ARBITRATION MAY NOT BE ALL IT’S CRACKED UP TO BE
In Hoskins v. Hoskins, the Texas Supreme Court strictly enforced the Texas Arbitration Act (“TAA”) by ruling that courts cannot vacate an award based on an arbitrator’s “manifest disregard” of the law. In this regard, the Texas high court held that the vacatur grounds listed in the TAA are the only way to get an arbitrator’s ruling tossed — and manifest disregard isn’t listed in the TAA.
The issue in Hoskins was whether a party seeking to vacate an arbitration award under the Texas Arbitration Act could invoke extra statutory, common law vacatur grounds to avoid an erroneous arbitration award. The TAA allows a trial court to vacate an award for three main reasons: (1) if an award was obtained by fraud or corruption; (2) if a party’s rights were prejudiced by an arbitrator’s evident partiality, corruption, or misconduct; or (3) if the arbitrator exceeded his powers. See §171.088 of the Texas Civil Practice & Remedies Code.
In Hoskins, court rejected manifest disregard of the law as a basis to challenge an arbitration award:
The TAA’s plain language confirms that, in proceedings governed by that statute, section 171.088 provides the exclusive grounds for vacatur of an arbitration award. Because manifest disregard is not included in section 171.088, and because the parties did not agree to limit the arbitrator’s authority so as to authorize vacatur on that basis, [an] attempt to vacate the award on the basis of manifest disregard must fail.
In a concurring opinion, Justice Don Willett noted that the issue of whether manifest disregard is a viable reason for vacatur has tied up federal courts for years and the U.S. Supreme Court has yet to address whether that common law doctrine comports with the Federal Arbitration Act. That is not the case under Texas law: “No such uncertainty exists with regard to the exclusivity of the TAA’s vacatur grounds … [e]xclusive means exclusive.”
Hoskins should be of concern to the many businesses that rely on arbitration clauses. In order to protect against an erroneous application of the law, those that rely on arbitration must include a clause in the arbitration agreement that allows for appeal and vacatur on the basis of manifest disregard of the law. Otherwise, you may be stuck with an unjust result based on legal error, because in Texas: “Exclusive mean exclusive.”
By Douglas R. Hafer
Business Trial Lawyer | Curnutt & Hafer, LLP