In early 2025, the Fifth Circuit Court issued a decision limiting the grounds on which a party can challenge an arbitration decision. This decision narrows the already limited criteria for pursuing additional legal action. MehaffyWeber has closely followed the litigation that led to this decision, and we can provide you with experienced alternative dispute resolution services when you need to pursue further legal action.
Understanding the Fifth Circuit Court’s Decision
Unlike court decisions, arbitration agreements are far more difficult to appeal and overturn. There are very few grounds on which to file an appeal unless the individual can show evidence of wrongdoing by the arbitrator. While the Federal Arbitration Act (FAA) outlines the grounds for acceptable appeals, judges have historically been willing to hear an appeal based on the unofficial grounds of manifest disregard of the law.
Parties who made this claim could challenge an award by saying that the arbitrator had knowledge of applicable laws during arbitration and intentionally ignored them when making their decision. In some cases, this was a party’s primary grounds on which they could challenge an arbitration award, and judges would be willing to hear a case based on this reason. While many have debated the use of this claim across the country for years, it changed for Texas, Mississippi, and Louisiana following the U.S. Trinity Energy Services v. Southwest Directional Drilling case.
During this lawsuit, Southwest Directional Drilling sought costs related to contract work for Trinity Energy Services. When an arbitrator decided in favor of Southwest Directional Drilling, Trinity Energy Services appealed the decision, claiming that certain contractual terms were not upheld. However, since they could not demonstrate that the arbitrator overstepped their role, the court decided the company was unable to appeal the decision. The Fifth Circuit also decided that manifest disregard of the law would no longer be valid or recognized moving forward. This decision further reduced the already restricted grounds for making an appeal.
Valid Grounds for Challenging an Arbitration Award in Texas
While manifest disregard of the law is no longer an accepted reason to challenge an arbitration award, there are still certain situations where a party can appeal an award made by an arbitrator. They typically arise out of misconduct on the part of the arbitrator. According to section 10 of the FAA, the following situations provide grounds for parties to vacate an arbitration award:
- The arbitration award was secured through corruption, fraud, or inappropriate actions
- The arbitrator was corrupt or showed favoritism to one party over another
- Misconduct by an arbitrator, including refusing to delay a hearing or hear evidence when there is a justified reason for the matter to be heard properly and in a timely manner
- Overreach by an arbitrator and/or their failure to carry out duties
Arbitrators are supposed to carry out their duties objectively and diligently, and these situations provide the opportunity to seek justice for violations by the arbitrator. However, the grounds for vacating an arbitration award are very limited and specific, so the burden to provide evidence of these factors is significant. Only when the court deems the arbitrator to be in the wrong under these conditions can an arbitration decision be invalidated.
What Parties are Impacted by the Fifth Circuit Court’s Decision
The Fifth Circuit’s decisions to limit the grounds for challenging an arbitration award will have profound implications for Texans. Some corporations and industries prefer using arbitration to resolve disputes and limit their level of liability. Reducing the grounds for arbitration challenges can make the process more appealing and further protect Texas businesses from having to go to court.
Regarding parties who were forced to resolve their dispute through forced arbitration, this new guidance can make it harder to appeal a decision felt to be unfair. This is especially true for parties whose only ability to appeal their claim was on the basis of manifest disregard of the law. It also impacts the burden of evidence needed to appeal a claim.
Implications of the Fifth Circuit’s Decision in Texas
For many years, manifest disregard of the law was an approach that was allowed judicially. However, federal law does not explicitly allow for its use. With this new change, the Fifth Circuit now upholds and reinforces only what the FAA states. Because an arbitrator’s decisions can only be considered invalid for corruption or misconduct, parties involved in arbitration will have few additional rights if they do not win their case.
This decision puts extra pressure on each party to make sure that they present strong cases during arbitration. They must be able to thoroughly support their claim and rebut counterarguments to make sure the case is fairly heard, since the arbitrator’s decision is considered final. This effectively further insulates arbitrators from court oversight.
How to Move Forward in Light of the Fifth Circuit’s Decision
Moving forward, parties will need to pay more attention to the terms of arbitration agreements to better protect themselves from liability and the potential negative outcome of arbitration. Clarity about contractual provisions will be necessary, as no appeal opportunities are likely to exist.
Whether through proactive action or at the start of litigation, the importance of working with an experienced lawyer will be more important than ever. They can thoroughly assess the situation to determine what rights and options are available and develop effective strategies regarding arbitration. They can help secure a favorable outcome and provide clarity in the event that an FAA-approved claim can be made.
Contact MehaffyWeber Today
MehaffyWeber has monitored this case and the implications of this decision, so we can provide you with the most up-to-date information.. We are prepared to provide clarity and help you navigate what this means for you if you are unhappy with the arbitration decision made in your case. Our team of knowledgeable lawyers can evaluate your situation and help determine how to move forward. Contact us today to schedule a consultation with our team.