On June 10, 2013 the U.S. Supreme Court in Oxford Health Plans LLC v. Sutter, No. 12-135, slip op. at 4-5 (U.S. June 10, 2013) (Kagan, J.), unanimously reaffirmed that Section 10(a)(4) of the FAA authorizes courts to vacate awards that are not even arguably based on an interpretation of the parties’ agreement.

While the Court broke no new ground, Associate Justice Elena Kagan’s well-written opinion—together with Associate Justice Samuel A. Alito’s opinion in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010)—defines in fairly clear terms the scope of contract-based judicial review Section 10(a)(4) authorizes. Justice Kagan’s opinion raises not only some issues specific to class and consolidated arbitration, but also some relevant to Federal Arbitration Act (“FAA”)-governed arbitration in general.

This Part I of our two-part Oxford post begins by putting the case in context by summarizing recent events concerning judicial outcome review of FAA-governed awards and concludes by summarizing the Court’s decision. Part II will discuss what to make of Oxford.

Putting Oxford in Context: Outcome Review of FAA-Governed Awards

What we refer to as “outcome review” is the limited, deferential judicial review courts may apply to determine whether an arbitrator’s award should be vacated because it is not grounded in the parties’ agreement or because it disregards a clearly applicable, controlling and outcome-determinative legal rule or principle argued to the arbitrator. When a party argues that a commercial arbitration award was not even arguably grounded in the parties’ agreement, it is asking the court to apply the labor-arbitration-derived, “Steelworkers Trilogy” principle that an “award is legitimate only so long as it draws its essence from the” parties’ agreement. See Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597 (1960). Because there is no one universally accepted moniker for that standard, we refer to it as “manifest disregard of the agreement,” a shorthand form some courts have used to describe it. See, e.g., Ludwig Honold Mfg. Co. v. Fletcher, 405 F.2d 1123, 1128-29 (3rd Cir. 1969); Westerbeke Corp. v. Daihatsu Motor Co., Ltd., 304 F.3d 200, 222 (2d Cir. 2002) (Sotomayor, J.). We also sometimes refer to it as the “contract-based outcome review” standard.

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