In Warfield v Icon Advisors, Inc. 26 F.4th 666 (Fourth Circuit, February 24, 2022), the arbitrators gave no explanation how they determined liability for wrongful termination without just cause. In this instance, the court would not impute manifest disregard of the law by the arbitration panel to vacate the award. In the course of doing so, the Court comments on the “sky-high” standard for judicial review of arbitration awards.
In April 2019, James Warfield filed a statement of claim in arbitration against Icon Advisors, Inc. and Icon Distributors, Inc. (jointly “ICON”) asserting "wrongful termination without just cause." Citing 8th Circuit and 7th Circuit authority, Warfield argued the mere fact that disputes over his employment relationship had to be resolved by arbitration implied that he could only be fired for cause.
ICON responded Warfield could not recover for "wrongful termination" because North Carolina is an employment at-will state.
Three FINRA (Financial Industry Regulatory Authority) arbitrators agreed with Warfield stating: "Respondents [ICON] are jointly and severally liable for and shall pay to Claimant [Warfield] the amount of $1,186,975.00 in compensatory damages for wrongful termination without just cause." The arbitrators' decision contains no explanation as to the basis for the award.
Pursuant to the Federal Arbitration Act, Warfield moved in district court to enforce the award. ICON cross-moved to vacate the award.
The district court denied Warfield's motion and granted ICON's stating: "the clear, well-established law in North Carolina and the Fourth Circuit" precluded Warfield's wrongful termination without just cause claim, and that the [arbitration] Panel chose to disregard ... that law. The court concluded that the [a]ward therefore demonstrates manifest disregard of the law and must be vacated.
Warfield appealed to the Fourth Circuit.
The Court of Appeals reversed and reinstated the arbitration award describing any effort to vacate an arbitrator award as a “herculean task”:
Indeed, the scope of review of an arbitrator's ... decision is among the
narrowest known at law because to allow full scrutiny of such awards
would frustrate the purpose of having arbitration at all — the quick
resolution of disputes and the avoidance of the expense and delay
associated with litigation. … When reviewing such an award, a district
or appellate court is limited to determining whether the arbitrators did
the job they were told to do — not whether they did it well, or
correctly, or reasonably, but simply whether they did it. (citations omitted).
While acknowledging the Supreme Court decision in Hall Street Associates, LLC v Mattel, Inc., 552 U.S. 576 (2008) addressing the narrow grounds for vacatur, the Fourth Circuit nevertheless recognizes manifest disregard of the law as a possible ground for vacatur.
To establish manifest disregard, the court observes a party must demonstrate: (1) the disputed legal principle is clearly defined and is not subject to reasonable debate; and (2) the arbitrator refused to apply that legal principle. The Court considered both prongs.
To demonstrate the first prong, "the disputed legal principle is clearly defined and is not subject to reasonable debate," the Court stated ICON had to present to the arbitrators "binding precedent requiring a contrary result." The court found no such binding precedent. Rather, the arbitrators had before them on the one hand, authority holding that arbitrability implies for-cause termination protections, and on the other hand, authority establishing a presumption of at-will employment. Because the issue was subject to reasonable debate, the Court found the arbitrators could not have manifestly disregarded the law by determining Warfield could pursue a wrongful termination claim.
The Court held the second prong requires a finding that the arbitrators refused to heed the binding precedent. This prong requires something more than merely establishing that the arbitrators misapplied the law; instead, it requires evidence that they knowingly rejected a controlling precedent. This requires a showing that the arbitrators were aware of the law, understood it correctly, found it applicable to the case before them, and yet chose to ignore it in propounding their decision. The Court found no such showing here.
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