Opposition Brief — Improv West Associates v. Comedy Club Club, Inc. (No. 08-1525)

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No. 08-1525 | OFFICE GFT CLETK

IN THE

Supreme Court of the United States

IMPROV WEST ASSOCIATES, and

CALIFORNIA COMEDY, INC.,

Petitioners,

v.

COMEDY CLUB, INC. and

AL COPELAND INVESTMENTS, INC.,

Respondents.

On PETITION FOR A Writ OF CERTIORARI TO THE

UNITED STATES CourRT OF APPEALS FOR THE NINTH CIRCUIT

BRIEF IN OPPOSITION

KELLY O. Scotr

KARINA B. STERMAN*

ERVIN, COHEN & JESSUP LLP

9401 Wilshire Boulevard

Ninth Floor

Beverly Hills, CA 90212-2974

Telephone: (310) 273-6333

Facsimile: (310) 859-2325

* Counsel of Record Attorneys for Respondents

ss

2

COUNTERSTATEMENT OF

QUESTIONS PRESENTED’

Whether the Court’s holding in Hall Street Assoc.,

L.L.C. v. Mattel, Inc. (Hall Street) prevents the

Ninth Circuit from partially reversing an arbitrator’s

decision that was in “manifest disregard of the law”

and therefore exceeded the scope of his authority

under the Federal Arbitration Act?

Whether a true and mature circuit split has been

created after Hall Street when all deciding circuit

courts but one have ruled that arbitral decisions

subject to the Federal Arbitration Act can only be

reviewed pursuant to the grounds set forth in the

Federal Arbitration Act?

Whether the Ninth Circuit committed reversible

error in finding, consisting with its precedent, that

an arbitrator who recognized the law and then

ignored it has exceeded his authority and based

thereon partially reversed the arbitrator’s award?

‘ Petitioners are not seeking re-hearing on the Ninth

Circuit’s determination that the arbitrator exceeded the scope

of his authority in extending the application of the parties’

contract to all “affiliates”. Accordingly, Respondents do not

revisit that issue either.

12

CORPORATE DISCLOSURE STATEMENT

The Respondents, Comedy Club, Ine. and

Al Copeland Investments, Inc. have no parent

corporation, and no publicly held company owns 10% or

more of their stock.

iit

TABLE OF CONTENTS

Page

COUNTERSTATEMENT OF QUESTIONS

PUREED x 645 0nh04si vases ee Nenaees ]

CORPORATE DISCLOSURE STATEMENT .. ii

SAB OE CAPT EEL bs vce ncdvensees ees iii

TABLE OF CITED AUTHORITIES ......... Vv

bh tS § rere err err ere mr re ]

REASONS FOR DENYING THE PETITION ... 2

I. THIS CASE DOES NOT MERIT

REVIEW BECAUSE THE COURT'S

HOLDINGIN HALL STREET ASSOC.,

L.L.C. v. MATTEL, INC. DID NOT

PRECLUDE THE NINTH CIRCUIT

FROM PARTIALLY REVERSING AN

ARBITRATOR’S DECISION THAT

WAS IN “MANIFEST DISREGARD OF

THE LAW” AND EXCEEDED THE

SCOPE OF HIS AUTHORITY UNDER

THE FEDERAL ARBITRATION ACT.

ee ee ee ee oe ee oe ee ee ee ae ee ee ee ae ee oe ee ee ee oe ee ee

bo

A. Hall Street Agreed With the Ninth

Cireuit’s Applied Standard for

Reviewing Arbitration Decisions. ...

NM

iv

Contents

Page

B. Hall Street Did Not Silently Abolish

Decades of Legal Precedent and

Abrogate Manifest Disregard of the

Law As a Ground for Vacatur. ......

or

©. The Nint. Circuit’s Holding Below Is

Consistent With Hall Street. ....... 8

Il. NO TRUE AND MATURE CIRCUIT

SPLIT CAN BE SAID TO EXIST

AFT@R HALL STREET WHEN ALL

DECIDING CIRCUIT COURTS BUT

ONE HAVE RULED THAT ARBITRAL

DECISIONS SUBJECT TO THE FAA

CAN ONLY BE REVIEWED

PURSUANT TO THOSE EXCLUSIVE

GROUNDS SET FORTH IN THE

TU as dR acer ieeua cas Kaew eeu eae wees 12

Ill.THIS CASE DOES NOT MERIT

REVIEW BECAUSE THE NINTH

CIRCUIT’S DECISION BELOW

CORRECTLY ISSUED A PARTIAL

REVERSAL OF AN ARBITRATION

AWARD AFTER DETERMINING

THAT WHEN THE ARBITRATOR

RECOGNIZED THE LAW

AND THEN IGNORED IT, HE HAD

EXCEEDED HIS AUTHORITY AND

MANIFESTLY DISREGARDED THE

SA ere er ae ir ea ey ere 18

TABLE OF CITEDAUTHORITIES

Page

Cases:

Bosack v. Soward,

__F.3d__, 2009 WL 2182898 (9" Cir.

J: ESS Paige "se ey OS ee 8

Citigroup Global Markets, Inc. v. Bacon,

2009 U.S. App. LEXIS 4543 (5" Cir. March 9,

RE cece h aha a eae dare aa bela kGw O% 4rd EG 14, 15

Cockerham v. Sound Ford, Inc.

(unpublished opinion) 2009 WL 1975426

Sr IED 3 6 5 6's ok wk beds he bn 34008 OO 8

Coffee Beanery, Ltd. v. WW, L.L.C.,

300 Fed. Appx. 315 (6 Cir. 2008) .......... 16, 17

First Options of Chicago, Inc. v. Kaplan,

ee re 6

Hall Street Assoc., LLC v. Mattel, Inc.,

552 U.S. _, 128 S.Ct 1396, 170 L.Ed. 2d 254

STE Te Teer rer See eee passim

Hall Street Assoc., LLC v. Mattel, Inc.,

113 Fed. Appx. 272, 2004 WL 2596020 (C.A. 9

EE ge ee eee a eka pence Or ete beeen. 3, 13

Hibbs v. Winn,

ee ee a ki as ls bab wes a ee 6

vi

Cited Authorities

Page

Kashner Davidson Securities Corp. v. Mscisz,

ee eC Ce PD ops cece neceveerssa 13

Kyocera Corp. v. Prudential Bache

Trade Servs. {nc.,

341 F. 3d 987 (9 Cir. 2003) ............ 3, 8, 10, 11

Mich. Mut. Ins. Co. v. Unigard Sec. Ins. Co.,

OG Fee GAT, TOO) cc ccccevccvcessvcs 19

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc.,

ES vg ccc cise s beste neads 7

Porzig v. Dresdner,

GO7 FOG Bee (oe Cir, 2007) ww. ccc cccescss 21

Qorvis Communications, LLC v. Wilson,

2008 WL 5077823 (4"* Cir. Dec. 2008) ....... 15, 16

Ramos-Santiago v. United Parcel Serv.,

Cae Be BO GE We BO) nc ccc cccnsecsnes 13

Rich v. Spartis,

307 Fed. Appx. 475 (2008) ..........2cceeee. 14

Schoenduve Corp. v. Lucent Technologies, Inc.,

OGS FT. OG tet CO CA, BOGS) onc cece ccc cencss 1]

Shearson/Am. Exp., Inc. v. McMahon,

ey MET PERNT sc ccc one venesceves sence 6

Cited Authorities

Page

Stolt-Nielsen SA v. AnimalFeeds Int'l Corp.,

548 F.3d 85 (2d Cir. 2008) (cert. review

EE 65h GA oS 4S he a eee eee EAT ESTO RES 14

Thomas v. Union Carbide Agr. Prods. Co.,

oo BOR 8 | ere rere eee 6

Todd Shipyards Corp. v. Cunard Line, Ltd.,

DGG Fame Bee Ce CAR, TGA) wcccccccccveces 16, 19

Vaugh v. Leeds, Morelli & Brown, PC.,

S10 POG. ADDK. Si (ZOUG) occ cece cecccees 14

Wise v. Wachovia,

460 F.3d 266 (7 Cir, 2006)... ccesccsvscses 16

Wisniewski v. United States,

ee es Eno ope s sve eeeweaee ean as 13

Wilko v. Swan,

ee A EE ID go viva e bu ondewns wae 6, 7, 17

Zayas v. Bacardi Corp.,

624 FSG G6 (1 Cir, BO0G) .. ccc ccc cc cecvces 13

Statutes:

3h) fe 2 ree are oe, @, 7, 32, 44 15

l

SUMMARY

Petitioners seek review of the Ninth Circuit’s ruling

below finding that an arbitrator who was aware of a

material state law but chose to ignore it acted in

“manifest disregard of the law” and therefore exceeded

the scope of his authority under the Federal Arbitration

Act (FAA). “Manifest disregard of the law” is a

historically grounded and well-established legal

standard for reversing an arbitral decision. As many

courts have iterated, it is a notably high standard

arising out of and generally defining the specific

enumerated grounds set forth in the Federal Arbitration

Act (FAA). Petitioners, however, argue that it should

now be abrogated. In doing so, Petitioners, seek to

bootstrap their Petition into a rewriting of what they

wanted this Court’s recent decision in Hall Street to say,

rather than what it actually said.

Petitioners argue that the Ninth Circuit below

misapplied the law of this Court and did so in a manner

that is squarely at odds with every other circuit in the

country. This is simply not accurate — the Ninth Circuit

properly applied the law in a manner consistent both

with this Court’s precedent and with the other majority

circuits. The decision below does not conflict with any

decision of this Court, nor does it implicate a federal

question that has not been decided by this Court.

The Ninth Circuit below establishes no new

principles, but merely applies this Court’s holding in

Hall Street as well as that of its own binding precedent.

Moreover, the Ninth Circuit did so consistently with

most other circuit courts that have dealt with the matter

2

after Hall Street. Because there is no mature conflict in

the courts of appeals and because the Ninth Circuit’s

ruling below is consistent with Hall Street and other

Supreme Court and federal precedent, this case does

not posit useful or proper grounds for this Court’s

review.

REASONS FOR DENYING THE PETITION

I. THIS CASE DOES NOT MERIT REVIEW

BECAUSE THE COURT’S HOLDING IN HALL

STREET ASSOC., L.L.C. v. MATTEL, INC. DID

NOT PRECLUDE THE NINTH CIRCUIT FROM

PARTIALLY REVERSING AN ARBITRATOR’S

DECISION THAT WAS IN “MANIFEST

DISREGARD OF THE LAW” AND EXCEEDED

THE SCOPE OF HIS AUTHORITY UNDER THE

FEDERAL ARBITRATION ACT.

A. Hall Street Agreed With the Ninth Circuit’s

Applied Standard for Reviewing Arbitration

Decisions.

The question before the Supreme Court in Hall

Street Assoc., LLC v. Mattel, Inc., 552 U.S. _ , 128 8.Ct

1396, 170 L.Ed. 2d 254 (2008) was whether the Ninth

Circuit erred when it held that the FAA precludes a

federal court from enforcing the parties’ clearly

expressed contractual agreement providing for more

expansive judicial review of an arbitration award than

the narrow standards of review otherwise set forth in

the FAA.

3

In Hall Street, the parties consented, while they

were in the middle of their district court case, to

arbitrate certain issues in their case. Their arbitration

agreement expressly provided for de novo review of the

arbitrator’s legal rulings for errors of law, which is a

considerably more expansive scope of reviewing arbitral

awards than provided by the FAA. Following the

arbitrator’s issuance of an award in favor of Mattel, Hall

Street invoked this contractually agreed upon standard

of review and moved to vacate the award against it. The

district court vacated it and remanded the case back to

the arbitrator for reconsideration. When the arbitrator

reversed the prior award against Halli Street, it moved

for confirmation of the new award and the district court

at that time confirmed it.

In the midst of these proceedings, the Ninth Circuit

had just issued its ruling in Kyocera Corp. v. Prudential

Bache Trade Servs. Inc., 341 F. 3d 987 (9 Cir. 2003),

construing the FAA as setting forth the exclusive

grounds by which an arbitrator’s decision could be

vacated, modified or corrected and holding that parties

may not contractually impose their own standard on the

courts. In light of this ruling, Mattel immediately

appealed the District Court’s decision because it upheld

an arbitration provision that permitted for the more

expansive type of arbitration review that Kyocera had

just made unavailable in the Ninth Circuit. See, Hal/

Street Assoc., LLC v. Mattel, Inc., 113 Fed. Appx. 272,

2004 WL 2596020 (C.A. 9 (Or.))*

* This decision was not selected for publication and is not

cited herein for its authority but solely for its historical

significance to explain the context and trajectory of the Court's

ruling in Hall Street.

Mattel argued that the FAA permitted a court to

overturn an arbitrator’s decision solely on the grounds

delineated in Sections 10 and 11 of the statute and that

parties should not be permitted to replace this

framework with contractually customized terms that go

beyond these grounds. Accordingly, the express

question before the Supreme Court in Hall Street was

“whether statutory grounds for prompt vacatur and

modification may be supplemented by contract.”

(Hall Street, 128 S.Ct. at 1400)

In reaching a decision on this issue, Hall Street

addressed the split in authorities across the nation

wherein some circuits, like the Ninth Circuit, regarded

the statutory grounds set forth in the FAA as exclusive

grounds for vacatur of an arbitrator’s award, whereas

others believed it open to expansion by the parties’

agreement. (Hall Street, p. 1403) This Court concluded

in Hall Street that the statutory grounds set forth in

the FAA are indeed exclusive and cannot be expanded

by contract. (/d. pp. 1400, 1403) In doing so, this Court

repeatedly and expressly “agreed” that the Ninth

Circuit was applying the correct standard of review

under the FAA:

We agree with the Ninth Circuit that [the

grounds for vacatur and modification provided

by Sections 10 and 11 of the FAA are

exclusive], but vacate and remand for

consideration of independent issues.

Hall Street, p. 1401

And the Ninth Circuit, for its part, seemed to

take it as a given that the District Court's

—

~

direct and prompt examination of the award

depended on the FAA; it found the expanded-

review provision unenforceable under

Kyocera and remanded for confirmation of the

original award ‘unless the district court

determines that the award should be vacated

on the grounds allowable under 9 U.S.C. § 10,

or modified or corrected under the grounds

allowable under 9 U.S.C. § 11.’

(Hall Street, p. 1407)

B. Hall Street Did Not Silently Abolish Decades

of Legal Precedent and Abrogate Manifest

Disregard of the Law As a Ground for

Vacatur.

Petitioners argue that this Court’s decision in Hall

Street dictates that the doctrine of “manifest disregard

of the law” be abrogated.’ (Petition p. 23) This is a forced

and inaccurate reading of Hall Street.‘

Petitioners also argue that “Hall Street requires that

every procedurally proper arbitration award be confirmed.”

(Petition p. 25) This is not explained further in the Petition and

is, therefore, too vague to be addressed. Specifically, it is not

clear whether Petitioners are arguing for yet another new

standard to supplant the FAA and “manifest disregard” of th

law, or whether Petitioners are advocating for this to be the

new interpretation of the grounds set forth in the FAA

Petitioners create more questions than it settles. For exampk

when an arbitrator is charged with applying the law

California but instead accurately applies the law of Texas, would

that be a “procedurally proper” award that Petitioners would

demand be confirmed?”

‘' Indeed, if Petitioners are correct, then surely Congre

vould not have stood by for over five decades in silence as post

6

Contrary to Petitioner’s arguments, Hall Street did

not create a new rule for the Ninth Circuit. Indeed,

neither Hall Street, nor any other Supreme Court

decision, has found that the long established “manifest

disregard of the law” standard is no longer valid. Hall

Street did, on the other hand, make allowance for the

assumption that Sections 10 and 11 of the FAA “could

be supplemented to some extent”. (Hall Street, p. 9).

More importantly, although Hall Street made no

specific ruling on the issue one way or another, because

it was not an issue in the case, this Court acknowledged

that in its own precedent, it had previously invoked

“manifest disregard of the law” as astandard for vacatur

of an arbitrator’s ruling under the FAA. (Hall Street,

p. 8, citing, Wilko v. Swan, 346 U.S. 427 (1953)).?

In Wilko, the High Court stated that erroneous

interpretations of the law by the arbitrator, “in contrast

(Cont'd)

Wilko courts throughout the country repeatedly ran afoul of

the FAA. More likely, however, Congress did not believe the

courts’ reliance on manifest disregard of the law in vacating

arbitration awards under the FAA as being inconsistent with

the FAA. Hibbs v. Winn, 542 U.S. 88, 112 (2004)(Stevens, J-

concurring)(that “prolonged congressional silence in response

to a settled interpretation of a federal statute provides powerful

support for maintaining the status quo.”)

* This Court has also reiterated in decisions after Wilko

that arbitration awards are subject to review for manifest

disregard of the law. See, e.g. First Optiors of Chicago, Inc. v.

Kaplan, 514 U.S. 938, 942 (1995), Shearson/Am. Exp., Inc. v.

McMahon, 482 U.S. 220, 259 (1987) and Thomas v. Union Carbide

Agr. Prods. Co., 473 U.S. 568, 601 (1985).

7

to manifest disregard [of the law]” are not subject to

judicial review by the federal courts. (Wilko, pp. 436-

37) (brackets in original). When asked by Hall Street to

interpret this language as a “further ground for vacatur

on top of those listed in § 10”, the Hall Street Court

refused, stating only that “this is too much for Wilko to

bear.” (Hall Street, pp. 8-9).

However, the High Court did not go as far as

Petitioners now advocate and declare a total

abrogation of the “manifest disregard of the law”

vacatur ground. Rather, the Hall Street Court pointed

out that although Wilko was vague in its phrasing, both

the Supreme Court and the Ninth Circuit have found

“manifest disregard of the law” as arising out of the FAA.

(Hall Street, p. 8).

Specifically, Hall Street cited to Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614,

656 (1985) (Stevens, J., dissenting) for having explained

“manifest disregard of the law” as generally referring

to the § 10 grounds collectively, rather than adding to

them. (/d., p. 8).

Petitioners further argue that the policies

underlying the FAA also dictate that the doctrine of

“manifest disregard of the law be abrogated.” (Petition

p. 23) This is equally unavailing. Judicial review of the

arbitration award in this case based upon the

arbitrator’s manifest disregard of the law is fully

consistent with the national policy favoring arbitration

because it is necessary to preserve the parties’

contractual expectations that the arbitrator will not

exceed the authority afforded to him by the parties’

agreement and the law. Hail Street, 128 S.Ct. at 1405.

8

In vacating a portion of the Award, the Ninth Circuit

did not “open[] the door to the full-bore legal and

evidentiary appeals that can ‘rende[r] informal

arbitration merely a prelude to a more cumbersome and

time-consuming judicial review process .. . and bring

arbitration theory to grief in the post-arbitration

process.” I[d. (quoting Kyocera). The proper limitation

of the arbitration award here will not, and has not,

engendered a cumbersome or time-consuming process,

in contrast to Petitioners’ own repeated attempts to

undo the Ninth Circuit’s reasoned opinion.*®

The Ninth Circuit’s decision partially vacating the

arbitrator’s award on the basis of his manifest disregard

of a California statute is fully consistent with the current

“national policy favoring arbitration with . . . limited

review.” Hall Street, 128 S.Ct. at 1405.

C. The Ninth Circuit’s Holding Below Is

Consistent With Hall Street.

Following this Court’s grant of certiorari, below, and

remand for further consideration in light of its

subsequent ruling in Hall Street, the Ninth Circuit

demanded and considered substantive briefing from the

6 In fact, the two Ninth Circuit cases that have dealt with

the issue of “manifest disregard of the law” after Hall Street

and after the amended opinion below, both denied requests to

vacate arbitration awards due to alleged manifest disregard of

the law, arguing that it is an extremely limited standard. See,

Cockerham v. Sound Ford, Inc. (unpublished opinion) 2009 WL

1975426 (9 Cir. (Wash))(cited for example herein and not as

authority); Bosack v. Soward, __ F.3d __, 2009 WL 2182898

(9" Cir. (Wash)).

9

parties on the issue of whether, and how, Hall Street

affected its decision below in the case herein. Petitioners

falsely misrepresent to the Court that “the Ninth Circuit

did not heed this Court’s instructions but instead

reinstated the prior decision practically verbatim with

only a passing discussing of Hall Street.” (Petition p.

18) This is not so. The Ninth Circuit considered the issue

and addressed it thoughtfully.

The Ninth Circuit devoted substantial consideration

and analysis to the issue posed to it by this Court:

Improv West argues that manifest disregard

of the law is not among the statutory grounds

for vacatur, and therefore we must amend our

prior option that vacated this part of the

arbitrator’s award for that reason.

* * *

We have already determined that the manifest

disregard ground for vacatur is shorthand for

a statutory ground under the FAA, specifically

9 U.S.C. § 10(a)(4), which state that the court

may vacate “where the arbitrators exceeded

their powers.” [citation omitted] The

Supreme Court did not reach the question of

whether the manifest disregard of the law

doctrine fits within §§ 10 or 11 of the FAA.

[cztation omitted] Instead, it listed several

possible readings of the doctrine, including

our own ... We cannot say that Hall Street

10

Associates is “clearly irreconcilable” with

Kyocera and thus we are bound by our own

precedent.”

(Petitioner’s App. pp. 24 ~ 25).

In the case herein, the parties had contractually

agreed to and did arbitrate their claims in accordance

with the arbitration rules of the American Arbitration

Association. At the conclusion of the arbitration, the

arbitrator issued an award that, among other things,

enjoined both the parties and numerous non-parties

from “opening or operating any other comedy clubs...

for the duration of the [twenty year] Trademark

Agreement”. (Petitioner’s App. p. 7)

In reviewing the arbitration award at issue, the

Ninth Circuit never attempted to invoke or apply an

arbitration review standard that was outside the FAA.

In fact, the Court below specifically considered and

relied on Kyocera, which is indicative of the Ninth

Circuit’s position that “manifest disregard” is a standard

encompassed by the articulated FAA grounds:

Congress has explicitly prescribed a much

narrower role for federal courts reviewing

arbitral decisions. The Federal Arbitration Act

[. ..] enumerates limited grounds on which a

federal court may vacate, modify, or correct

an arbitration award ... Congress has

specified the exclusive standard by which

federal courts may review an arbitrator’s

decision...

(Kyocera, pp. 12516-17).

11

The Kyocera Court unequivocally determined that

“manifest disregard of law” is encompassed in the FAA:

[I]t is clear that the “exceeded their powers”

clause of § 10(a)(4) . .. provides for vacatur

only when arbitrators purport to exercise

powers that the parties did not intend them

to possess or otherwise display a manifest

disregard for the jaw.

(/d., p. 12531) (emphasis added).’

In relying on Kyocera, the Court below

acknowledged that Hall Street did not reach the specific

question of whether the manifest disregard of the law

doctrine fits within the FAA. (Petitioner’s App. p. 24).

However, the Court reasoned further that Hall Street

“listed several possible readings of the doctrine,

including our own.” (Petitioner’s App. p. 24). Because

’ The Ninth Circuit confirmed the Kyocera principle again

in Schoenduve Corp. v. Lucent Technologies, Inc., 442 F. 3d 727,

731 (9% Cir. 2006):

A federal court may vacate an award if the arbitrator

engages in misbehavior that prejudices a party, or

if the arbitrator exceeds his powers in rendering

such an award. 9 U.S.C. § 10(a)(3)-(4). “[A]rbitrators

exceed their powers in this regard not when they

merely interpret or apply the governing law

incorrectly, but when the award is completely

irrational, or exhibits a manifest disregard of

law.’ Kyocera Corp., 341 F. 3d at 997 (internal

quotation marks and citations omitted).

(Emphasis added).

12

of this, and relying on Hall Street’s express openness to

the possibility that “manifest disregard” may be just

shorthand for § 10(a)(3) or § 10(a)(4) of the FAA, the

Ninth Circuit concluded that “manifest disregard

remains a valid ground for vacatur because it is a part

of § 10(a)(4). (Petitioner’s App. p. 24).

Thus, when it upheld its ruling based on the

“manifest disregard of the law” standard in the case

below, the Ninth Circuit did so relying on Hall Street’s

express language.

II. NO TRUE AND MATURE CIRCUIT SPLIT CAN

BE SAID TO EXIST AFTER HALL STREET

WHEN ALL DECIDING CIRCUIT COURTS BUT

ONE HAVE RULED THAT ARBITRAL

DECISIONS SUBJECT TO THE FAA CAN ONLY

BE REVIEWED PURSUANT TO THOSE

EXCLUSIVE GROUNDS SET FORTH IN THE

FAA.

Petitioners argue that the Circuits are “sharply

divided as to the validity of ‘manifest disregard’ as a

ground for vacatur after Hall Street’. (Petition, p. 15)

However, this is a contorted view of the few published

cases that have dealt with the issue after Hall Street.

indeed, rather than contribute to a circuit split, Hall

Street has actually galvanized the majority of the circuits

which are, for the most part, consistent. They reject any

grounds for vacatur under the FAA that fall outside

the enumerated grounds of the statute and they do not

allow “manifest disregard of the law” as an independent,

non-statutory ground for vacating arbitration awards.

Most of the published opinions that allow “manifest

disregard” to remain as a valid analytical vehicle for

13

reviewing arbitration decisions do so only to the extent

that it is a standard arising out of and defining the

grounds of the FAA itself.

The First Circuit, albeit with little discussion, has

concluded that Hall Street abolished manifest disregard

of the law as a ground for vacatur. See Ramos-Santiago

v. United Parcel Serv. 524 F.3d 120, 124 n.3 (1* Cir. 2008)

(acknowledging the holding in Hall Street Assocs.,

L.L.C. v. Mattel but not applying it because the case

before it was not subject to the FAA). In other decisions,

the First Circuit is even less instructive.* Zayas v.

Bacardi Corp., 524 F.3d 65 (1*t Cir. 2008), is a labor

relations case that refers to “manifest disregard of the

law” as “anchored in federal common law” but is

otherwise silent on the FAA and Hall Street, thereby

not providing its interpretation of this Court’s opinion

in Hall Street. (Zayas, p. 68) Similarly, Kashner

Davidson Securities Corp. v. Mscisz, 531 F. 3d 68 (1*

Cir. 2008) is also silent on its interpretation of Hall

Street. However, in relying on “manifest disregard of

the law” as a framework for reviewing arbitration

awards, the Court stated that that the decision could

be both in manifest disregard of the law and exceeding

an arbitrator’s authority under the FAA, and that the

Court was expressly not suggesting that the “exceeding

its power rationale” could not work as well in lieu of the

“manifest disregard of the law” framework. (Kashner,

p. 78)

®* The First C’ «cuit may have an intra-circuit conflict.

However, an intra-circuit conflict is generally not enough to

constitute a circuit split nor a ground for exercise of this Court’s

certiorari jurisdiction. Wisniewski v. United States, 353 U.S.

901, 902 (1957)(holding that it is “primarily the task of a Court

of Appeals to reconcile its internal difficulties.”)

14

The Second Circuit also recognized that Hall Street’s

holding was in direct conflict with the application of

manifest disregard as a nonstatutory ground for review,

but resolved the conflict (like the Ninth Circuit) by

regarding manifest disregard as a shorthand for

§ 10(a)(4) of the FAA. Stolt-Nielsen SA v. AnimalFeeds

Int'l Corp., 548 F.3d 85, 93-95 (2° Cir. 2008) (cert. review

granted).? The Court acknowledged that Hall Street held

that “the FAA sets forth the ‘exclusive’ grounds for

vacating an arbitration award, while also acknowledging

that this interpretation is inconsistent with some of its

own prior dicta that treated the ‘manifest disregard’

standard as a ground for vacatur entirely separate from

those enumerated in the FAA.” Jd. However, instead of

directly concluding that Hall Street eliminated manifest

disregard as a ground for vacatur under the FAA, the

Court reasoned that manifest disregard of the law should

be “reconceptualized as a judicial gloss on the specific

grounds for vacatur enumerated in section 10 of the

FAA... .” Id.

The Fifth Circuit in Citigroup Global Markets, Inc.

v. Bacon, 2009 U.S. App. LEXIS 4543 (5" Cir. March 9,

2009), addressed the issue of whether under the FAA,

the statutory provisions are the exclusive grounds for

vacatur and whether manifest disregard of the law as

° Petitioners cite to two other instances wherein the Second

Circuit considered the issue of “manifest disregard of the law”

after Hall Street. (Petition, p. 21) However, Petitioners don’t

mention that both of these decisions are unpublished and

not citable as authority, so they can hardly be contributing to

a circuit split. See, Vaugh v. Leeds, Morelli & Brown, PC 315

Fed. Appx. 327 (2009) and Rich v. Spartis 307 Fed. Appx. 475,

478 (the decision does not even mention Hall Street).

15

an independent, nonstatutory ground for setting aside

an award must be abandoned and rejected. Citigroup

concluded that, based on its interpretation of Hall

Street, arbitration awards under the FAA may be vacated

only for reasons provided in § 10 of the FAA, and manifest

disregard of the law could not be used as an

independent, nonstatutory ground for setting aside an

award. (Jd. 355.) However, in reaching this conclusion

specific to its case, the Sixth Circuit expressly

acknowledged the reasonableness of the Second

Circuit’s opinion in Stolt-Nielsen, saying:

In the full context of the Second Circuit’s

reasoning, this analysis is not inconsistent

with Hall Street’s speculation that manifest

disregard may, among other things,

“have been shorthand for § 10(a)(3) or

§ 10(a)(4)....”

We should be careful to observe, however, that

this description of manifest disregard is very

narrow. Because the arbitrator is fully aware

of the controlling principle of law and yet does

not apply it, he flouts the lawin such a manner

as to exceed the powers bestowed upon him.

(Citigroup, p. 357)

The Fourth Circuit opinion in Qorvis

Communications, LLC v. Wilson, 2008 WL 5077823

(4° Cir. Dec. 2098) hardly contributes to an alleged circuit

split either. Qorvis merely notes that the appellant

claimed the arbitrator manifestly disregarded the law

as one of the grounds for seeking a reversal of

16

the arbitration award. However, Qorvis does not discuss

the manifest disregard standard at all nor does it

address Hall Street. Rather, the Fourth Circuit merely

found that none of the grounds advanced by appellant

were sufficient to justify a vacation of the arbitrator’s

award.

The Seventh Circuit, although last contending with

the issue of “manifest disregard of the law” before Hall

Street was decided, is a fine example of the consistency

with which the majority of the circuits view the doctrine.

Wise v. Wachovia, 450 F.3d 265 (7 Cir. 2006). Namely,

the Court states that “we have defined ‘manifest

disregard of the law’ so narrowly that it fits comfortably

under the first clause of the fourth statutory ground [of

the FAA] — ‘where the arbitrators exceeded their

powers’.” Jd. at 269 (citing Ninth Circuit precedent,

Todd Shipyards Corp. v. Cunard Line, Ltd., 948 F.2d

1056, 1059-60 (9"" Cir. 1991)).

All of the aforementioned published Circuit Court

opinions are largely consistent with the opinion of the

Ninth Circuit Court below, that the grounds set forth in

the FAA are the only grounds available for vacating an

arbitration award and that manifest disregard of the

law can be viewed and applied as defining and operating

just within such grounds.

Indeed, the only Circuit Court that has reached an

opinion squarely at odds with every other Circuit is the

Sixth Circuit, and that is in an unpublished opinion.

Coffee Beanery, Ltd. v. WW, L.L.C., 300 Fed. Appx. 315

(6° Cir. 2008). In Coffee Beanery, the Court so narrowly

construed the holding of Hall Street such that it

17

interpreted it to apply only to contractual expansions

of the grounds for review. Coffee Beanery, pp. 418-19).

Coffee Beanery only briefly considered the effect of Hall

Street on manifest disregard of the law, stating that Hall

Street “significantly reduced the ability of federal courts

to vacate arbitration awards for reasons other than

those specified in 9 U.S.C. § 10... .”'° Ud.)

In sum, many of the Circuit Courts have yet to

consider the issue of “manifest disregard of the law” in

light of Hall Street. The few that already have are not

so disparate so as to constitute a disruptive circuit split.

Indeed, they are almost all consistent in their

determination that, after Hall Street, the grounds set

forth in the FAA are the exclusive grounds for vacating

an arbitration award. Accordingly, there is no

meaningful and mature split among the circuits so as to

warrant this Court’s intervention so soon after Hall

Street. The petition for grant of certiorari should be

denied.

10 While this is contrary to the direction that other circuits

have taken, it is not a completely irrational reading of Hall

Street. Citing Hall Street’s discussion of Wilko, which Coffee

Beanery thought demonstrated a “hesitation to reject the

‘manifest disregard’ doctrine,” and noting the acceptance of

the standard by each and every court of appeals, the court

concluded that it would be imprudent to cease vacating

arbitration awards made in manifest disregard of the law.

(Coffee Beanery, at p. 419 )

18

lil. THIS CASE DOES NOT MERIT REVIEW

BECAUSE THE NINTH CIRCUIT'S DECISION

BELOW CORRECTLY ISSUED A PARTIAL

REVERSAL OF AN ARBITRATION AWARD

AFTER DETERMINING THAT WHEN THE

ARBITRATOR RECOGNIZED THE LAW

AND THEN IGNORED IT, HE HAD EXCEEDED

HIS AUTHORITY AND MANIFESTLY

DISREGARDED THE LAW.

Petitioners falsely assert that the decision of the

Ninth Circuit below conflicts with decisions of “every

other circuit” applying the FAA. Petitioners assert that

the Ninth Circuit “dramatically alters the standard for

review of an arbitration award.” (Petition p. 31).

Specifically, Petitioners argue that the Ninth Circuit

reversed the ruling of the arbitrator in its decision below

merely for being “legally incorrect.” (Petition pp. 28-29)

This completely misrepresents the Ninth Circuit’s

decision below, both legally and factually.

The Ninth Circuit did not, as Petitioners say, reverse

the arbitrator’s ruling because it found it to be in “in

good faith” but “incorrect.” Rather, the Ninth Circuit

reversed the arbitrator’s ruling because it found that it

was in “manifest disregard of the law.” The Ninth Circuit

consistently and correctly invoked and applied its own

precedent in its standard for review of the arbitrator’s

award.

The Ninth Circuit’s opinion expressly stated that

“(ijt must be clear from the record that the arbitrator

[ ] recognized the applicable law and then ignored

19

it.” (See Petitioner’s App. p. 25, citing Mich. Mut. Ins.

Co. v. Unigard Sec. Ins. Co., 44 F.3d 826, 832 (9"" Cir.

1995) (bracketed text omissions in original).

The Michigan Mutual decision, at page 832, notably

cited and relied upon another Ninth Circuit seminal

holding, 7odd Shipyards Corp. v. Cunard Line Ltd., 949

F.2d 1056, 1060 (9" Cir. 1991). Todd Shipyards invoked

Supreme Court precedent in explaining that:

The Federal Arbitration Act, 9 U.S.C. at § 10,

sets out the grounds upon which a federal

court may vacate the decision of an arbitration

panel. The statute addresses decisions

influenced by corruption or undue influence,

and cases in which arbitrators exceed their

power under the terms of an agreement to

arbitrate. Courts have interpreted this

section narrowly, in light of Supreme Court

authority strictly limiting federal court review

of arbitration decisions. It is generally held

that an arbitration award will not be set

aside unless it evidences a “manifest

disregard for law”.

Id., at 1056 (invoking and citing to the Steelworker

Trilogy cases previously decided by the Supreme Court)

(emphasis added).

Furthermore, the Ninth Court below accurately and

thoughtfully applied this near-universal standard to the

case before it:

Dayton Time Lock and Kelton make evident

that under CBPC § 16600 an in-term covenant

20

not to compete in a franchise-like agreement

will be void if it “forecloses competition in a

substantial share” of a business, trade, or

market. (cite omitted)

(Petitioner’s App. p. 29) (emphasis added)

K * BA

Keeping in mind these settled principles of

California law ... which principles were

expressly before the arbitrator, we proceed

to evaluate whether the arbitrator’s decision

was in manifest disregard of the law.

(Petitioner’s App. pp. 29-30) (emphasis added)

* K K

The arbitrator’s ruling ... ignores CBPC

§ 16600 and thus is in manifest disregard of

the law.

(Petitioner’s App. 32) (emphasis added)

Contrary to Petitioners’ assertion that the Panel

found that the arbitrator engaged in good faith but

erroneous application of state law, the Ninth Circuit

clearly determined that the arbitrator’s ruling

demonstrated that he was aware of the law but chose to

“ignore” it. Accordingly, the Ninth Circuit invoked and

properly applied the correct standard.

21

Finally, contrary to Petitioner’s baseless assertion,

the Ninth Circuit’s opinion does not conflict with “every

other circuit”. (Petition p. 28) In fact, far from

Petitioner’s contention, none of the circuit courts say

that so long as an arbitrator evidenced a “good faith

effort” to apply the law then his decision could not be

reversed (as Petitioners advocate). On the contrary, the

cases Petitioners cite from the First, Third, Sixth, Tenth

and Eleventh Circuits all echo the Ninth Circuit’s

explication of the “manifest disregard of the law”

standard, as articulated above.

Indeed, the Second Circuit recently weighed in on

the analysis with Porzig v. Dresdner, 497 F.3d 133 (24

Cir. 2007), a decision Petitioners fail to cite to the Court.”

In Porzig, the Second Circuit first articulated that the

standard for reversal requires both that the arbitrators

knew of a governing legal principle yet refused to apply

it or ignored it altogether and that the law ignored by

the arbitrators was well-defined, explicit and clearly

applicable to the case. Based thereon, the Second Circuit

overturned an arbitration panel’s award of attorney’s

fees in favor of the Appellant based on a finding that

the arbitrators demonstrated “manifest disregard of the

law” because they inexplicably applied a contingency-

fee agreement analysis to their calculation of the amount

of attorney’s fees rather than the loadstar method

required by Second Circuit precedent. This analysis and

'' The Second Circuit’s decision and application of the

“manifest disregard of the law” standard is particularly

noteworthy not only because of its timeliness but also because

New York statute is the basis for the FAA itself. Hall Street,

p.12 fn.7.

22

conclusion is completely in line with the Ninth Circuit’s

decision herein. It is, in fact, consistent with the majority

of the circuits in the nation.’ Contrary to Petitioners’

accusation, the Ninth Circuit acted consistently and in

accordance with its own established precedent as well

as that of the majority of the other circuits.

CONCLUSION

Petitioners are demanding a radical rewriting of this

Court’s opinion in Hall Street, as well as that of the

majority of the circuit courts in the country. However,

there is no compelling reason to do so. Apart from

hungering for yet another bite at the proverbial apple,

Petitioners offer no legally sound basis for this Court to

grant the petition for certiorari herein.

The Ninth Circuit court below neither strayed from

its own precedent nor from this Court’s precedent. The

Ninth Circuit reasonably and properly applied a well-

established standard to reverse a portion of an

arbitrator’s ruling in accordance with the FAA.

Moreover, there is no mature or developed circuit split

2 The Eighth Circuit (stating that a party must prove that

an arbitrator found a law applicable to the case and

acknowledged that he was rendering a decision contrary to law)

and the Seventh Circuit (stating that the “manifest disregard”

standard is only met when the arbitrator orders the parties to

violate the law) are themselves distinct from the majority of

the circuits in their interpretation of the “manifest disregard

of the law” standard. However, as these are the exceptions,

the Ninth Circuit’s siding with its own precedent and the

majority of other circuits hardly conflicts “with the law of

every other circuit,” as Petitioner argue. (Petition, p. 28)

23

tha: tae Ninth Circuit opinion contributes to warrant

this Uourt’s intervention on this case.

For the reasons set forth herein, the Petition for a

Writ of Certiorari should be denied.

Respectfully submitted,

KELLY O. Scotr

KARINA B. STERMAN*

ERVIN, COHEN & JESSUP LLP

9401 Wilshire Boulevard

Ninth Floor

Beverly Hills, CA 90212-2974

Telephone: (310) 273-6333

Facsimile: (310) 859-2325

Attorneys for Respondents

* Counsel of Record