EASTERBROOK, Circuit Judge.
For many years George Watts & Son sold Tiffany's products in Wisconsin. After receiving a notice ending that arrangement, Watts filed suit, asserting that Tiffany had violated both the contract between the parties and the Wisconsin Fair Dealership Law, Wis. Stat. ch. 135. Before the case could be decided, Watts and Tiffany decided that they preferred arbitration to litigation. The parties received the principal benefit of that bargain: swift and inexpensive decision. But Watts decided in retrospect that its decision to arbitrate had been unwise, and it asked the district court to provide more relief than the arbitrator had afforded.
The arbitrator's award extended the time during which Watts could resell Tiffany's merchandise through Watts' bridal registry but permitted Tiffany to cease selling to Watts at the end of 2000; it also required Tiffany to repurchase at retail price all other Tiffany merchandise remaining in Watts' inventory. The arbitrator did not order Tiffany to pay Watts' attorneys' fees and costs. In this respect, according to Watts, the arbitrator departed from state law, requiring the court to repair the problem. An error of law is not a ground listed in 9 U.S.C. §§ 10 and 11 for vacating or modifying an award, but in dictum the Supreme Court has suggested that an arbitrator's "manifest disregard" of legal rules justifies judicial intervention. Wilko v. Swan, 346 U.S. 427, 436-37, 74 S.Ct. 182, 98 L.Ed. 168 (1953), overruled on other grounds by Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989). Often "manifest disregard of the law" would be covered by § 10(a)(4), which authorizes vacatur "Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter
What could it mean to say that an arbitrator manifestly disregarded the law? That the arbitrator made a legal error? This is Watts' view — that Wisconsin law entitles the prevailing party to attorneys' fees in every case under the WFDL, that it "prevailed" in the arbitration by obtaining an extension of its dealership plus exceptionally favorable terms for the repurchase of inventory, and that the law therefore required the arbitrator to award legal fees too. If "manifest disregard" means only a legal error, however, then arbitration cannot be final. Every arbitration could be followed by a suit, seeking review of legal errors, serving the same function as an appeal within a unitary judicial system. That would prevent the parties from achieving the principal objectives of arbitration: swift, inexpensive, and conclusive resolution of disputes. If "manifest disregard" means not just any legal error but rather a "clear" error (one about which there is, in Watts' language, "no reasonable debate"), again arbitration could not be final, and the post-arbitration litigation would be even more complex than a search for simple error — for how blatant a legal mistake must be to count as "clear" or "manifest" error lacks any straightforward answer. Cf. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 399-405, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990). In this case, for example, the parties dispute whether an award of fees under the WFDL is mandatory or only permissive (perhaps with a presumption in favor of an award); they dispute even whether the arbitrator's award was based on the WFDL as opposed to the contract. Running these matters to ground could be complex. Fortunately, we need not do so (and we therefore express no opinion on them).
A search for either simple or clear legal error cannot be proper. Courts often say, with respect to arbitrators' role in interpreting contracts, that error is not a ground of judicial review. "[T]he question for decision by a federal court asked to set aside an arbitration award... is not whether the arbitrator or arbitrators erred in interpreting the contract; it is not whether they clearly erred in interpreting the contract; it is not whether they grossly erred in interpreting the contract; it is whether they interpreted the contract." Hill v. Norfolk & Western Ry., 814 F.2d 1192, 1194-95 (7th Cir.1987); see, e.g., United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 599, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960). Yet in litigation the meaning of a contract is treated as an issue of law, when the text is clear and extrinsic evidence is either unavailable or precluded by the parol evidence rule. If manifest legal errors justified upsetting an arbitrator's decision, then the relation between judges and arbitrators established by the Steelworkers' Trilogy and reiterated by many later opinions would break down.
Our cases trying to apply the Wilko dictum demonstrate some of the difficulties. At least two decisions say that an award may be vacated when an arbitrator
There is, however, a way to understand "manifest disregard of the law" that preserves the established relation between court and arbitrator and resolves the tension in the competing lines of cases. It is this: an arbitrator may not direct the parties to violate the law. In the main, an arbitrator acts as the parties' agent and as their delegate may do anything the parties may do directly. See Eastern Associated Coal Corp. v. United Mine Workers, 531 U.S. 57, 121 S.Ct. 462, 467, 148 L.Ed.2d 354 (2000) ("we must treat the arbitrator's award as if it represented an agreement between" the parties themselves). Eastern Associated Coal may at last clear up the confusion, having dealt with a related line of cases in which courts wrestled with the question whether violation of "public policy" (a form of disregard of legal constraints) justifies setting aside an award. The Court concluded that the judiciary may step in when the arbitrator has commanded the parties to violate legal norms (principally, but not exclusively, those in positive law) but that judges may not deprive arbitrators of authority to reach compromise outcomes that legal norms leave within the discretion of the parties to the arbitration agreement.
Suppose Watts and Tiffany had sat down to resolve their differences and had agreed on an extension through the end of 2000, a repurchase of remaining items at retail price, and each side bearing its own fees and costs. Could there be any legal objection? Surely not; it is a kind of settlement businesses reach all the time, each receiving part of what it wanted. Cf. Evans v. Jeff D., 475 U.S. 717, 106 S.Ct. 1531, 89 L.Ed.2d 747 (1986) (parties may reach a settlement foregoing attorneys' fees under 42 U.S.C. § 1988). If Watts and Tiffany may resolve their differences without fees changing hands, why can't an arbitrator, as their agent, prescribe the same outcome? In Eastern Associated Coal an employer contended that an arbitrator exceeded his powers by ordering the reinstatement of a truck driver who had twice tested positive for marijuana.
After Eastern Associated Coal the "manifest disregard" principle is limited to two possibilities: an arbitral order requiring the parties to violate the law (as by employing unlicensed truck drivers), and an arbitral order that does not adhere to the legal principles specified by contract, and hence unenforceable under § 10(a)(4). Neither of these approaches helps Watts.
No rule of Wisconsin law prevents parties to a dealership agreement from agreeing to bear their own legal expenses when resolving their differences. The arbitrator's award thus did not require either Tiffany or Watts to violate state law, even if the WFDL has the meaning Watts sees in it. Our case is fundamentally the same as Eastern Associated Coal: what the parties may do, the arbitrator as their mutual agent may do. People who want their arbitrators to have fewer powers need only provide this by contract. Watts and Tiffany could have agreed to arbitrate under provisions forbidding the arbitrator to split the difference, requiring the prevailing side to receive 100% of its legal entitlements. An arbitrator's disregard of such a command would be reviewable under 9 U.S.C. § 10(a)(4). But when the parties agree to arbitrate without specifying a rule of decision, as Watts and Tiffany did, then the arbitrator has considerable leeway so long as he respects the limits the parties' contract and public law place on his discretion. This arbitrator did not disregard the parties' contract, did not direct them to violate the law, and did not otherwise overstep the terms of his engagement. The district court therefore properly enforced the award as written.
WILLIAMS, Circuit Judge, concurring in the judgment.
The question of the continuing justification for and the proper interpretation of the manifest disregard of the law doctrine is not squarely before this court. Indeed, with little effort we may dispose of Watts' claim under the manifest disregard doctrine as it presently exists. I would therefore reserve for another day — when the question is more definitively placed before this court — whether we need to make any substantial change in the manifest disregard doctrine. Accordingly, I concur only in the judgment.
Because the majority has effectively rejected the manifest disregard doctrine, I will briefly express my concern with that holding. It should be noted that the doctrine of manifest disregard has been substantively uniform in the federal courts, requiring that (1) the arbitrator knew of a
The reasons the majority offer for rejecting manifest disregard do not appear to me so compelling as to require such a significant change in the law. They hold that manifest disregard should mean only that "an arbitrator may not direct the parties to violate the law," ante, at 580, which the arbitrator could not do anyway, see Hill v. Norfolk & Western Ry. Co., 814 F.2d 1192, 1195 (7th Cir.1987). In so holding, the majority ostensibly rests its interpretation on Eastern Associated Coal Corp. v. United Mine Workers of America, District 17, 531 U.S. 57, 121 S.Ct. 462, 148 L.Ed.2d 354 (2000). But Eastern Associated Coal is not a manifest disregard case, and its holding, or its dicta, does not support the majority's new interpretation of the manifest disregard doctrine. In that case, the arbitrator interpreted a collective bargaining agreement in accord with the authority actually granted to him by the parties, and provided an award under the agreement. Id. at 466-67. The Court therefore treated the arbitral award "as if it represented an agreement between Eastern and the union," for purposes of determining whether enforcement of that contract (like any other) violated public policy. Id. at 467 (citing W.R. Grace & Co. v. Rubber Workers, Local 759, 461 U.S. 757, 766, 103 S.Ct. 2177, 76 L.Ed.2d 298 (1983)). Defining the public policy exception, the Court reiterated that review under the doctrine applies to violations of public norms (but not exclusively positive law), which is what "public policy" means. Id. at 467.
Eastern Associated Coal does not support the broad proposition that "an arbitrator acts as the parties' agent and as their delegate may do anything the parties
To review, the question before us in an arbitral contract interpretation case is not "whether the arbitrator or arbitrators erred in interpreting the contract; it is not whether they clearly erred in interpreting the contract; it is not whether they grossly erred in interpreting the contract; it is whether they interpreted the contract." Hill, 814 F.2d at 1194-95. And, when an arbitrator interprets statutory law, we require "something beyond and different from mere error in law or failure on the part of the arbitrators to understand or apply the law." Health Servs., 975 F.2d at 1267. We ask whether she affirmatively disregarded what she knew to be the law. Id. The rules that govern review of arbitral contract interpretation and review of arbitral statutory interpretation do not create tension in the law. The standards are nearly identical, and they complement each other rather well.
The apparent conflict the majority finds in this circuit's precedent, see ante, at 579-580, is not really conflict at all, as much as it is two separate lines of cases that together illustrate the difficulty for parties seeking to challenge an arbitral award under the manifest disregard doctrine. It is a difficulty recognized by other circuits, see, e.g., Dawahare, 210 F.3d at 669 ("Arbitrators are not required to explain their decisions. If they choose not to do so, it is all but impossible to determine whether they acted with manifest disregard for the law."), but that difficulty has not always precluded a finding that an arbitrator manifestly disregarded the law, see Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 204 (2d Cir.1998) ("We merely observe that where a reviewing court is inclined to find that arbitrators manifestly disregarded the law or the evidence and that an explanation, if given, would have strained credulity, the absence of explanation may reinforce the reviewing court's confidence that the arbitrators engaged in manifest disregard."), and no courts have taken the step of discarding the entire doctrine because of this difficulty.
As a final note, mandatory arbitration clauses are prevalent in a broad collection of contracts, forcing parties to accept the arbitral rather than judicial forum to adjudicate their rights. Recognizing this concern, the Supreme Court has admonished that "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). Even if we were to adopt the agency model advanced by the majority, no one expects that the parties intended to vest in that agent the power to ignore statutory law willy-nilly and decide the fate of the parties at her whim or caprice. Indeed, we do not accept an arbitrator's decision to ignore completely a contract, although under the agency model arguably we should, because the parties
Turning then to the case before us, Watts has failed to demonstrate that the arbitrator manifestly disregarded the law. Watts cannot establish, as it must, that the Wisconsin Fair Dealership Law ("WFDL"), or Wisconsin case law, is "well-defined" and "explicit" in requiring a mandatory award of attorney fees to every successful litigant under the statute.
Perhaps recognizing the weakness of an appeal to statutory language, Watts also relies upon several cases in support of its theory that attorney fees are mandatory. The best case cited by Watts, Siegel v. Leer, Inc., 156 Wis.2d 621, 457 N.W.2d 533 (1990), characterized the attorney fees provision as an "express statutory right of a dealer to recover for a grantor's violation of the WFDL," stating in addition that the "failure to protect and enforce such a right would fly in the face of the statutory purpose." Id. at 537. But Watts fails to put this quote in context. The court in that case distinguished the award of attorney fees from another case in which a court-initiated fine, under analogous factual circumstances, was found to violate public policy. It was in that context, distinguishing the case upon which the defendant argued that attorney fees could violate public policy, that the court stated that the right to attorney fees was expressly provided by statute. It did not hold, however, that attorney fees are mandatory. See id. The other cases that characterize attorney fees as an "entitlement" under the statute, see, e.g., Esch v. Yazoo Mfg. Co., Inc., 510 F.Supp. 53, 58 (E.D.Wis.1981), are in themselves equally ambiguous.
Tiffany, on the other hand, relies upon a commentary reviewing Wisconsin law on the WFDL that concludes, "[t]he issue of whether an award is mandatory or discretionary is still open." Andrew O. Riteris & Susan R. Robertson, The Fair Dealership Law: Good Cause For Review, Wis. B. Bull., Mar. 1986, at 10. In the end, the WFDL may one day be interpreted to require mandatory award of attorney fees,
Because I cannot find that mandatory award of attorney fees under the WFDL is well-defined and explicit under the law, as required by the manifest disregard of the law doctrine, I must find that Watts has failed to make the requisite showing under that doctrine. I therefore concur in the judgment.