Introduction
Courts enforce arbitration agreements and review awards narrowly. It is, therefore, notoriously difficult to overturn an unfavorable arbitration award – the grounds are narrow by statute, and courts are loath to expand the grounds by judicial fiat. This past summer brought five decisions in under two months that turned away five different theories: functus officio, manifest disregard, public policy, plain untimeliness, and arbitrator legal error. One decision does open a door, though not for the party that lost. The Third Circuit held that an arbitration panel may revisit its own award to clarify a genuine ambiguity, and that, where the parties’ chosen arbitration rules let the panel interpret the limits of its own powers, a reviewing court should defer to the clarification – once again, an example of judicial reticence to interfere in the arbitration process.
Executive Summary
Between July and August 2026, the Second, Third and Eighth Circuits, the Southern District of New York, and a California Court of Appeal each declined to disturb an arbitration award, on five distinct grounds. In Prospect Capital Management L.P. v. Stratera Holdings, LLC, 185 F.4th 429 (3d Cir. 2026), the Third Circuit held that a panel’s revised award clarifying an ambiguous fee ruling fell within the ambiguity exception to functus officio, and — because the parties’ AAA rules delegated that question to the panel — deferred to it as at least a rational clarification. In Acorda Therapeutics, Inc. v. Alkermes PLC, No. 25-1896, 2026 WL 2042719 (2d Cir. July 15, 2026) (summary order), the Second Circuit refused to add $65 million to a $16.5 million restitution award in the licensee’s favor, holding the tribunal had not manifestly disregarded patent law because Supreme Court precedent in the patent area does not require restitution of royalties a licensee knowingly paid. In Compeer Financial, ACA v. Corporate America Lending, Inc., 180 F.4th 1119 (8th Cir. 2026), the Eighth Circuit declined to decide whether a public-policy exception survives the Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) that the Federal Arbitration Act provides the exclusive ground for vacatur, because the panel had rested on independent alternative grounds that made any violation harmless. In Triad Health LLC d/b/a MediraRx v. Novus Health, Inc., No. 26-CV-1957 (JPO), 2026 WL 2532306 (S.D.N.Y. Aug. 27, 2026), the Southern District of New York confirmed a AAA award in a 340B third-party-administrator dispute, deferring to the arbitrator’s finding that the challenger had waived its jurisdictional objection by not raising it in time, and rejecting an evident-partiality challenge both because no objection was made by the AAA’s deadline and because the disclosed relationship was remote and insubstantial. And in Saberin v. Alation, Inc., 122 Cal.App.5th 165 (2026), a California Court of Appeal held that an arbitrator’s legal error that forecloses a hearing on the merits of an employee’s unwaivable FEHA claim is subject to judicial review — and then affirmed the denial of vacatur anyway, deferring to the arbitrator’s factual findings.
Taken together: the substantive doors remain narrow, the procedural ones close on a clock, and even the one merits door that is genuinely open leaves the arbitrator’s factual findings in place.
Background: The Legal Landscape After Hall Street
The Federal Arbitration Act permits vacatur only on narrow grounds — corruption, fraud or undue means; evident partiality or corruption in the arbitrators; misconduct or misbehavior that prejudiced a party’s rights; and arbitrators exceeding their powers, or so imperfectly executing them that no mutual, final and definite award was made. 9 U.S.C. § 10(a). Section 11 permits modification or correction for evident material miscalculations or misdescriptions, awards on matters not submitted (unless the matter does not affect the merits of the decision on what was submitted), and imperfections of form not affecting the merits. Id. § 11. Some courts have added two judicial glosses: manifest disregard of the law, and a public-policy exception. Both have been in doubt since the Supreme Court decided Hall Street in 2008.
Hall Street arose from a lease dispute in which the parties, partway through federal litigation, agreed to arbitrate one issue and wrote their own standard of review into the agreement: the court would vacate or modify any award whose findings of fact were not supported by substantial evidence or whose conclusions of law were erroneous. 552 U.S. at 579. The Supreme Court held that the FAA would not enforce that bargain. Sections 10 and 11, it held, “provide the FAA’s exclusive grounds for expedited vacatur and modification,” id. at 584, and Section 9’s command that a court “must grant” confirmation unless the award is vacated, modified or corrected under those sections leaves no room for more: “There is nothing malleable about ‘must grant.’” Id. at 587. Parties can agree to arbitrate, and they can shape how the arbitration is run, but under the FAA they cannot contract for a court to review the result based on anything other than what the FAA provides, including expanded appellate review.
That holding put both judicial glosses in doubt. Manifest disregard traces to a phrase in Wilko v. Swan, 346 U.S. 427, 436–37 (1953), overruled on other grounds by Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989), and Hall Street declined to say what the phrase meant: perhaps a new ground for review, perhaps a reference to the Section 10 grounds collectively, or perhaps “shorthand for § 10(a)(3) or § 10(a)(4).” 552 U.S. at 585. Two years later, the Court expressly left the question open. Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662, 672 n.3 (2010). The circuits have answered it differently. The Second Circuit treats manifest disregard as a “judicial gloss” on Section 10, T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 340 (2d Cir. 2010); the Ninth folds it into Section 10(a)(4), Comedy Club, Inc. v. Improv West Associates, 553 F.3d 1277, 1290 (9th Cir. 2009); and the Fifth and Eleventh hold that the statutory grounds are exclusive, Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349, 355 (5th Cir. 2009); Frazier v. CitiFinancial Corp., 604 F.3d 1313, 1324 (11th Cir. 2010). The Fourth Circuit, expressly declining to follow the Fifth and Eleventh, holds that manifest disregard survives — as an independent ground or as a judicial gloss on Section 10 — without deciding which. Wachovia Securities, LLC v. Brand, 671 F.3d 472, 483 (4th Cir. 2012). The public-policy exception has a different pedigree — W.R. Grace & Co. v. Local Union 759, 461 U.S. 757, 766 (1983), a labor-arbitration case — but after Hall Street it faces the same objection: it is not in Section 10. Hall Street did leave one door ajar. The FAA, the Court said, “is not the only way into court for parties wanting review of arbitration awards,” and state statutory or common law may supply review of a different scope. 552 U.S. at 590.
California runs a parallel regime under its own arbitration statute. Code of Civil Procedure section 1286.2 supplies its own vacatur grounds, including that the arbitrator exceeded their powers. Under Moncharsh v. Heily & Blase, 3 Cal.4th 1, 11 (1992), an arbitrator’s decision generally cannot be reviewed for errors of fact or law, but Moncharsh reserved “limited and exceptional circumstances.” Id. at 32. Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4th 665 (2010), identified one: a clear legal error that prevented an employee subject to mandatory arbitration from obtaining a hearing on the merits of his FEHA claim, which the court held could be vacated under section 1286.2(a)(4). Id. at 669–670, 679–680. Pearson expressly declined to decide whether all legal errors in that setting are reviewable, and it noted that several federal circuits reach comparable errors through manifest disregard as part of Section 10(a)(4). Id. at 677 n.3, 679.
Separately, as a default rule, functus officio prevents arbitrators from redetermining the merits of an issue they have finally decided. Parties may contract around the rule. Its traditional exceptions permit correction of facial clerical or arithmetic errors, resolution of issues that were submitted but not decided, and clarification of genuine ambiguity. Prospect Capital, 185 F.4th at 434–437 & n.1.
That is the toolkit these five cases used over the summer. They show how little of it helps the losing party in arbitration.
Legal Analysis of the Summer 2026 Cases
The arbitral panel has more authority over its own award than a court does. In Prospect Capital, a panel found that Prospect had breached a fee agreement by excluding one category of shares from a calculation, but the award did not make clear how that ruling applied to the other disputed categories. When the parties raised the point, the panel issued a revised award confirming it applied to all of them. Prospect argued that the arbitral panel no longer had jurisdiction and thus functus officio barred the revision. The Third Circuit disagreed. An ambiguity arises where an award “fails to address a contingency that later arises or when the award is susceptible to more than one interpretation” (citation omitted), and this award was. Prospect Capital, 185 F.4th at 438. The court then deferred, concluding the revised award “was at least a rational clarification of its earlier award.” Id. at 440. It tied that deference to the parties’ adoption of the AAA rules, which let the arbitrators interpret and apply the rules governing their own powers — including the rule barring them from redetermining the merits of a decided claim. Id. at 434–435, 440. Two threshold rulings travel with it: an interim award resolving liability but reserving remedy is final as to liability for functus officio purposes, and the doctrine itself remains good law in the Third Circuit.
The court’s power to modify an arbitration award is limited. In Acorda, the fight was over money Acorda had already paid. Acorda licensed a patent from Alkermes and, as its contracts required, kept paying royalties after the patent expired in 2018. About two years later it demanded arbitration and began paying under protest. A tribunal of three retired judges agreed that the clauses requiring post-expiration royalties were unenforceable and ordered Alkermes to refund the roughly $16.5 million Acorda had paid under protest. But it refused to order a refund of the larger sums Acorda had paid earlier without protest, applying New York’s voluntary-payment doctrine, which bars recovery of payments made with full knowledge of the facts. Acorda, 2026 WL 2042719, at *1. Acorda then asked the district court to vacate or modify the award so that it would recover another $65 million, arguing that the tribunal had manifestly disregarded federal patent law. Manifest disregard is not one of the FAA’s statutory grounds, and the Second Circuit treats it as a judicial gloss on the vacatur grounds in Section 10, and a “severely limited” one at that: the challenger must identify “well-defined” and “explicit” law that the arbitrators ignored, and the award stands so long as there is “a barely colorable justification for the outcome reached by the arbitrators.” Acorda, 2026 WL 2042719, at *1–2. (The district court had noted that, since Hall Street, the Second Circuit has recognized manifest disregard only as a ground for vacatur, not modification; the Second Circuit found it unnecessary to decide that question. Id. at *1 n.1.) Acorda could not point to any explicit law requiring full restitution. The cases it relied on, Brulotte v. Thys Co., 379 U.S. 29 (1964), and Kimble v. Marvel Entertainment, LLC, 576 U.S. 446 (2015), bar royalties for post-expiration use of the patented invention; neither establishes that a licensee who knowingly paid the challenged royalties is entitled to complete restitution. Acorda had conceded as much during the arbitration: “neither Brulotte nor Kimble addressed damages.” Id. at *2. With no explicit federal rule requiring full restitution, the tribunal’s use of New York law to measure Acorda’s state-law restitution claim had at least a colorable justification. Id. at *3. The court assumed, without deciding, that a public-policy challenge remains available, and rejected it for the same reason. Id. at *1 n.2, *2–3.
The public-policy question survived by not being reached. In Compeer, the losing party argued the award enforced a contract that violated the Farm Credit Act and therefore public policy. The Eighth Circuit observed that the circuits divide over whether judge-made grounds for vacatur survive Hall Street — as noted above, the Ninth Circuit treats manifest disregard as part of § 10(a)(4), while the Fifth and Eleventh Circuits hold the statutory grounds exclusive — and expressly declined to decide whether the public-policy exception survives. Compeer, 180 F.4th at 1128–29. It did not have to. The panel had granted alternative claims for breach of the implied covenant of good faith and fair dealing and for unjust enrichment, so even if part of the award offended public policy, the result rested on independent grounds, and any error was harmless. Id. at 1129.
That reasoning is worth more than the holding. An award resting on alternative independent grounds is materially harder to unwind, because a challenger attacking the substance of the award has to defeat every route to the same result rather than the most vulnerable one — though a defect that taints the whole award, such as partiality, is a different matter.
Objections not raised in time during the arbitration are hard to revive. In Triad Health, a 340B third-party administrator, MediraRx, moved to vacate a AAA award holding that the covered entity had properly terminated their administration agreement. It raised three grounds, and none succeeded. First, it argued that the award reached into related pharmacy contracts that carried their own forum-selection clauses. The court disagreed: the award resolved only rights under the administration agreement and, as the arbitrator had found, left the pharmacy contracts to be decided on their own merits in their own forums. Triad Health, 2026 WL 2532306, at *5–6. Second, MediraRx argued that the arbitrator had usurped a court’s role in deciding whether those later contracts limited the arbitration clause. The arbitrator had found that MediraRx waived that objection by not raising it in time under AAA Commercial Rule 7(c), and the court deferred to that finding, explaining that its own view of whether waiver occurred was “irrelevant.” Id. at *7–8. An objection to arbitrability “must be made on a timely basis, or it is waived.” Id. at *7 n.4 (quoting ConnTech Dev. Co. v. Univ. of Conn. Educ. Props., Inc., 102 F.3d 677, 685 (2d Cir. 1996)). Third, MediraRx challenged the arbitrator’s mid-case disclosure of an old connection with its own counsel’s firm. It had never objected by the AAA’s deadline, and in any event the relationship was disclosed, remote and insubstantial, and the claimed bias speculative. Id. at *4–5. The court confirmed the award and declined to award fees, finding that the record did not show the petition was brought in bad faith. Id. at *8.
California review is available, but the arbitrator’s findings still control. Saberin turns on geography. Pejman Saberin, an engineer, worked for Alation, Inc., a data-software company headquartered in California. But he lived in Utah and worked remotely from there, and his direct supervisor worked remotely from Washington state. In October 2023, he was arrested in Florida while returning from a vacation. The two executives who decided to terminate him — one who worked from Utah, the other who ordinarily worked from his home in California — were both in Illinois when they made the decision, with “input” from a human-resources employee who worked in California. The criminal case was later dismissed. Saberin, 122 Cal.App.5th at 170–171, 179–180.
Saberin claimed that Alation violated two California statutes that bar employers from considering an arrest that did not lead to a conviction: Government Code section 12952, part of FEHA, and Labor Code section 432.7. The claims went to arbitration under his employment agreements, one of which called for arbitration “pursuant to California law.” Alation argued that neither statute reaches an employee who lives and works outside California, and the arbitrator agreed. Because Saberin could identify no Utah, federal, or other non-California law under which to proceed, the parties stipulated to an award in Alation’s favor so that he could challenge the ruling promptly. He then petitioned to vacate under Code of Civil Procedure section 1286.2(a)(4), arguing that the arbitrator had exceeded his powers. Id. at 170–172.
The Court of Appeal first held that the ruling was reviewable. Under Pearson, an arbitrator’s legal error that deprives an employee of a hearing on the merits of an unwaivable FEHA claim is subject to judicial review, and the arbitrator’s ruling here had done exactly that. Id. at 173–174. (The court assumed, without deciding, that the same was true of the Labor Code claim. Id. at 173 n.2.) Nor had Saberin waived review. Nothing in Moncharsh suggests a party gives up a section 1286.2(a)(4) challenge “by simply agreeing to arbitrate a dispute,” and Saberin had pressed his California-law arguments before the arbitrator; he did not also have to predict that an adverse ruling would exceed the arbitrator’s powers. Id. at 174–175.
Reviewing the question de novo, the court then held that Saberin could not invoke either statute. Id. at 175. The fact that he had chosen a California forum and California law did not change the answer. The court accepted that California law governed, whether through the choice-of-law clause in his employment agreement or the rule that a forum applies its own law. But California law includes the presumption that its statutes are meant to apply only within the state, so a clause selecting California law brings that presumption with it. Id. at 175–176. The question was therefore not which state’s law applied, but whether the Legislature meant these two California statutes to reach a worker like Saberin, who resided outside of California. Following Ward v. United Airlines, Inc., 9 Cal.5th 732 (2020), which requires a statute-by-statute inquiry into geographic reach, the court concluded that, for a worker outside California, each statute applies only if the unlawful conduct — here, the decision to terminate him because of the arrest — has a sufficient connection to California. Saberin, 122 Cal.App.5th at 176–179. There was none. Saberin, his supervisor, and the arrest all occurred outside the state, and the termination decision was made in Illinois. The decisionmaker’s usual California home did not change that, since nothing suggested he had been sent out of state to avoid California law. As for the HR employee’s input, the arbitrator had called it a “tenuous” thread; the court read that as an implied factual finding that the input was not substantive, and deferred to it. Id. at 179–181.
The sequence is the lesson. Saberin won the argument about whether a court could review the ruling and lost the case anyway: a door to review is not a remedy. Because the court affirmed, it never had to decide what the remedy would have been — Saberin had argued that the arbitration agreement should be set aside and the case returned to court, and the court expressly left that open. Id. at 181 n.6. Note also what survived de novo review: the arbitrator’s factual findings still drew deference. Even in this narrow posture, the reviewing court works from the record the arbitrator built.
Holdings
Prospect Capital: affirmed. The ambiguity exception to functus officio permitted the panel’s revised award, and the clarification was entitled to deference given the parties’ adoption of AAA rules delegating that question to the panel. Precedential.
Acorda: affirmed. No manifest disregard; public-policy challenge rejected, assuming without deciding that such a challenge remains available; the district court correctly confirmed without modifying. Summary order, non-precedential but citable under Second Circuit Local Rule 32.1.1.
Compeer: affirmed, including appointment of a receiver. Whether a public-policy exception survives Hall Street left open; any violation harmless given independent alternative grounds. Precedential.
Triad Health: petition and motion to vacate denied; cross-petition to confirm granted; fees denied. Slip copy.
Saberin: affirmed. An arbitrator’s legal error that deprives an employee of a hearing on the merits of an unwaivable FEHA claim is reviewable under Code Civ. Proc. § 1286.2(a)(4) (assumed, without deciding, for the Labor Code claim), and the challenge is not waived by having agreed to arbitrate; on de novo review, neither statute reached this out-of-state employee, and the award stood. Certified for publication.
Arbitration Awards Remain Difficult to Overturn
For a party weighing a challenge, the arithmetic has not improved. The statutory grounds remain narrow, the judicial glosses remain contested, and procedural objections are held to strict time periods. Where California’s arbitration review rules apply, the statutory-rights exception can permit review of a ruling that forecloses a merits hearing — but Saberin shows that obtaining review is not the same as obtaining vacatur.
For a neutral drafting an award, Prospect Capital is the useful decision, and it cuts both ways. A panel may clarify a genuine ambiguity and, where the parties’ chosen rules leave that call to the panel, a court will defer — but the cleanest form of that protection is an award that was never ambiguous. Say how the ruling applies to every category before anyone has to ask. Compeer is a quiet argument for reaching alternative grounds where the record supports them, since an award with two independent legs is far harder to knock over.
What to Watch
First, whether the Eighth Circuit returns to the public-policy question it reserved in Compeer; it now sits beside an acknowledged split without having chosen a side. Second, how far Prospect Capital reaches — it is precedential, and the line between a permissible clarification and an impermissible second look will be tested by the next party that dislikes what a panel clarified. Third, the timeliness holding in Triad Health is not new law, but it is a recurring and avoidable reason a challenge fails and the one most within a party’s own control. Fourth, for arbitration practitioners, the part of Saberin that matters most is its reviewability holding, which sits alongside a statute-specific extraterritoriality holding that decided the case — expect it to be cited by employees seeking review of adverse FEHA arbitration rulings, and expect employers to press the narrow reading that Pearson reaches only a ruling that forecloses a merits hearing altogether.
Cases cited in this blog: Acorda Therapeutics, Inc. v. Alkermes PLC, No. 25-1896, 2026 WL 2042719 (2d Cir. July 15, 2026) (summary order) | Brulotte v. Thys Co., 379 U.S. 29 (1964) | Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009) | Comedy Club, Inc. v. Improv West Associates, 553 F.3d 1277 (9th Cir. 2009) | Compeer Financial, ACA v. Corporate America Lending, Inc., 180 F.4th 1119 (8th Cir. 2026) | ConnTech Dev. Co. v. Univ. of Conn. Educ. Props., Inc., 102 F.3d 677 (2d Cir. 1996) | Frazier v. CitiFinancial Corp., 604 F.3d 1313 (11th Cir. 2010) | Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) | Kimble v. Marvel Entertainment, LLC, 576 U.S. 446 (2015) | Moncharsh v. Heily & Blase, 3 Cal.4th 1 (1992) | Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4th 665 (2010) | Prospect Capital Management L.P. v. Stratera Holdings, LLC, 185 F.4th 429 (3d Cir. 2026) | Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989) | Saberin v. Alation, Inc., 122 Cal.App.5th 165 (2026) | Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010) | T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329 (2d Cir. 2010) | Triad Health LLC d/b/a MediraRx v. Novus Health, Inc., No. 26-CV-1957 (JPO), 2026 WL 2532306 (S.D.N.Y. Aug. 27, 2026) | W.R. Grace & Co. v. Local Union 759, 461 U.S. 757 (1983) | Wachovia Securities, LLC v. Brand, 671 F.3d 472 (4th Cir. 2012) | Ward v. United Airlines, Inc., 9 Cal.5th 732 (2020) | Wilko v. Swan, 346 U.S. 427 (1953), overruled on other grounds by Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989)
John Libby is an arbitrator, mediator, and settlement counsel with LibbyADR LLC. This post contains his own summaries of the decisions discussed, prepared for general informational purposes only. The summaries are not intended to be a complete statement of any court’s reasoning, nor should they be taken to indicate how he would rule as an arbitrator in any particular case. In addition, the summaries are not legal advice, nor should they be construed as legal advice. Readers should not act on these posts, but should review the decisions themselves and consult with legal counsel.