Fifth Circuit Firmly Rejects “Manifest Disregard” as Basis to Vacate Arbitration Awards
The Federal Arbitration Act (FAA) has long provided a narrow and well-defined pathway for challenging arbitration awards, reflecting a strong federal policy favoring arbitration as an efficient and final means of resolving disputes. Despite that clarity, litigants occasionally seek to expand the bases for vacatur beyond those enumerated in the statute. In a recent case out of the Fifth Circuit, the appellate court firmly pushed back on such efforts.
In Trinity Energy Services, L.L.C. v. Southeast Directional Drilling, L.L.C., the United States Court of Appeals for the Fifth Circuit issued a decisive ruling that reinforces the strictly limited nature of judicial review of arbitration awards under the FAA. Specifically, the court rejected the argument that “manifest disregard of the law” could serve as an independent or implied ground for vacating an award. The opinion not only reaffirms the textual limits of Section 10 of the FAA but also signals a broader judicial unwillingness—at least in the Fifth Circuit—to tolerate judicial second-guessing of arbitration panels under amorphous legal standards.
The Dispute: Pipeline Costs and a Contested Award
The underlying dispute arose in the context of the construction of natural gas pipelines. Trinity Energy Services and Southeast Directional Drilling were parties to a business arrangement involving pipeline installation. During the course of the project, Southeast incurred substantial “stand-by costs”—expenses that are typically associated with idle equipment or labor waiting for access or instruction. These costs became the crux of the arbitration dispute.
Following a full arbitration hearing, the panel awarded Southeast $1.66 million. Trinity challenged the result, asserting that the arbitrators’ decision reflected a “manifest disregard” of applicable law and seeking to vacate the award. Southeast, in turn, moved to confirm the award.
At the district court level, both parties’ motions were denied by the United States District Court for the Northern District of Texas. Trinity appealed the denial of its vacatur motion to the Fifth Circuit, hoping to establish “manifest disregard” as either an independent ground or a judicial gloss on the existing grounds set forth in the FAA.
FAA Section 10: The Statutory Framework for Vacatur
The Federal Arbitration Act, codified at 9 U.S.C. § 10, provides just four narrow grounds upon which a federal court may vacate an arbitration award:
Corruption, fraud, or undue means in procuring the award;
Evident partiality or corruption among the arbitrators;
Misconduct by arbitrators, such as refusing to hear pertinent evidence or unjustifiably postponing hearings; and
Exceeding powers or so imperfectly executing powers that no final, mutual, and definite award was issued.
Notably absent from this list is “manifest disregard of the law.” While some circuits have flirted with recognizing this doctrine as a fifth, judicially created ground for vacatur, others—most prominently the Fifth Circuit—have rejected such efforts.
The Fifth Circuit’s Rejection of “Manifest Disregard”
In its opinion, the Fifth Circuit reiterated that Section 10(a)(4) does not provide room to inject “manifest disregard” as a basis for overturning arbitration awards. The court emphasized that expanding the statutory language to include such a standard would run contrary to the FAA’s purpose and Congress’s explicit intent.
The panel stated unequivocally that “Trinity’s argument is inappropriate given the limited but express grounds for vacatur outlined by Congress in § 10(a) of the FAA and our court’s unfavorable treatment of ‘manifest disregard of the law’ as a viable basis for relief.”
In doing so, the court reaffirmed a line of precedent that has remained consistent in the Fifth Circuit: courts should not substitute their own legal judgments for those of arbitrators, even if the arbitrators arguably misapplied the law. The court added that accepting Trinity’s position would improperly shift the role of reviewing courts from determining whether arbitrators performed their contractual role at all to assessing whether they did so correctly—an inquiry that the FAA does not permit.
“Adopting Trinity Energy’s reading essentially would rewrite the question a judge must ask from ‘whether the arbitrators construed the contract at all’ to ‘whether they construed it correctly.’”
This distinction between interpretation and correctness is critical in FAA jurisprudence. It reflects the Supreme Court’s repeated emphasis that arbitration is a creature of contract, and that parties opting for arbitration accept both its efficiencies and its limitations—including limited judicial review.
To read the full decision, click here.
Broader Implications: FAA Uniformity and Judicial Restraint
The Fifth Circuit’s decision aligns with the overall trend in federal appellate courts to resist creating extra-statutory grounds for vacating arbitration awards. While a few circuits have historically suggested that “manifest disregard” might be a viable theory in exceptional circumstances, that view has lost traction in the wake of the U.S. Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008).
In Hall Street, the Supreme Court held that the statutory grounds enumerated in Section 10 of the FAA are exclusive and cannot be supplemented by contract or judicial interpretation. Since that ruling, the legal viability of the “manifest disregard” doctrine has diminished, and courts like the Fifth Circuit have increasingly treated it as a dead letter.
This narrowing trend promotes uniformity and predictability in arbitration outcomes. It also reinforces the finality that is supposed to distinguish arbitration from litigation. By declining to reopen awards based on speculative or subjective assessments of legal error, courts are giving full effect to the parties’ choice of arbitration as a binding and streamlined dispute resolution process.
Practical Takeaways for Parties in Arbitration
For businesses and practitioners operating within the Fifth Circuit—and potentially beyond—the message from Trinity Energy is clear: efforts to overturn arbitration awards based on alleged legal errors face steep odds. Unless one of the four statutory grounds under FAA § 10 is clearly satisfied, courts are unlikely to disturb arbitral outcomes.
Parties entering into arbitration agreements should take care to select experienced and qualified arbitrators, knowing that post-award review is tightly constrained. They should also prepare thoroughly and present their best case during arbitration, as opportunities for judicial correction are extremely limited.
Unlocking Solutions for Demanding Cases
The Fifth Circuit’s decision in Trinity Energy underscores a foundational principle of arbitration: finality. For parties seeking clarity, efficiency, and closure in complex commercial disputes, working with a seasoned neutral who understands both the statutory framework and the realities of high-stakes arbitration is essential.
At Nationwide ADR, the focus is on providing arbitration and mediation services that are thoughtful, balanced, and grounded in deep legal expertise. With experience handling intricate business disputes—including those arising in energy, construction, and commercial sectors—Nationwide ADR is committed to Unlocking Solutions for Demanding Cases.
To learn more about services or schedule a consultation, visit NationwideADR.com.