Originally from Dispute Resolution Journal

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Manifest Disregard of the Law

The Colorado Court of Appeals declined to adopt manifest disregard of the law as a ground for vacatur, holding that the state Revised Uniform Arbitration Act (RUAA), with its exclusive statutory grounds for vacatur, must be strictly construed. 

After an arbitration award was issued in favor of Coors Brewing Co., the defendants, Cabo and Calfik (with whom Coors had contracted to purchase an interest in a Mexican brewery), petitioned the trial court to vacate, modify, or correct the award. The court affirmed the arbitrator’s award.

On appeal, the defendants contended that the award should be vacated because the arbitrator exceeded his power by misinterpreting the parties’ agreements in “manifest disregard” of Colorado law, even though that ground is not recognized in the Colorado RUAA.

After reviewing how federal and state courts treat the doctrine of “manifest disregard of the law,” the Colorado Court of Appeals declined to adopt it, finding that the statutory grounds for vacatur in the RUAA are exclusive. Moreover, the court found that manifest disregard of the law could not be embraced within the “exceeding powers” ground for vacatur because it is “strictly defined” by the terms of the parties’ arbitration agreement. Thus, the court said, an arbitrator does not necessarily exceed his powers when he does not properly apply the law. Indeed, “an arbitrator’s interpretation of the law is largely immaterial to that analysis....”

The court also declined to adopt manifest disregard of the law as a matter of common law, ruling that the RUAA is in derogation of common law and must be strictly construed. The court noted that the legislature could have added manifest disregard when it enacted the RUAA, but it did not do so. The court also cited Colorado’s strong public policy favoring arbitration. Significantly, the court said, “The use of the manifest disregard of the law standard would weaken the effectiveness and legitimacy of arbitration. Judicial disapproval of awards, even the possibility of such disapproval, would increase costs, reduce efficiencies, and generally chip away at the finality of arbitral awards.”

The court noted that “efficiencies associated with arbitration would be reduced further by the varying definitions of, and difficulties of applying, the manifest disregard of the law standard” and that “such variations would undercut the certainty of otherwise binding arbitration awards.”

Coors Brewing Co. v. Federico Cabo, No. 03CA2452, 2004 WL 2903515 (Colo. Ct. App. Dec. 16, 2004).