.S. Fid. & Guar. Co., 358 F.3d 337, 343 (5th Cir. 2004).
Given these constraints, judicial review of an award’s rationality
must be confined to situations in which the party challenging the
award can prove that clearly applicable law or the parties’
contract indisputably dictates a contrary result.9
9
Thus, aside from its misstep in recognizing arbitrariness and
capriciousness as a ground for vacatur, the district court erred in vacating the
award simply because it could not ascertain how the panel reached its conclusion,
see Brabham, 265 F. Supp. 2d at 726. The district court should have resolved any
doubt or uncertainty in favor of upholding the award. See Action Inds., 358 F.3d
(continued...)
14
In this Circuit, such situations trigger existing grounds for
vacatur. If, based on the facts before the arbitrator, an award
indisputably runs contrary to clearly applicable law known to the
arbitrators, then the district court can vacate the award as
manifestly disregarding the law. See Prestige Ford, 324 F.3d at
395-96. If an award clearly and indisputably runs contrary to the
parties’ contract, such as when the panel invalidates the very
contract from which it derives its authority or acts contrary to an
express contractual provision, then the district court can vacate
the award under the essence test. See Executone, 26 F.3d at 1325.
Thus, establishing arbitrariness and capriciousness as an
additional ground for vacatur would simply duplicate existing
grounds.
As the development of our arbitration jurisprudence indicates,
the mutability of legal terminology would allow courts to describe
an award that manifestly disregarded the law or failed to draw its
essence from the contract as “arbitrary and capricious.” For
instance, it is in the context of the essence test that our LMRA
cases mention arbitrariness and capriciousness. See, e.g.,
Teamsters, 735 F.2d at 905 (quoting Bhd. of R.R. Trainmen, 415 F.2d
9
(...continued)
at 343.
Even so, we do not share the district court’s perplexity. The award is
rationally inferable from the facts and contract before the arbitrators. The
arbitrators might have concluded that Brabham should have supervised his accounts
better and discounted the award accordingly. Or the arbitrators might have
determined that the securities held by Brabham would not have appreciated as
substantially as Brabham’s expert believed.
15
at 412). In the interest of establishing clear and deferential
standards of review, however, we must avoid hashing the existing
grounds for vacatur into analytical bits, only to see those bits
take on a life of their own and inexorably overwhelm the deference
accorded arbitration awards. Cf. Johann Wolfgang von Goethe,
Goethe’s Poems & Aphorisms (Friedrich Burns ed., Oxford Univ. Press
1982) (recounting the fable of the Sorcerer’s Apprentice).
Arbitrariness and capriciousness is not an independent ground for
vacatur in this Circuit, and the district court should not have
vacated the award on that ground.10
III. Conclusion
The district court properly recognized manifest disregard as
a ground for vacating an arbitration award and correctly refused to
vacate the award on that ground. However, the district court erred
in vacating the award as arbitrary and capricious. Therefore, we
reverse the district court’s order vacating the award and remand
this case for further proceedings.
REVERSED and REMANDED.
10
Although our holding today forecloses arbitrariness and capriciousness as
a ground for vacating an arbitration award in an FAA case, Brabham would not
prevail even were we to embrace the Eleventh Circuit’s standard for arbitrariness
and capriciousness. In the Eleventh Circuit, if an arbitration panel gives no
reason for a lump-sum award, then the party seeking vacatur bears the burden of
refuting every rational basis on which the panel could have relied. See Brown
v. Rauscher Pierce Refsnes, Inc., 994 F.2d 775, 779, 780 n.4 (11th Cir. 1993).
The court must uphold the award if a plaintiff’s success on her claims “would not
inevitably result in one, undisputed measure of damages from which the
arbitrators could not stray.” Raiford v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 903 F.2d 1410, 1413 (11th Cir. 1990). Brabham has not proved that a
different award was inevitable, so his argument for vacatur fails even under the
standard he promotes.
16