Franchisees File Opposition to Coffee Beanery US Supreme Court Petition

ANN ARBOR, Mich. - Attorneys for franchisees WW, LLC, Richard Welshans and Deborah Williams have now filed their brief in opposition to The Coffee Beanery’s US Supreme Court Petition for a Writ of Certiorari, which challenged a Sixth Circuit Court decision in reversing a district court ruling that vacated an arbitration award in favor of Coffee Beanery. That decision was made solely on the ground that the arbitrator manifestly disregarded the law by holding that the franchisor was not required to disclose a conviction of one of its officers.  In addressing the major issues in his petition, Coffee Beanery attorney William L. Killion of Faegre & Benson explained, “This case cleanly presents the question whether manifest disregard of the law is a valid common-law or statutory ground for vacating an arbitration award under the FAA [Federal Arbitration Act]. Nothing in the history or procedural posture of the case will hinder or limit the [Supreme] Court’s review.”

The questions presented in the opposition brief filed on August 25 by Deepak Gupta, Public Citizen Litigation Group, and Harry M. Rifkin are:  

• Under the Federal Arbitration Act, courts may vacate arbitration awards when arbitrators have “exceeded
  their powers.” (Section 10(a)(4). Every circuit to squarely address the issue has held that arbitrators may exceed their powers under Section 10(a)(4) by manifestly disregarding the law, and no circuit has foreclosed that manifest-disregard standard. In the absence of a circuit split, should this Court grant certiorari to decide whether the manifest-disregard standard is consistent with Section 10(a)(4)?
• Should the Court grant certiorari to decide whether, assuming the manifest-disregard standard is consistent with Section 10(a)(4), the decision below misapplied that standard to the facts of this case?

The introduction to their brief states: 

“For half a century, federal courts have held that arbitration awards may be set aside in the rare event
that an arbitrator manifestly disregards the law. This extremely limited and deferential standard—adopted by every federal circuit—has historically been viewed as an application of Section 10(a)(4) of the Federal Arbitration Act (FAA), because manifest disregard of the law is, by definition, one way in which arbitrators can “exceed their powers.”

The brief emphasizes that Coffee Beanery wants the Supreme Court to “jettison that half-century of jurisprudence,” and urges the Court to grant certiorari to resolve a purported circuit split over “whether manifest disregard of the law survives in any form as a ground for vacating arbitration awards under the FAA. The split, the petition contends, has developed since this Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc., . . .which held that Section 10 “provides the FAA’s exclusive grounds for expedited vacatur.

In early August, the International Franchise Association filed its “friend of the court” brief in support of Coffee Beanery’s petition on the issue. The IFA urges the Supreme Court to take the case so it can resolve the conflict among the Circuit courts that “adversely affects every company that favors arbitration and does business nationwide.” David French, IFA vice president of government relations, stated, “In order to defend against claims of manifest disregard in post-arbitration motions, arbitrators may become more like judges, permitting expansive discovery and issuing lengthy decisions at every turn.”

But the opposition brief declares there is no circuit split. “In the 16 months since Hall Street, not one circuit has held that the manifest-disregard standard does not survive in any form. No circuit, in other words, follows the approach that Coffee Beanery advocates.” Gupta and Rifkin exclaim, “On the contrary, the only two circuits to have squarely decided the issue since Hall Street—the Second and the Ninth—have held that the manifest-disregard for standard remains valid as an application of section 10(a)(4). They also explain that Coffee Beanery’s claim of a circuit split rests on the assertion that two circuit, the First and Fifth, have foreclosed the manifest-disregard standard altogether. They declare that is incorrect.

The opposition brief also asserts that the Coffee Beanery petition’s predictions about the impact of allowing review for manifest disregard are overblown in stating it will have “sweeping national consequences.”  But it argues that it is Coffee Beanery that is seeking a sweeping change, one that has not been adopted by a single circuit. “At the very least, given the need for stability and certainty in the arbitration process, the untested nature of Coffee Beanery’s preferred approach counsels strongly in favor of allowing the issue to percolate.”

But it adds, if Coffee Beanery is correct, then Congress has stood silently by for 50 years as every federal circuit has radically misinterpreted the FAA. Such “prolonged congressional silence in response to a settled interpretation of a federal statute provides powerful support for maintaining the status quo.” It states, “Congress’s half century of silence ‘can be likened to the dog that did not bark.’”

In closing, the brief stresses that the Coffee Beanery petition seeks to take the Sixth Circuit to task solely for its description of the proper basis for the manifest-disregard standard (statutory versus non-statutory) and is unworthy of a Supreme Court review.  And, the petition, seeking review on the case-specific application of manifest-disregard standard to the facts, is also inappropriate where the error consists of no more than “the misapplication of a properly stated rule of laws.”

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Related Reading: 

• Coffee Beanery Petitions Supreme Court to Address Big Issues on Arbitration
• IFA Files Amicus in Support of Coffee Beanery