Georgia Court Sets High Bar to Vacate Arbitration Award for Manifest Disregard of Law
The Georgia Arbitration Code (GAC) is unusual among arbitration statutes in that it explicitly provides that the arbitrator’s “manifest disregard of the law” is grounds for vacatur of an arbitration award. That amendment was added in 2002, and there have been few cases construing the specific statute.
Georgia courts have interpreted O.C.G.A. § 9-9-13(b)(5) narrowly, requiring “clear evidence that the arbitrator intended to purposefully disregard the law,” America’s Home Place, Inc. v. Cassidy, 687 S.E.2d 254, 256 (Ga. App. 2009), and that “the governing law alleged to have been ignored by the arbitrator was well defined, explicit, and clearly applicable.” Hansen & Hansen Enters., Inc. v. SCSJ Enters., Inc., 682 S.E.2d 652, 655 (Ga. App. 2009) (citation omitted). “The arbitrator must appreciate the existence of a clearly governing legal principle but decide to ignore or pay no attention to it.” Id.
Last week, the Georgia Court of Appeals held that to be successful, a party must submit evidence – which “must be in the form of a transcript or findings of fact in the arbitrator’s award” – that “not only was the correct law communicated to an arbitrator, but that the arbitrator intentionally and knowingly chose to ignore that law despite the fact that it was correct.” First Option Mortgage, LLC v. S&S Fin. Mortgage Corp., A13A0483 (Ga. App. May 24, 2013). No reported Georgia case has ever vacated an arbitration award under the GAC for manifest disregard of the law, and under this standard, it will be difficult to ever do so.
In First Option Mortgage, First Option argued that the arbitrator had manifestly disregarded the law by shifting the burden of proof on one of the claims, and by not offsetting damages. However, First Option did not request or submit a transcript of the arbitration proceedings and the award did not contain findings of fact. Without such evidence, the court held that First Option could not succeed on its manifest disregard argument. To prove that an arbitrator was “conscious of the law and deliberately ignore[d] it,” a party was required to provide evidence “in the form of a transcript or findings of fact in the arbitrator’s award,” and First Option had not done so.
Under First Option Mortgage, a party seeking vacatur of an award based on manifest disregard in Georgia should not only request and submit a transcript of the arbitration, and request findings of fact in the award if the rules of the arbitration forum allow it, but the transcript or the award must also make clear that the arbitrators intentionally and knowingly chose to ignore the law. Absent such evidence, it is doubtful that such a vacatur attempt based on manifest disregard of the law will be successful.