When Contract Interpretation Becomes Contract Rewriting

High-Level Summary

• In Zeidman v. Lindell Management, the Eighth Circuit vacated a $5 million arbitration award, holding that the arbitrators “exceeded their powers,” exhibited a “manifest disregard” for the law under Section 10(a)(4) of the Federal Arbitration Act and relied on extrinsic evidence to rewrite unambiguous contract terms.
• The Supreme Court’s denial of certiorari leaves intact a circuit split: The Second, Fourth, Sixth, Eighth, Ninth and Tenth Circuits apply “manifest disregard” as an independent doctrine in interpreting § 10(a)(4), while the Fifth, Seventh and Eleventh Circuits reject it entirely.
• Litigators should assess contract ambiguity early, build a record on interpretive issues and preserve “exceeds powers” arguments for potential post-arbitration review.
• Contract drafters should recognize that choice-of-law and venue clauses affect post-arbitration remedies and, if a flexible interpretive approach is desired, should consider granting arbitrators express authority to consider extrinsic evidence.

Introduction

The Federal Arbitration Act (FAA) authorizes federal courts to vacate an arbitration award on specific enumerated — and exclusive — grounds. For years, many courts permitted vacatur upon proof that the arbitrator exhibited a “manifest disregard for law.” Some courts apply this standard as an “independent ground for review,” while other courts view it as a “judicial gloss on the enumerated grounds for vacatur.” Conversely, other courts reject the “manifest disregard” standard as contrary to the text of the FAA.

The Eighth Circuit’s decision in Zeidman v. Lindell Management offered the Supreme Court the opportunity to resolve this split of authority and clarify the availability of vacatur under the FAA. The Supreme Court declined to review the decision. Thus, the Eighth Circuit’s approach remains intact, and the availability of vacatur from an unfavorable or poorly reasoned award continues to depend on the jurisdiction holding the situs of the arbitration.

This article examines the Eighth Circuit decision in Zeidman and offers practical guidance on drafting and litigating commercial and business disputes with an eye toward an effective vacatur strategy.

Background: The Contest, the Award and the Dispute

After Donald Trump’s 2020 election loss, Mike Lindell staged a 2021 “Cyber Symposium” through his company, offering a $5 million award to anyone who could disprove his voter-fraud claims. The contest required participants to submit written evidence proving “to a 100% degree of certainty that the data shown at the Symposium is not reflective of November 2020 election data.” Software developer Robert Zeidman analyzed 11 data files and reported that none contained election-related “packet capture” (PCAP) data, proving that the data did not support the voter fraud claims.

The contest rules included a broad arbitration clause and Minnesota choice-of-law provision. Both parties agreed the rules were unambiguous. After contest judges denied his claim, Zeidman prevailed before a three-member arbitration panel, which awarded him the $5 million prize.

Lindell asked the district court to vacate the award. The district court confirmed the award, but the Eighth Circuit reversed.

Analysis: The FAA Requires Following a Contract’s Governing Law Clause – But the Consequences for Failure Remain Unclear

Section 10(a) of the FAA authorizes federal courts to vacate an arbitration award on specific enumerated — and exclusive — grounds:

1. If the award was “procured by corruption, fraud, or undue means.”
2. If the arbitrator(s) displayed “evident partiality or corruption.”
3. “[W]here the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.”
4. “[W]here the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.”

Notably, errors of law — no matter how profound — are not grounds for vacatur. The Supreme Court has said “[t]he arbitrator’s construction [of the contract] holds, however good, bad, or ugly.” Yet many courts, including the Eighth Circuit, have applied an additional, “extra-statutory standard” permitting vacatur where the arbitrator exhibited a “manifest disregard” for the law.

Supreme Authority: The FAA and Contract Interpretation

The Supreme Court’s 2008 decision in Hall Street Associates v. Mattel is the lodestar for judicial review of arbitration awards. Hall Street emphasized that § 10 provides the “exclusive grounds” for vacatur. The Court acknowledged prior case law seeming to endorse “manifest disregard” as an additional standard, noting that “the interpretations of the law by the arbitrators in contrast to manifest disregard [of the law] are not subject, in the federal courts, to judicial review for error in interpretation.” In Hall Street, the Court pondered whether this “was meant to name a new [unenumerated] ground for review,” or “merely referred to the § 10 grounds collectively, rather than adding to them.” It declined to resolve the question, holding only that vacatur grounds cannot be expanded by contract.

Two terms later, in Stolt-Nielsen S.A. v. AnimalFeeds Int’l, the Court held that arbitrators “exceed[s] [their] powers” under § 10(a)(4) when the decision effectively “impose[s] [their] own view of sound policy” over the contract’s written language. Although the case arose under the “manifest disregard” standard, the Court “d[id] not decide whether ‘manifest disregard’ survive[d] [its] 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.” Even assuming it did, the arbitrators had “exceeded their powers.”

Hall Street and Stolt-Nielsen cast doubt on “manifest disregard” as a freestanding basis for vacatur. Yet the Court’s statement in Oxford Health Plans that “[t]he arbitrator’s construction holds” has sown confusion, prompting courts to either recast the doctrine as a narrow gloss on § 10(a)(4) or discard it altogether.

Erroneous Contract Interpretation and ‘Manifest Disregard’

Against that backdrop, Zeidman firmly roots vacatur in § 10(a)(4), treating manifest disregard as a label for the narrow circumstance where an arbitrator identifies the governing law and then ignores it.

Applying Minnesota’s plain-meaning doctrine, the Eighth Circuit faulted the panel for acknowledging rules against using extrinsic evidence to interpret unambiguous contracts than relying on pre-contest statements, advertising and expert expectations to convert “information related to the November 2020 election” into a PCAP-only requirement. Because “PCAP” appeared nowhere in the contest rules, the court concluded the award did not “draw its essence” from the agreement; the arbitrators effectively imposed a new obligation and exceeded their powers.

Citing Minnesota’s parol evidence rule and “plain meaning” doctrine, the court held that the arbitrators’ reliance on extrinsic evidence — despite the parties’ agreement that the rules were unambiguous — supplanted lawful interpretation with the arbitrators’ own “notions of industrial justice.” By going beyond the four corners of the agreement, the award did not “draw[] its essence” from the contract, in its view. The court endorsed the view that such departures lead to the “inescapable” conclusion “that the panel simply imposed its own conception of sound policy.”

Zeidman is a reminder that — despite the FAA’s “hands-off” reputation — the Eighth Circuit will intervene when arbitrators rely on extrinsic evidence to rewrite unambiguous contract terms.

The Supreme Court’s denial of certiorari leaves the circuit split unresolved. The Eighth Circuit is aligned with the Second, Fourth, Sixth, Eighth, Ninth and Tenth Circuits applying manifest disregard as an independent doctrine or § 10(a)(4) gloss, often paired with an “essence-from-the-contract” inquiry. The Fifth, Seventh and Eleventh Circuits reject it outright and would likely have confirmed the award because the panel was arguably interpreting the rules, even if incorrectly. Thus, forum selection and choice of law can be outcome-determinative, especially on close facts.

Takeaways

For Litigators

• “Unambiguous” means “hands off.” Minnesota law — applied in Zeidman through the choice-of-law clause — bars extrinsic evidence unless the contract is ambiguous. Parties should assume similar rules apply under other states’ laws and craft trial strategy accordingly.
• “Draws its essence” remains the touchstone. Under Eighth Circuit precedent, an award must “draw its essence” from the contract. If an arbitrator’s ruling cannot be tied to the four corners of an unambiguous agreement, vacatur arguments may succeed.

Parties should assess ambiguity positions early and consider whether extrinsic evidence might support either side’s position — or protect an award from vacatur. Counsel should then build the record on the contract’s clarity (or lack thereof).

• Judicial review is narrow — but not nil. Arbitration limits appellate review, but following the denial of certiorari in Zeidman, post-arbitration options vary by jurisdiction. Litigants should evaluate vacatur potential early.

In the Eighth Circuit, if the opposing party urges an interpretation that adds terms to the contract, consider framing it as an “exceeds powers” issue and preserve it for potential § 10(a)(4) review. This may also caution the panel against accepting the opponent’s theory.

For Drafters

• Choice-of-law clauses matter. Generic “apply the law of State X” provisions may limit an arbitrator’s interpretive latitude more than intended. The arbitrator must follow that state’s contract interpretation rules, which vary in flexibility — and those rules will govern both the dispute and any post-arbitration remedy.

Drafters should consider whether to grant arbitrators supplemental interpretive authority. Because arbitration is a creature of contract, drafters can set their own rules. If parties want flexibility despite choosing a state’s substantive law, they can add: “The arbitrators may consider extrinsic evidence as they deem appropriate, even if the agreement is unambiguous.” Alternatively, drafters may consider specifying when arbitrators may “modify or supplement” contract terms to reach an equitable outcome, if at all.

• Venue clauses matter. Post-arbitration outcomes vary by jurisdiction. Proceedings in circuits applying manifest disregard may be more receptive to vacatur arguments than those rejecting it. Drafters should weigh vacatur availability when selecting dispute-resolution venues and negotiating contract specificity.
• Scrutinize potentially ambiguous terms. Identifying language that might be disputed allows parties to decide whether to clarify it or leave it vague. Counterparties can use this assessment to negotiate for greater or lesser ambiguity depending on their strategic goals and risk tolerance.

For more information or questions, contact Matthew Boos or Nathan Converse.