California Supreme Court: Employers Need Not “Police” Meal Breaks To Ensure They Are Taken

Yum.  If it’s meal time, then your employees – at least those willing to toss their artery-clogging consciences to the wind – may very well want to chow down on something like the above.

And, at least in California, it is now (finally) clear what your employer’s responsibility is concerning meal breaks.

Courts have been befuddled in California for some time concerning meal breaks.  Specifically, what happened if your boss told you to take a meal break, but you got busy and forgot and worked through all or part of the break?  Does the mere fact that your boss told you to go on break mean that the company has satisfied whatever obligation it might have had to provide you with a break (assuming, of course, that your boss didn’t pester you to keep working during the break)?  If so, then you might be out of luck.

Or, on the other hand, is the company’s duty to actually make sure you take a meal break when you are supposed to?  If this is the case, then legions of employees in various industries, who performed a spot of work here and there during meal breaks, might have claims against their employers, and legions of plaintiffs’ wage-and-hour attorneys start licking their chops.  (As if there’s not enough of that.)  One wonders what a company must do to fulfill such a requirement, if it indeed were a requirement.  Do they tail you to the In-N-Out?

After years of waiting, the California Supreme Court has finally answered this question for us in Brinker Restaurant Corp. v. Superior Court.  The Court was nice enough to summarize its key holding right at the very beginning of the 54-page opinion:

an employer’s obligation [to provide a meal break] is to relieve its employee of all duty, with the employee thereafter at liberty to use the meal period for whatever purpose he or she desires, but the employer need not ensure that no work is done.  [Ed. note - the emphasis is mine].

The Court elaborated upon this holding a little later in the opinion (at pp. 36-37):

An employer’s duty with respect to meal breaks under both [Labor Code] section 512, subdivision (a) and [IWC] Wage Order No. 5 is an obligation to provide a meal period to its employees. The employer satisfies this obligation if it relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so. What will suffice may vary from industry to industry, and we cannot in the context of this class certification proceeding delineate the full range of approaches that in each instance might be sufficient to satisfy the law.

On the other hand, the employer is not obligated to police meal breaks and ensure no work thereafter is performed. Bona fide relief from duty and the relinquishing of control satisfies the employer’s obligations, and work by a relieved employee during a meal break does not thereby place the employer in violation of its obligations and create liability for premium pay under Wage Order No. 5, subdivision 11(B) and Labor Code section 226.7, subdivision (b). [Ed. note: emphasis is mine]

The underlined language is key, in my opinion, and is what most California employers will focus on.  So long as you give your employees meal breaks when required, and legitimately relieve them of all responsibility and let them do essentially whatever they want (the employee must be “at liberty to use the meal period for whatever purpose he or she desires”), you are not at risk of a meal break penalty merely because your employees might start working to some degree during their breaks.  As the Court put it, “Proof an employer had knowledge of employees working through meal periods will not alone subject the employer to liability for premium pay; employees cannot manipulate the flexibility granted them by employers to use their breaks as they see fit to generate such liability.”

This holding creates a few new issues, however. California employers who have handbook policies that limit what employees can do during meal breaks might want to rethink those policies, since tying the employee’s hands and requiring them to take all breaks in the breakroom, etc., may not be wise, since it might not satisfy the “at liberty to use the meal period for whatever purpose he or she desires” requirement. California employers might also want to think about whether they should direct supervisors and managers to simply stay out of the breakroom (unless they are on breaks themselves), since a rather glaring hole in this holding is the possibility that employees might allege that their bosses coerced or pressured them into working, and those allegations become more feasible the more frequently supervisors start visiting the breakroom.  The court even mentioned this possibility by stating that “an employer may not undermine a formal policy of providing meal breaks by pressuring employees to perform their duties in ways that omit breaks.”

The Brinker court addressed various issues regarding class certification, how to calculate when rest and meal breaks must be given, etc., but the issue above what was everyone was waiting to see resolved.

9th Circuit: You Won’t Violate CFAA By Taking the Time to Read This Post

The Computer Fraud and Abuse Act (CFAA) has a pretty scary provision in it:

Whoever … intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains … information from a protected computer … shall be punished as provided in subsection (c) of this section.  [18 U.S.C. § 1030(a)(2)(C), emphasis added]

Yikes.  A separate section of CFAA also makes it illegal to “exceed authorized access” to a protected computer and obtain “anything of value” (subject to an exception that’s not important here).  [18 U.S.C. § 1030(a)(4)].  (And in case you are wondering, a “protected computer” is defined by CFAA to include, among others, any computer that “is used in or affecting interstate or foreign commerce or communication.”  This means, of course, that virtually every computer is a protected computer, except maybe those that have sat in their original retail boxes during their entire lifetimes.)

But what, exactly, does it mean to “exceed authorized access” to a computer? Does it mean that someone commits a CFAA violation by using someone else’s login credentials to go snooping around parts of your company’s network and get information you wouldn’t ordinarily be entitled to see?  What if you use your own credentials and view or download information that is entirely within the scope of your authorization, but then you set about to use that information for a wrongful purpose (such as absconding with the data so that you can use it to compete against your current employer)?

The definition of “exceeds authorized access” from CFAA doesn’t help much:

the term “exceeds authorized access” means to access a computer with authorization and to use such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter.  [18 U.S.C. § 1030(e)(6), emphasis added]

So, if you “use” your login credentials to get data that you are “not entitled so to obtain,” you violate CFAA.  But what does that mean?

Which brings us to the 9th Circuit’s new (and long-awaited) opinion in United States v. Nosal.  This case essentially dealt with the second situation that I described above: Mr. Nosal allegedly convinced some of his former co-workers to log into their company’s network, download a bunch of data, and send it to him so that he could start a competing business. The feds got wind of this, and eventually indicted Mr. Nosal for (among other things) aiding and abetting his former co-workers to commit CFAA violations – they charged him under the “anything of value” prong I quoted above. The lower court dismissed this part of the indictment, and the government appealed.

The government argued on appeal that the phrases “exceeds authorized access” and “not entitled so to obtain” should be read broadly enough to prohibit wrongful use of data, even if the data itself was originally obtained within the scope of a valid authorization (as it apparently had been in Mr. Nosal’s case). The government argued that since the statute already contains a prohibition on accessing a computer “without authorization,” and that prohibition clearly addresses the subject of computer hacking, Congress must have meant for the prohibition on exceeding “authorized access” to cover something else, namely, the wrongful use of data.

The 9th Circuit disagreed.

First, the court rejected the government’s proposed construction of the statute, since both prongs of the statute could have been meant by Congress to address wrongful computer hacking:

“[W]ithout authorization” would apply to outside hackers (individuals who have no authorized access to the computer at all) and “exceeds authorized access” would apply to inside hackers (individuals whose initial access to a computer is authorized but who access unauthorized information or files). This is a perfectly plausible construction of the statutory language that maintains the CFAA’s focus on hacking rather than turning it into a sweeping Internet-policing mandate.

Second, and more importantly, the court noted that interpreting CFAA to prohibit any unauthorized use of data would lead to a wide swath of conduct being criminalized, far beyond the imaginations of either Congress in 1984 (when CFAA was enacted) or the general public today. Remember the language that I quoted at the very beginning of this blog entry – the part of CFAA that ”makes it a crime to exceed authorized access of a computer connected to the Internet without any culpable intent,” as the court put it [Ed. note: emphasis in original]. Even though the government had charged Mr. Nosal under the “anything of value” prong of CFAA, that prong uses the same “exceeds authorized access” language as the big scary prong I quoted at the outset.  The 9th Circuit was adamant that the phrase “exceeds authorized access” must have the same meaning across all of CFAA. This created a problem for the government, because if ”exceeds authorized access” were really interpreted so broadly so as to cover any unauthorized use of the data obtained from a computer connected to the Internet (as opposed to hacking in order to get the data in the first place), virtually everyone in the United States would become a criminal:

The government’s construction of the statute would expand [CFAA's]scope far beyond computer hacking to criminalize any unauthorized use of information obtained from a computer. This would make criminals of large groups of people who would have little reason to suspect they are committing a federal crime. While ignorance of the law is no excuse, we can properly be skeptical as to whether Congress, in 1984, meant to criminalize conduct beyond that which is inherently wrongful, such as breaking into a computer.

* * *

Were we to adopt the government’s posed interpretation, millions of unsuspecting individuals would find that they are engaging in criminal conduct. 

Minds have wandered since the beginning of time and the computer gives employees new ways to procrastinate, by chatting with friends, playing games, shopping or watching sports highlights. Such activities are routinely prohibited by many computer-use policies, although employees are seldom disciplined for occasional use of work computers for personal purposes. Nevertheless, under the broad interpretation of the CFAA, such minor dalliances would become federal crimes. While it’s unlikely that you’ll be prosecuted for watching Reason.TV on your work computer, you could be. Employers wanting to rid themselves of troublesome employees without following proper procedures could threaten to report them to
the FBI unless they quit.  Ubiquitous, seldom-prosecuted crimes invite arbitrary and discriminatory enforcement.

The court went on to give a list of examples of conduct that might be criminalized if the government’s interpretation of CFAA were given any weight, some of which are quite hilarious (someone clearly put a lot of time and effort into this opinion):

• “Employees who call family members from their work phones will become criminals if they send an email instead.”
• “Employees can sneak in the sports section of the New York Times to read at work, but they’d better not visit ESPN.com.”
• “sudoku enthusiasts should stick to the printed puzzles, because visiting www.dailysudoku.com from their work computers might give them more than enough time to hone their sudoku skills behind bars.”
• “it’s not widely known that, up until very recently, Google forbade minors from using its services. … Adopting the government’s interpretation would turn vast numbers of teens and pre-teens into juvenile delinquents—and their parents and teachers into delinquency contributors.”
• “Facebook makes it a violation of the terms of service to let anyone log into your account.  …. Yet it’s very common for people to let close friends and relatives check their email or access their online accounts.”
• “Or consider the numerous dating websites whose terms of use prohibit inaccurate or misleading information. …Under the government’s proposed interpretation of the CFAA, … describing yourself as ‘tall, dark and handsome,’ when you’re actually short and homely, will earn you a handsome orange jumpsuit.”  [Ed. note: !!]

The government apparently acknowledged that these trifles would be swept up by its proposed interpretation of “exceeds authorized access,” but pledged not to prosecute such “minor” violations. This argument went over like a lead balloon:

The government assures us that, whatever the scope of the CFAA, it won’t prosecute minor violations. But we shouldn’t have to live at the mercy of our local prosecutor. …. And it’s not clear we can trust the government when a tempting target comes along. Take the case of the mom who posed as a 17-year-old boy and cyber-bullied her daughter’s classmate. The Justice Department prosecuted her under 18 U.S.C. § 1030(a)(2)(C) for violating MySpace’s terms of service, which prohibited lying about identifying information, including age. See United States v. Drew, 259 F.R.D. 449 (C.D. Cal. 2009). Lying on social media websites is common: People shave years off their age, add inches to their height and drop pounds from their weight. The difference between puffery and prosecution may depend on whether you happen to be someone an AUSA has reason to go after.

So, rest assured, at least in the 9th Circuit, you are not violating CFAA by reading this blog post in your leisure time.  If you’re in some other Circuit, well, we’ll see.

Fun with ERISA: The Perils of Multiemployer Pension Plans

Ever heard of the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA)? MPPAA deals with pension plans that cover multiple companies (typically in the union context), and what happens when one of those companies decides to leave the plan. If your company has been paying into one of these multiemployer plans, and then for some reason decides that it wants out of the plan, that won’t change the fact that the company’s employees will still be eligible for pension benefits from the plan and will continue sucking those benefits from the plan for decades after they retire. If companies were allowed to just waltz away from such a plan, the plan could be left with no contributing employers, no assets, and zillions of pensioners and no way to pay them. This is where MPPAA comes in.

MPPAA gives a multiemployer plan the ability to extort politely request that a company withdrawing from the plan pay what is called “withdrawal liability.” Withdrawal liability is, in essence, the plan’s best wet-finger-in-the-air estimate of the present value of the cost of providing those future pension benefits to the withdrawing employers employees. MPPAA contains all kinds of crazy rules that surprise most people when they first hear of them – such as the fact that a withdrawing employer who gets one of these “withdrawal liability” demand letters from a multiemployer plan generally must pay the entire amount of the demand no matter what, even if they want to fight, and even if they should ultimately expect to win that fight. And the only way to fight it is to pay the entire ticket first, then try to arbitrate and get at least part of your money back. As virtually every one of these MPPAA decisions states, MPPAA requires you to “pay now, dispute later.” (And yes, I meant arbitrate – arbitration of disputes is also mandatory under MPPAA.)

Why am I discussing this?

The Sixth Circuit has issued a brand new MPPAA decision, covering the interesting question of whether an employer, as part of its collective bargaining agreement with a union, can insist that the union indemnify the company for any assessed MPPAA withdrawal liability assessments. This sounds to me like a fascinating idea, and I’m wondering why a union would ever agree to such a provision, especially since these MPPAA withdrawal liability assessments can often reach the 7 and even 8 figures.

Apparently General Drivers, Warehousemen, & Helpers Local 89 agreed to such a provision in a bargaining agreement with Shelter Distribution, Inc. Then Shelter Distribution withdrew from the pension plan and got assessed for withdrawal liability (a paltry $57,291.50, mind you). Shelter Distribution paid the ticket, then came knocking on the Union’s door, asking for reimbursement. The Union balked, claiming that indemnification language that it had agreed to in the bargaining agreement was against public policy and hence void.

The Sixth Circuit, in its new opinion in Shelter Distribution, Inc. v. General Drivers, Warehousemen, & Helpers Local 89, said no: there’s no public policy prohibition against shifting the cost of withdrawal liability to a union – presuming, of course, that you can find a union that’s willing to accept that type of provision (and good luck with that, especially after this new decision). The Sixth Circuit pointed to one other lonely Third Circuit opinion from 2009 (Pittsburgh Mack Sales & Services, Inc. v. International Union of Operating Engineers, Local Union No. 66, 580 F.3d 185 (3d Cir. 2009) which had addressed this same issue and reached the same conclusion.

The Sixth Circuit’s new case is Shelter Distribution, Inc. v. General Drivers, Warehousemen, & Helpers Local 89.  Happy reading!

6th Circuit: Court Acted Properly in Not Aggregating Plaintiffs’ Harassment Evidence

If a bunch of folks all band together and sue their common employer, each bringing individual harassment claims, should the court consider their evidence in aggregate when resolving the case, regardless of the extent to which each individual plaintiff was even aware of what was happening to their fellows?

Not according to a recent decision from the Sixth Circuit in Berryman v. SuperValu Holdings, Inc. The African-American Plaintiffs in Berryman claimed that Supervalu had subjected each of them individually to a racially-hostile work environment. The lower court had tossed their case, finding that, individually, none of them had presented enough evidence of a racially hostile environment. The lower court refused to view all of their evidence in the aggregate and determine whether, taken as a whole, the entirety of the evidence created a legally hostile environment. The plaintiffs, complaining about this, appealed.

Entirely correct, held the Sixth Circuit, which stated that it was proper for the district court to only analyze “those events that were either perceived by an individual employee or that the employee knew about.”  The Sixth Circuit explained that the only way that each plaintiff could rely on their fellows’ evidence would be if they had been able to “marshal basic evidence to show that they were individually aware of the harassment experienced by other plaintiffs.”  Since Plaintiffs did not do this, their claim died.

Astute readers may be wondering about the Sixth Circuit’s earlier decision in Jackson v. Quanex Corp., in which a different panel had held, at least it seemed, that plaintiffs’ Title VII claims could be considered in the aggregate regardless of whether particular acts of harassment had been “directed at or witnessed by” particular plaintiffs.  Conflict?  Well, this new panel explained that while Jackson may stand (?) for the proposition that courts can aggregate claims even if the evidence in question was not directed at a particular plaintiff or witnessed by a particular plaintiff, Jackson merely requires the court to look at the “totality of the circumstances” and does not stand for the broader proposition that a group of plaintiffs “may aggregate all of their claims regardless of whether they were aware of one another’s experiences or not.”  So at least that’s clear now.

Image: Idea Go / freedigitalphotos.net

7th Circuit: Cat’s Paw Theory Is a “Judicial Attractive Nuisance”

Maybe you have heard that there is this theory of employment liability floating around called “cat’s paw” . Maybe you have even heard that there’s a recent U.S. Supreme Court case discussing cat’s paw liability. (there is: Staub v. Proctor Hosp., 131 S. Ct. 1186 (2011)). But what exactly does cat’s paw liability mean? Does anyone know? Anyone?

Apparently, everyone was confused in Cook v. IPC International Corp. The plaintiff in the Cook showed up for work one day, and her supervisor (about whom she had previously lodged sex discrimination complaints) told her to clean out her locker and hand in her keys. She reasoned that she was being fired, so she complied, assuming that her employment was over. She then sued for sex discrimination and retaliation.

The employer argued that it had planned to transfer the plaintiff, not fire her, that the plaintiff was fully aware of this, and that she knew that this is what her supervisor must have meant when he told her to pack her stuff and go. The company’s position was that she abandoned her job by not showing up at the transfer, and that her discrimination and retaliation claims should fail because there was no adverse employment action.

Simple?

Apparently not. The trial judge issued jury instructions which suggested that the jury could not find for the plaintiff unless it found that the plaintiff’s supervisor was “the” decision-maker who decided to fire her. The jury had a question about this:

After deliberating for four hours the jury had sent a note to the district judge requesting clarification of the decisionmaker question. The jury wanted to know whether the word “the” in the phrase “the IPC decisionmaker who terminated her employment” meant “he was the sole decisionmaker versus being ‘a’ decisionmaker meaning he was a part of the decision to terminate Deborah Cook.” Over the plaintiff’s objection the judge answered: “ ‘He’ means the ‘sole’ decisionmaker.” The judge was asked to clarify “the,” not “he,” and doubtless meant to do so, but he wrote “He.”

(Facepalm).  The jury came back with a defense verdict (surprise), and the trial judge refused to set it aside.  When confronted about the above jury instruction and his clarification, the judge pointed to the cat’s paw doctrine: ”the district judge said that the plaintiff had failed to advance a ‘cat’s paw’ theory of employer liability and therefore could prevail only if the jury found that Spann had been the ‘sole decisionmaker.’”

The Seventh Circuit vacated this entire mess, remanding the case for a new trial, because it found that the district court’s invocation of the cat’s paw theory was not warranted at all, based on the parties’ facts. 

It did, however, attempt to explain the “cat’s paw” doctrine a little better. The court went out of its way to apologize for the “dreadful muddle” that the doctrine had become, a morass that apparently “confuses judges, jurors, and lawyers alike” due to the “vague judicial terminology” associated with it. It referred to the doctrine as a ”judicial attractive nuisance.”

Then the Court hitched up its sleeves and tried to explain what “cat’s paw” is all about:

In the fable of the cat’s paw (a fable offensive to cats and cat lovers, be it noted), a monkey who wants chestnuts that are roasting in a fire persuades an intellectually challenged cat to fetch the chestnuts from the fire for the monkey, and the cat does so but in the process burns its paw. In employment discrimination law the “cat’s paw” metaphor refers to a situation in which an employee is fired or subjected to some other adverse employment action by a supervisor who himself has no discriminatory motive, but who has been manipulated by a subordinate who does have such a motive and intended to bring about the adverse employment action. So if for example the subordinate has told the supervisor that the employee in question is a thief, but as the subordinate well knows she is not, the fact that the supervisor has no reason to doubt the truthfulness of the accusation, and having no doubt fires her, does not exonerate the employer if the subordinate’s motive was discriminatory. As explained in Staub [cited above--Ed.], “since a supervisor is an agent of the employer, when he causes an adverse employment action the employer causes it; and when discrimination is a motivating factor in his doing so, it is a ‘motivating factor in the employer’s action.’ “

* * *

The “cat’s paw” doctrine can be thought of as an application of the “motivating factor” doctrine; the monkey’s malevolent intent is imputed to the employer. So if the employer can’t show that the monkey’s supervisor, who did the actual firing (or took some other adverse employment action), had a lawful motive uncontaminated by the monkey that would have led the supervisor to fire the employee even without the monkey’s interference, the employee is entitled to damages.

All clear now? Good! The Seventh Circuit concluded that there was no “cat’s paw” issue in the Cook case at all, since nobody in Cook was claiming that the bias of some lower-level supervisor should be pinned on some higher level decisionmaker. Rather, the company had always argued that nobody had ever decided to fire the plaintiff at all. The plaintiff disputed this. There were thus two competing versions of what happened, and all the jury should have needed to do was pick between those two versions of the events, and “[a]ll the judge had to do was tell the jury that.” Seems simple enough.

Ohio Court: No Immediate Appeal from Denial of Preliminary Injunction Against Unfair Competition

If you sue a bunch of former sales employees for absconding with customer information and violating non-solicitation agreements, and you ask a judge to issue a “preliminary injunction” to stop those former employees in their tracks while your lawsuit is pending, and the judge says “no,” can you appeal right away?

In Ohio, the answer appears to be: not necessarily. Or, that’s the answer according to a new Ohio decision, Wells Fargo Insurance Services USA, Inc. v. Gingrich. (No, not that Gingrich.)  Whether or not you get an immediate appeal – or you have to wait until the entire stinking lawsuit is over to appeal – depends on whether or not you can prove

Ohio’s rules will, under certain circumstances, allow for an immmediate appeal from the denial of a motion for preliminary injunction, but one of the requirements that must be met is that the putative appellant must show that he or she “would not be afforded a meaningful or effective remedy by an appeal following final judgment as to all proceedings, issues, claims, and parties in the action.”

And therein lies the problem in the Gingrich case. The appealing party in that case was complaining about three departed former brokers who were soliciting “a very specific discreet [sic] book of business.” (Aside: I think they meant “discrete,” rather than “discreet,” though I have no doubt that the particular customers in question behaved as discreetly as circumstances may have warranted. But I digress…)

Their former managing director claimed that he had “no idea how many” of this customers in this book had already been targeted and also had no clue “what that business will evolve to” in the future.

Not enough, according to the Court.  The Court discussed a couple of other earlier Ohio cases where interlocutory appeals had been allowed, but noted that in those other cases, the appealing parties had been able to produce actual evidence of the impending doom they faced absent an appeal.  In this case, all that was offered was, for the most part, speculation, which isn’t really evidence of anything, especially since we were still only dealing with a discreet (discrete?) group of customers:

Wells Fargo is only seeking to enjoin Gingrich, Smittle, and Nixon from soliciting business from a limited number of select customers for which they acted as brokers, or, as Wells Fargo stated at the preliminary injunction hearing, “a very specific discreet book of business.” In turn, while its managing director did testify that there was no way to quantify its losses for it has “no idea how many of [these customers] they are calling on today” and are unable to determine “what that business will evolve to,” the lost revenue resulting from the departure of any one these customers is easily calculable by using a standard industry multiplier. As a result, because any losses to Wells Fargo can be remedied by money damages at the conclusion of the case, so too can any losses that it may incur during the pendency of the case.

Ergo, since Wells Fargo could be made whole by a single check, there was no need to bother the Court of Appeals with an interlocutory appeal.

Image: renjith krishnan / freedigitalphotos.net

Does “Manifest Disregard” Still Exist as a Grounds for Vacating an Arbitrator’s Award?

For as long as I can remember, courts have entertain arguments about whether or not to overturn an arbitrator’s award on the grounds the the arbitrator “manifestly disregarded” the law.

Trouble is, there’s this statute out there called the Federal Arbitration Act, and the FAA lists several grounds for vacating an arbitrator’s award, and “manifest disregard for the law” isn’t one of them. And then, in 2009, the Supreme Court issued an opinion in a case called Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576, 581 (2008), in which the Supremes held that the enumerated grounds for vacatur in the FAA are “exclusive.”

Is this the death of “manifest disregard” review?

Yes, that’s exactly what Hall Street means, according to the 1st, 5th and 11th Circuits.  (See Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009); Frazier v. CitiFinancial Corp., 604 F.3d 1313, 1323-24 (11th Cir. 2010); Ramos-Santiago v. UPS, 524 F.3d 120, 124 n.3 (1st Cir. 2008), although the latter of these is clearly dicta).

But not every Circuit has been willing to let go of its “manifest disregard” blanket yet.  The 2nd, 6th, and 9th Circuits have narrowly construed Hall Street and have continued to give varying degrees of life to “manifest disregard.” (Stolt-Nielsen SA v. AnimalFeeds Int’l Corp., 548 F.3d 85, 93-94 (2d Cir. 2008), rev’d on other grounds, Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010)); Comedy Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 1290 (9th Cir. 2009); Coffee Beanery, Ltd. v. WW, LLC, 300 Fed. Appx. 415, 419 (6th Cir. 2008)).

Even in the midst of this rather obvious circuit split, the Supreme Court in the aforementioned Stolt-Nielsencase punted on the question, stating in a footnote (footnote 3, to be exact) that it was not going to resolve the question of whether “manifest disregard” was dead in light of Hall Street:

We do not decide whether “manifest disregard” survives our decision in Hall Street Associates, as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10. AnimalFeeds characterizes that standard as requiring a showing that the arbitrators knew of the relevant principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it. Assuming, arguendo, that such a standard applies, we find it satisfied.

And now, the 4th Circuit has chimed in – and has joined the side of the Circuits that will still entertain arguments concerning “manifest disregard.”

At issue was a $1.1 million sanction that an arbitration panel had smacked upon Wachovia after Wachovia had initiated arguably-frivolous unfair competition FINRA arbitration against some departed broker-dealers, who countersued for unpaid wages under South Carolina state wage law and then asked the arbitration panel to sanction Wachovia under South Carolina’s frivolous conduct statute.  The Fourth Circuit went through a length analysis of the history of the “manifest disregard” analysis, noted the circuit split above, and then concluded that – based solely on the footnote from Stolt-Nielsen (the same footnote 3 mentioned above), that it was joining the side of the 2nd, 6th, and 9th Circuits:

We read this footnote [footnote 3 from Stolt-Nielsen] to mean that manifest disregard continues to exist either “as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10.”

So, there you have it.  If you’re keeping score, the “manifest disregard is alive” team has now pulled out in the lead, leading the “manifest disregard is dead” team by a score of 4 circuits to 3.