A court has granted a petition to confirm an arbitration award despite the defendant's argument that the arbitrator acted in manifest disregard of the law. While acknowledging questions regarding the continuing viability of manifest disregard for the law as a basis for vacating arbitration awards, the court decided the case assuming that it is still the law, but found that the developer had not met the heavy burden of showing "that the arbitrator knew the applicable law, and yet chose to ignore it."
The case arose from a claim by the plaintiff, an architect, that the defendant, a developer, failed to pay for the architect's services and used its drawings without authorization. The defendant argued that five decisions of the arbitrator showed manifest disregard for the law: (1) awarding damages for debts incurred before the developer was formed, in contravention of the developer's operating agreement; (2) awarding lost profits, despite a contractual waiver of consequential damages; (3) awarding copyright damages despite a lack of evidence that the drawings were copyrightable; (4) awarding two sets of copyright damages for the same drawings; and (5) deciding the copyright question despite it being outside the scope of the arbitration clause.
The court found that the defendant failed to meet its burden regarding the third and fourth decisions regarding copyright damages because it failed to raise these issues during arbitration. Regarding the award for debts incurred before the developer's formation, the court found that it was not clear whether the arbitrator's decision was based on veil piercing, a finding that a contract other than the operating agreement was controlling, or concessions by the defendant in testimony, and thus manifest disregard for the law had not been shown. As to the award of lost profits, the court found that the contract that contained the waiver of consequential damages contained other provisions suggesting that this waiver did not apply to lost profits. Finally, regarding the arbitrator's authority over copyright infringement claims, the court found the contract language was broad enough and the case law cited by the parties was unclear enough to make it impossible to say that the arbitrator's decision showed manifest disregard for the law.
The Knabb Partnership v. Home Income Equity, LLC, Civil Action No. 17-373 (E.D. Pa. April 19, 2017)
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