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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2009

## Text

™ F
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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_0628%3A2. Public record. Not legal advice.