Maryland Court of Appeals Holds that Manifest Disregard of the Law is a Ground to Overturn an Arbitration Award

The Maryland Court of Appeals recently reviewed a case in which it was called upon to interpret the Maryland Uniform Arbitration Act (“MUAA”) in WSC/205LLC v. Trio Ventures, 460 Md. 244 (2018).  Specifically, the Court was asked to determine “whether a court may vacate an arbitrator’s decision for manifest disregard of applicable law” even though that ground is not specifically set forth in the MUAA.

This case stemmed from a demand for arbitration resulting from a dispute arising from the sale of a commercial property.  Trio sold its interest in a joint venture that owned certain commercial real property to WSC.  The terms of the transfer were set forth in a purchase and sale agreement.  If one of two leasing scenarios occurred, WSC was required to pay $3.5 million in addition to the original purchase price.  One year later WSC sold the property at issue.  Trio maintained that WSC had an obligation to continue to lease the property to the existing tenants and was misled into believing that WSC remained the owner of the property.  Trio asserted that WSC’s sale deliberately destroyed the leasing contingencies and was a breach of the PSA that required WSC to pay it the additional $3.5 million.

The arbitrator concluded that the sale of the property was, in fact, a breach of contract and required WSC to pay Trio $3.5 million.  WSC filed a petition to vacate the arbitration award in the Circuit Court for Montgomery County.  The Circuit Court dismissed the petition and refused to award attorneys’ fees to Trio as the prevailing party.  The Court of Special Appeals affirmed the Circuit Court’s decision.

Pursuant to the MUAA, WSC challenged the ruling claiming that the arbitrator’s award should be overturned for manifest disregard of the law.  Under the MUAA there are five specific grounds upon which a circuit court must vacate an arbitration award.  Those are:

  1. An award was procured by corruption, fraud, or other undue means;
  2. There was evident partiality by an arbitrator appointed as a neutral, corruption in any arbitrator, or misconduct prejudicing the rights of any party;
  3. The arbitrators exceeded their powers;
  4. The arbitrators refused to postpone the hearing upon sufficient cause being shown for the postponement, refused to hear evidence material to the controversy, or otherwise so conducted the hearing, contrary to the provisions of § 3-213 of this subtitle, as to prejudice substantially the rights of a party; or
  5. There was no arbitration agreement as described in § 3-206 of this subtitle, the issue was not adversely determined in proceedings under § 3-208 of this subtitle, and the party did not participate in the arbitration hearing without raising the objection.

Md. Code Ann., Cts. & Jud. Proc. § 3-224(b).

The question for the Court was whether manifest disregard of the law is a ground upon which an arbitration award may be vacated as it was at common law.  The Court found that there was no evidence that the legislature intended to abrogate the common law when enacting the MUAA and that manifest disregard of the law is a ground to vacate an arbitration award.

The Court held that the standard for finding the arbitrator’s decision to be in manifest disregard of the law is whether the arbitrator made a palpable mistake of law or fact appearing on the face of the award.  The Court noted that the inquiry was for an error that is readily perceived or obvious, an error that is clear or unquestionable.  Applying this standard, the Court found that the arbitrator’s decision did not manifestly disregard the law and affirmed the decision.

Finally, the Court of Appeals held that an award of attorneys’ fees to the prevailing party under the MUAA, Md. Code Ann., Cts. & Jud. Proc. § 3-228(b) was discretionary and affirmed the decision of the Circuit Court on this point of law as well.

For further information on the Maryland Uniform Arbitration Act, please contact James Schraf at [email protected] or 443-569-0755.