## Facts

- Richard Hoeft founded two market-research “field service” companies; by early 2000, Hoeft and a charitable remainder unitrust (with Richard and Carol Hoeft as co-trustees) owned all shares.
- The Hoefts sold the companies to MVL Group, Inc. under a stock purchase agreement and amendment for $6.5 million; the transaction closed February 29, 2000, and the acquired entities were merged and renamed.
- The amendment included a purchase-price adjustment tied to EBITDA, defined as income from operations before specified items and “determined in accordance with generally accepted accounting principles consistently applied.”
- The agreement designated a particular arbitrator to resolve adjustment disputes and stated the decision would be binding and not subject to appeal or judicial review.
- A dispute arose over how to calculate EBITDA, including whether certain one-time employee payments should be treated in the EBITDA computation under GAAP.
- The arbitrator issued an award to the Hoefts of $1,402,565.
- The Hoefts petitioned to confirm the award under the Federal Arbitration Act (FAA); MVL moved to vacate, claiming the arbitrator acted in manifest disregard of law by not following GAAP.
- The district court permitted limited discovery, including a court-supervised deposition of the arbitrator about his reasoning, then vacated the award and denied confirmation based largely on that testimony.
- The Hoefts appealed.

## Issues

1. Whether a court may permit discovery, including a deposition, probing an arbitrator’s reasoning and deliberative process to support a manifest-disregard challenge.
2. Whether the award reflected manifest disregard of the law or an excess of arbitral powers where the dispute concerned application of GAAP to a contract-defined EBITDA adjustment.
3. Whether a contractual clause stating the award is final and not subject to judicial review bars vacatur review under the FAA.

## Decision

- The Second Circuit reversed and remanded with instructions to enter judgment confirming the arbitration award.
- The court held the district court erred by allowing a deposition of the arbitrator about his mental processes and reasoning; review for manifest disregard must proceed from the record and the award, not post hoc probing.
- Excluding the improper deposition, the court found no manifest disregard of the law and no basis to conclude the arbitrator exceeded his powers.
- The court treated the arbitrator’s handling of GAAP as, at most, contract interpretation and weighing of competing expert views, which is within arbitral authority and entitled to substantial deference.

## Legal Principles

- Challenges asserting “manifest disregard of the law” are assessed on a highly deferential standard and must be determined from the arbitral record and the award, not discovery into an arbitrator’s deliberations.
- Depositions of arbitrators regarding decision-making are strongly disfavored and are permissible, if at all, only upon a specific, non-speculative showing of impropriety such as bias, corruption, or prejudgment.
- “Manifest disregard” requires (1) a well-defined, explicit, clearly applicable legal rule and (2) proof the arbitrator knew of that rule and intentionally ignored it.
- GAAP generally does not function as a single, explicit, mandatory rule for manifest-disregard purposes when it permits alternative treatments; disagreement over GAAP application often reflects factfinding and contract construction.
- An arbitrator does not “exceed powers” by resolving disputed accounting and contractual questions committed to arbitration, even if a party alleges legal or factual error.
- If parties want a reasoned award to facilitate later review, they must contract for it; they are not entitled to compel explanations from the arbitrator after issuance.

## Conclusion

The Second Circuit required confirmation of the award, holding that courts may not probe an arbitrator’s mental processes to manufacture a manifest-disregard record and that, on the permissible record, the accounting dispute involved contract interpretation and contested expert evidence rather than an intentional refusal to follow a clear governing rule.


Hoeft v. MVL Grp., Inc., 343 F.3d 57 (2d Cir. 2003)