Limitations on Vacating Arbitration Awards: FAA Section 10(a)(4) Exclusivity and Manifest Disregard Not a Separate Ground

Introduction

In United States Trinity Energy Services, L.L.C. v. Southeast Directional Drilling, L.L.C., No. 24-10833 (5th Cir. April 28, 2025), the Fifth Circuit addressed a dispute over “stand-by costs” under a subcontract for horizontal directional drilling in a natural gas pipeline project. Trinity Energy, the general contractor’s subcontractor, sought to vacate an arbitral award of $1,662,000 in Southeast Drilling’s favor, arguing that the arbitrators exceeded their authority and manifestly disregarded Texas law. The court had to decide whether Section 10 of the Federal Arbitration Act (FAA) permitted vacatur on those grounds, and whether “manifest disregard of the law” remains an independent basis for relief.

Summary of the Judgment

The Fifth Circuit affirmed the district court’s confirmation of the arbitration award. Key holdings:

Review under the FAA is “exceedingly deferential” and confined to the four statutory grounds in 9 U.S.C. § 10(a).
Section 10(a)(4) – vacatur when an arbitrator “exceeded their powers” – does not allow a losing party to challenge contract interpretations simply because they believe the arbitrator erred.
“Manifest disregard of the law” is not a freestanding ground for vacatur in the Fifth Circuit and cannot be grafted into § 10(a)(4).
The arbitration panel’s decision was grounded in the subcontract’s terms and the record; it did not exceed its delegated authority.

Analysis

Precedents Cited

Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013): Emphasized that judicial review of arbitral decisions is “extraordinarily narrow,” and mere legal errors are insufficient for vacatur under § 10(a)(4).
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995): Underlined that arbitration must respect parties’ contractual delegation and a court’s view of merits is irrelevant.
Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008): Held that the grounds for vacatur in § 10 are exclusive and cannot be expanded by agreement or judicial gloss.
BNSF Railway Co. v. Alstom Transportation, Inc., 777 F.3d 785 (5th Cir. 2015): Reaffirmed arbitration as a matter of contract and stressed deference to the arbitrators’ “essence” construction of the contract.
Jones v. Michaels Stores, Inc., 991 F.3d 614 (5th Cir. 2021): Confirmed that “manifest disregard” is not an independent FAA ground and vacatur is limited to § 10(a) statutory bases.

Legal Reasoning

The court applied a de novo standard to the district court’s confirmation order, but it underscored that judicial review of arbitration awards under §§ 9–11 of the FAA is “exceedingly deferential.” The analysis proceeded in two steps:

Whether the arbitrators exceeded their authority under § 10(a)(4) by disregarding contractual limits on “stand-by costs.” The Fifth Circuit concluded the panel examined the subcontract, analyzed competing provisions, and based its award on the contract’s “essence.” Thus, even if there were interpretive mistakes, § 10(a)(4) does not authorize vacatur for errors of contract construction.
Whether “manifest disregard of the law” could be tacked onto § 10(a)(4). The court held that neither the FAA’s text nor Supreme Court precedent supports treating manifest disregard as an independent ground for vacatur. Recognizing such a gloss would conflict with Hall Street’s exclusivity rule and erode the narrow standard of review the FAA mandates.

Impact

This decision carries significant implications for arbitration practice in the Fifth Circuit and potentially nationwide:

Reaffirms that parties cannot sidestep the FAA’s exclusive vacatur grounds by invoking a judicially created “manifest disregard” standard.
Strengthens the “essence” test: awards drawing their rationale from the contract will withstand attack, even if perceived as legally or factually flawed.
Limits pre-arbitration challenges to venue or arbitrability by underscoring that substantive contract disputes belong before the arbitrators.
Signals that contractors and litigants must carefully draft arbitration clauses and prepare for limited appellate relief once an award issues.

Complex Concepts Simplified

Stand-by Costs: Expenses incurred when a contractor’s equipment and workforce remain on-site but cannot work due to suspension for non-default reasons (e.g., permitting delays, regulatory orders).
FAA § 10(a)(4): Provides that a court may vacate an arbitral award if the arbitrators “exceeded their powers.” This is interpreted to mean they must have ignored the contract entirely or acted outside the scope the parties agreed to delegate.
Manifest Disregard of the Law: A discredited judicial doctrine once used to vacate awards when arbitrators purportedly ignored “clearly governing legal principles.” The Fifth Circuit rejects it as a standalone vacatur ground.
Direct-Pay Agreement: A separate settlement between the subcontractor and the project owner that resolved certain claims but did not cover the stand-by cost dispute.

Conclusion

United States Trinity Energy Services v. Southeast Directional Drilling cements the principle that 9 U.S.C. § 10(a) defines the exclusive and narrowly construed grounds for vacating arbitration awards. Parties may not invoke “manifest disregard of the law” as an independent basis for relief nor challenge an award simply because they dispute the arbitrators’ contractual interpretation. The decision thus reinforces arbitration’s finality and the “national policy favoring [it],” preserving arbitration as an efficient alternative to protracted litigation.