United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                    ___________

                                    No. 03-2366
                                    ___________

Stanley William Stark; Patricia          *
Garnet Stark,                            *
                                         *
             Plaintiffs - Appellants,    *
                                         * Appeal from the United States
       v.                                * District Court for the Western
                                         * District of Missouri.
Sandberg, Phoenix & von Gontard,         *
P.C.; Scott Greenberg; EMC Mortgage *
Corporation; SpvG Trustee,               *
                                         *
             Defendants - Appellees.     *
                                    ___________

                              Submitted: January 15, 2004
                                 Filed: August 26, 2004
                                  ___________

Before BYE, HEANEY and SMITH, Circuit Judges.
                           ___________

BYE, Circuit Judge.

       Stanley and Patricia Stark appeal the district court’s order vacating in part an
arbitration award granting them punitive damages. We reverse.

                                          I

      Stanley and Patricia are husband and wife and live near Kansas City, Missouri.
In 1999, in hopes of shoring up a failing business, the Starks borrowed $56,900
against their home and secured the loan with a mortgage. Despite the infusion of
funds, the business failed and in April 2000 the Starks petitioned for bankruptcy
protection. At about the same time, the Starks’ lender sold the note, which was in
default, to EMC Mortgage Corporation making EMC a debt collector under the
provisions of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692-
1692o. In anticipation of foreclosure, the Starks vacated the home and moved into
an apartment across the street. The Starks, however, remained in possession of legal
title and did not abandon the home. In June 2000, EMC’s motion to lift the automatic
stay was granted and it proceeded with foreclosure.

      The Starks were represented throughout the foreclosure and bankruptcy
proceedings by attorney Roy True who notified EMC’s attorney, Scott Greenberg of
Sandberg, Phoenix & von Gontard, P.C., that his representation of the Starks
extended beyond the bankruptcy proceedings. Between October 2000 and March
2001, despite letters from True advising EMC he represented the Starks and not to
contact them directly, EMC tried several times to deal directly with the Starks. In
April 2001, the Starks filed suit against EMC and its attorneys alleging violations of
the FDCPA.

       EMC moved to compel arbitration as required by the parties’ loan agreement,
and the district court ordered the dispute submitted to arbitration. The order
compelling arbitration is not at issue in this appeal. During the pendency of the
arbitration, EMC’s agent, without the Starks’ consent, forcibly entered the home and
posted a sign in the front window indicating the “Property has been secured and
winterized. Not for sale or rent. In case of emergency call 1st American (732) 363-
3626.” The agent then contacted Mrs. Stark at her apartment, and EMC contacted
Mr. Stark at work regarding the matter. Further, on November 5, 2001 and January
27, 2002, EMC wrote to the Starks directly regarding insurance coverage on the
home. In total, the Starks testified EMC contacted them by mail, telephone or in
person at least ten times after being advised they were represented by counsel.



                                         -2-
       After these incidents, the Starks moved to amend their complaint to include
claims alleging intentional torts against EMC and seeking punitive damages. EMC
opposed the motion arguing the arbitration agreement expressly precluded an award
of punitive damages. The Starks contended the limitation on punitive damages was
unconscionable and unenforceable. After extensive briefing, the arbitrator concluded
the limitation was ambiguous and construed the language against EMC. The
arbitrator noted the agreement purported to grant him “all powers provided by law”
and then purported to deny the power to award “punitive . . . damages . . . as to which
borrower and lender expressly waive any right to claim to the fullest extent permitted
by law.” The arbitrator concluded,

      In at least three places the Stark’s [sic] are promised that they can seek
      all damages allowed by law, and then that promise is taken away. This
      is the keystone of an ambiguous contract, and the Agreement is to be
      interpreted in their favor. As a matter of law they are not prohibited
      from seeking punitive damages from EMC.

Appellee’s app. at 22.

       The arbitrator found EMC violated the FDCPA and awarded the Starks $1000
each in statutory damages, $1000 each in actual damages, $22,780 in attorneys fees,
and $9300 for the cost of the arbitration. The arbitrator found EMC’s forcible entry
into the premises “reprehensible and outrageous and in total disregard of plaintiff’s
[sic] legal rights” and awarded $6,000,000 in punitive damages against EMC. 

17.1




      1
       The arbitrator indicated the award of punitive damages was calculated as one
percent of EMC’s shareholder equity. One percent of equity, however, would have
resulted in an award of $60,000,000. The arbitrator later clarified this mistake
indicating it was his intent to award $6,000,000. Thus, the award was actually
calculated as one-tenth of one percent of shareholder equity.

                                         -3-
      The Starks moved to confirm the award, and EMC moved to vacate the
punitive damages award arguing the arbitration agreement expressly prohibited
punitive damages. No other aspect of the award was challenged. The district court
vacated the award of punitive damages, holding the agreement was unambiguous and
not susceptible to the arbitrator’s interpretation.

      On appeal, the Starks contend the arbitrator acted within his authority in
construing the contract and his finding of an ambiguity was not irrational. EMC
argues the district court’s order vacating the award of punitive damages should be
affirmed.

                                           II

       When reviewing a district court’s order confirming or vacating an arbitral
award, the court’s findings of fact are reviewed for clear error and questions of law
are reviewed de novo. First Options of Chicago, Inc. v. Kaplan, 

, 947-48
(1995); Titan Wheel Corp. of Iowa v. Local 2048, Int’l Ass’n of Machinists &
Aerospace Workers, 

, 1119 (8th Cir. 2001).

       When reviewing an arbitral award, courts accord “an extraordinary level of
deference” to the underlying award itself, Keebler Co. v. Milk Drivers & Dairy
Employees Union, Local No. 471, 

, 287 (8th Cir. 1996), because federal
courts are not authorized to reconsider the merits of an arbitral award “even though
the parties may allege that the award rests on errors of fact or on misinterpretation of
the contract.” Bureau of Engraving, Inc. v. Graphic Communication Int’l Union,
Local 1B, 

, 824 (8th Cir. 2002) (quoting United Paperworkers Int’l
Union v. Misco, Inc., 

, 36 (1987)). Indeed, an award must be confirmed
even if a court is convinced the arbitrator committed a serious error, so “long as the
arbitrator is even arguably construing or applying the contract and acting within the



                                          -4-
scope of his authority.” Bureau of 

(quoting 

).

       The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, established “a liberal
federal policy favoring arbitration agreements.” Moses H. Cone Mem. Hosp. v.
Mercury Constr. Corp., 

, 24 (1983). Thus, the FAA only allows a district
court to vacate an arbitration award

      (1) Where the award was procured by corruption, fraud, or undue means.

      (2) Where there was evident partiality or corruption in the arbitrators, or
      either of them.

      (3) Where 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) Where 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.

9 U.S.C. § 10(a).

       Similarly, under 9 U.S.C. § 11 a reviewing court may only modify the
arbitrator’s award

      (a) Where there was an evident material miscalculation of figures or an
      evident material mistake in the description of any person, thing, or
      property referred to in the award.

      (b) Where the arbitrators have awarded upon a matter not submitted to
      them, unless it is a matter not affecting the merits of the decision upon
      the matter submitted.

                                         -5-
      (c) Where the award is imperfect in matter of form not affecting the
      merits of the controversy.

9 U.S.C. § 11.

       A “district court must take the award as it finds it and either vacate the entire
award using section 10 or modify the award using section 11.” Legion Ins. Co. v.
VCW, Inc., 

, 721 (8th Cir. 1999). The deference owed to arbitration
awards, however, “is not the equivalent of a grant of limitless power,” Leed
Architectural Prods., Inc. v. United Steelworkers of Am., Local 6674, 

,
65 (2d Cir. 1990), and “courts are neither entitled nor encouraged simply to ‘rubber
stamp’ the interpretations and decisions of arbitrators.” Matteson v. Ryder Sys. Inc.,

, 113 (3d Cir. 1996). Thus, courts may also vacate arbitral awards which
are “completely irrational” or “evidence[] a manifest disregard for the law.” Hoffman
v. Cargill Inc., 

, 461 (8th Cir. 2001) (internal quotations and citations
omitted).

       An award is “irrational where it fails to draw its essence from the agreement”
or it “manifests disregard for the law where the arbitrators clearly identify the
applicable, governing law and then proceed to ignore it.” 

“An
arbitrator’s award draws its essence from the [parties’ agreement] as long as it is
derived from the agreement, viewed in light of its language, its context, and any other
indicia of the parties’ intention.” Johnson Controls, Inc., Sys. & Servs. Div. v. United
Ass’n of Journeymen, 

, 825 (7th Cir. 1994) (internal quotations omitted).

      Faced with these limitations on a court’s ability to review arbitration awards,
EMC argues the arbitrator’s award of punitive damages was properly vacated under
§ 10 because the arbitrator exceeded his powers by modifying the unambiguous
agreement, and properly modified under § 11 because in considering the issue of



                                          -6-
punitive damages the arbitrator made a decision on a matter not submitted to him.2
EMC also argues the arbitrator’s finding of an ambiguity was irrational and without
foundation in reason or fact because the clear language of the agreement precludes
an award of punitive damages. Finally, EMC argues the award of punitive damages
was excessive and made in manifest disregard of the law. Because we conclude the
arbitration agreement unambiguously permitted the award of punitive damages, we
hold the award of punitive damages was proper and reverse the district court.

                                         III

       The plain language of the arbitration agreement states the “borrower and
lender expressly waive any right to claim [punitive damages] to the fullest extent
permitted by law.” Appellee’s app. at 19 (emphasis added). Thus, the agreement
only effected a limited waiver of punitive damages, that is, punitive damages were
waived only if the governing law permitted such a waiver. Conversely, if the law did
not permit the waiver of punitive damages, the arbitration agreement unambiguously
preserved the right to claim them.

      Under Missouri law “there is no question that one may never exonerate oneself
from future liability for intentional torts or for gross negligence, or for activities
involving the public interest.” Alack v. Vic Tanny Int’l of Mo., Inc., 

,
337 (Mo. 1996) (citing Liberty Fin. Mgmt. Corp. v. Beneficial Data Processing Corp.,

, 48 (Mo. App. 1984) (in turn citing 6A Corbin on Contracts, § 1472
(1962)). An attempt to procure a waiver of punitive damages is an attempt to
exonerate oneself from future liability for intentional torts or gross negligence,
because the remedy of punitive damages would otherwise be available for such acts.


      2
       EMC’s § 11 argument is clearly without merit. The issue of punitive damages
was submitted to the arbitrator. If the award was improper because it exceeded the
scope of the agreement, § 10 is the proper avenue to redress the arbitrator’s error.

                                         -7-
Thus, Missouri law did not permit EMC to exonerate itself from liability for the
intentional torts committed against the Starks by procuring the punitive damages
waiver, and the arbitrator did not exceed his authority in awarding punitive damages.

       We recognize the FAA allows parties to incorporate terms into arbitration
agreements that are contrary to state law. See UHC Mgmt. Co. v. Computer
Sciences. Corp., 

, 997 (8th Cir. 1998) (holding “[p]arties may choose to
be governed by whatever rules they wish regarding how an arbitration itself will be
conducted.”) (citation omitted). Thus, had the parties to this agreement intended its
interpretation to be governed solely by the FAA, the punitive damages waiver might
have barred any such award. The plain language of the agreement, however, makes
it clear Missouri law applies to this issue.


      The agreement’s arbitration clause provides,


      Arbitration. To the extent allowed by applicable law, any Claim . . .
      shall be resolved by binding arbitration in accordance with (1) the
      Federal Arbitration Act, . . . (2) the Expedited Procedures of the
      Commercial Arbitration Rules of the American Arbitration Association
      . . . and (3) this Agreement.


Appellee’s app. at 19 (emphasis added).


      The agreement then defines applicable law as “the laws of the state in which
the property which secures the Transaction is located.” 

In
other words, the agreement makes clear the parties intent to apply Missouri state
substantive law while operating within the framework of the FAA, American
Arbitration Association rules and the agreement. As previously noted, the punitive
damages waiver expressly states the parties intended to waive punitive damages only

                                          -8-
to the extent permitted by Missouri law. Because Missouri law would not permit a
waiver under the facts of this case, we hold the arbitrator’s award of punitive damages
was proper.


                                          IV


      Alternatively, while we believe the plain meaning of the agreement supports
the award of punitive damages, we also conclude the arbitrator’s finding of an
ambiguity was not irrational.


       The arbitration clause states any claims will be resolved in accordance with the
FAA, which permits a waiver of punitive damages. The choice of laws provision,
however, states claims must be resolved in accordance with “applicable [Missouri]
law,” which does not permit the waiver of punitive damages argued for by EMC in
this case. Thus, an arbitrator could reasonably conclude this agreement is ambiguous.


       In Mastrobuono v. Shearson Lehman Hutton, Inc., 

, 62 (1995), the
Supreme Court considered the juxtaposition of a choice of laws provision prohibiting
punitive damages with an arbitration clause permitting an award of punitive damages.
The Court concluded “[a]t most, the choice-of-law clause introduces an ambiguity
into an arbitration agreement that would otherwise allow punitive damages awards.”

As in Mastrobuono, an arbitrator interpreting this agreement
could reasonably conclude the apparent conflict between the arbitration clause and
the choice of laws provision introduced an ambiguity into the agreement.
Accordingly, the Supreme Court’s recognition that an ambiguity is created when an
agreement purports to be governed by conflicting state and federal law is instructive,
and supports the arbitrator’s finding of an ambiguity.



                                         -9-
       Additionally, we cannot ignore well-settled precedent from this court holding
state contract law governs whether an arbitration agreement is ambiguous. See Lyster
v. Ryan’s Family Steak Houses, Inc., 

, 946 (8th Cir. 2001). Under
Missouri law, “[t]he primary rule in the interpretation of a contract is to ascertain the
intention of the parties and to give effect to that intention.” Speedie Food Mart, Inc.
v. Taylor, 

, 129 (Mo. Ct. App. 1991). The test for determining if an
ambiguity exists in a written contract is “whether the disputed language, in the
context of the entire agreement, is reasonably susceptible of more than one
construction giving the words their plain meaning as understood by a reasonable
average person.” Speedie Food 

.


       In this case, EMC argues the exclusionary language is clear and unambiguous
and shields it from liability for any award of punitive damages. When viewed in the
context of Missouri law governing exculpatory clauses, however, this clause could
easily be viewed as ambiguous. “A ‘latent ambiguity’ arises where a writing on its
face appears clear and unambiguous, but some collateral matter makes the meaning
uncertain.” Royal Banks of Missouri v. Fridkin, 

, 362 (Mo. 1991) (en
banc) (citation omitted). Here, the ambiguity arises because the clause attempts to
effect a prospective waiver of rights which Missouri law holds may not be waived.
Under Missouri law “there is no question that one may never exonerate oneself from
future liability for intentional torts or for gross negligence, or for activities involving
the public interest.” 

(citations omitted). Words purporting
to waive claims which cannot be waived “demonstrate the ambiguity of the
contractual language.” 

“cannot overcome the common-law rule of contract
interpretation that a court should construe ambiguous language against the interest
of the party that drafted it.” 

(citations omitted). EMC



                                           -10-
“cannot now claim the benefit of the doubt. The reason for this rule is to protect the
party who did not choose the language from an unintended or unfair result.” 

     Accordingly, we conclude the arbitrator’s finding that the contract was
ambiguous was not irrational.


                                          V


        EMC next argues the award of punitive damages was properly vacated because
it is excessive and exhibits a manifest disregard of the law. We disagree.


       “Beyond the grounds for vacation provided in the FAA, an award will only be
set aside where it is completely irrational or evidences a manifest disregard for the
law.” 

(internal citations and quotations omitted) (emphasis
added). “These extra-statutory standards are extremely narrow: . . . [A]n arbitration
decision only manifests disregard for the law where the arbitrators clearly identify
the applicable, governing law and then proceed to ignore it.” 

(citing
Stroh Container Co. v. Delphi Indus., 

, 749-50 (8th Cir. 1986))
(emphasis added).


      “A party seeking vacatur [based on manifest disregard of the law] bears the
burden of proving that the arbitrators were fully aware of the existence of a clearly
defined governing legal principle, but refused to apply it, in effect, ignoring it.”
Duferco Int’l Steel Trading v. T. Klaveness Shipping A/S, 

, 389 (2d Cir.
2003). Because “[a]rbitrators are not required to elaborate their reasoning supporting
an award,” El Dorado Sch. Dist. #15 v. Continental Cas. Co., 

, 847 (8th
Cir. 2001) (internal quotations omitted), “[i]f they choose not to do so, it is all but


                                         -11-
impossible to determine whether they acted with manifest disregard for the law.” W.
Dawahare v. Spencer, 

, 669 (6th Cir. 2000) (citing Merrill Lynch, Pierce,
Fenner & Smith, Inc. v. Jaros, 

, 421 (6th Cir. 1995)).


       Manifest disregard of the law “is more than a simple error in law or a failure
by the arbitrators to understand or apply it; and, it is more than an erroneous
interpretation of the law.” Duferco 

(citations omitted). “Our
disagreement with an arbitrator’s interpretation of the law or determination of the
facts is an insufficient basis for setting aside his award.” El Dorado Sch. 

(citing 

).


       In support of its claim, EMC argues the arbitrator disregarded the Supreme
Court’s pronouncements in BMW of N. Am., Inc. v. Gore, 

, 572-74
(1996) (describing a 500:1 ratio of punitive to compensatory damages as
“breathtaking” and suspicious), and State Farm Mut. Auto. Ins. Co. v. Campbell, 

, 426 (2003) (finding a 145:1 ratio of punitive to compensatory damages
presumptively excessive). In so arguing, however, EMC has failed to present any
evidence that the arbitrator “clearly identif[ied] the applicable, governing law and
then proceed[ed] to ignore it.” 

-62 (citing Stroh 

). None of the cases relied upon by EMC are cited in the
arbitrator’s decision,3 and there is nothing in the record to demonstrate “one of the
parties clearly stated the law and the arbitrator[] expressly chose not to follow it.” W.

; see also Duferco 

(“In determining
an arbitrator’s awareness of the law, we impute only knowledge of governing law
identified by the parties to the arbitration.”) (citation omitted).



      3
        The arbitrator’s decision predates State Farm making it impossible for the
arbitrator to have identified the decision as controlling.

                                          -12-
       Indeed, to the extent the arbitrator’s decision sets forth the basis for the
punitive damages award, it is apparent the arbitrator did not disregard governing law.
The arbitrator’s award was intended to punish EMC and to deter others from similar
conduct. In arriving at the appropriate amount, the arbitrator specifically found the
$6,000,000 award (amounting to one-tenth of one percent of shareholder equity) was
“not great punishment but it should act as a deterence [sic].” Appellee’s app. at 18;
see also Barnett v. La Societe Anonyme Turbomeca France, 

, 655
(Mo. App. 1998) (holding under Missouri law the net worth of a defendant is relevant
when determining the extent of punitive damages necessary to punish and deter the
defendant). Accordingly, we reject EMC’s claim of manifest disregard.


       “Although this result may seem draconian, the rules of law limiting judicial
review and the judicial process in the arbitration context are well established and the
parties . . . can be presumed to have been well versed in the consequences of their
decision to resolve their disputes in this manner.” Stroh 

.
Moreover, “[a]rbitration is not a perfect system of justice, nor it is [sic] designed to
be.” 

(citation omitted). Rather, it “is designed primarily
to avoid the complex, time-consuming and costly alternative of litigation.” 

arbitration setting we have almost none of the protections that
      fundamental fairness and due process require for the imposition of this
      form of punishment. Discovery is abbreviated if available at all. The
      rules of evidence are employed, if at all, in a very relaxed manner. The
      factfinders (here the panel) operate with almost none of the controls and
      safeguards [present in traditional litigation.]


Lee v. Chica, 

, 889 (8th Cir. 1993) (Beam, J. concurring in part and
dissenting in part).




                                         -13-
       Here, EMC chose to resolve this “dispute quickly and efficiently through
arbitration.” Schoch v. Infousa, Inc., 

, 791 (8th Cir. 2003), cert. denied,

(2004). Indeed, it was EMC that insisted on removing the matter to
arbitration. In so doing, EMC “got exactly what it bargained for.” 

such a contract, [EMC] must subsequently abide by the rules to which it
agreed.” 

(citation omitted).


                                          VI


      We reverse the district court’s order vacating the award of punitive damages
and remand with instructions to confirm the arbitrator’s award in its entirety.
                       ______________________________




                                         -14-