Whether the Federal Arbitration Act sets forth the sole grounds for judicial review of arbitration awards, or whether parties may agree on additional and broader grounds for such review.
In 2000, Hall Street Associates filed suit seeking declaratory relief and damages from Mattel, Inc. for its failure to indemnify Hall Street for the cost of cleaning up water contamination at a toy manufacturing facility Mattel leased from Hall Street. After litigation began, the parties agreed to arbitrate some of the issues in dispute. They signed an agreement allowing either party to appeal the arbitrator's decision in court if it contained errors of law or unsubstantiated findings of fact. Subsequently, the Ninth Circuit ruled in a separate case that any arbitration provisions giving courts more review power than that granted to them in the Federal Arbitration Act (FAA) were invalid. Since the provisions of the arbitration agreement between Hall Street and Mattel went beyond those in the FAA, the Ninth Circuit invalidated the District Court's decision to review the arbitrator's findings according to the parties' provisions. At issue here is whether the FAA provides the sole grounds for judicial review of arbitration awards. Hall Street maintains that it is consistent with the spirit of the FAA and in the best interests of encouraging arbitration for courts to recognize all grounds for judicial review agreed upon by the parties, whether or not they go beyond those contained in the FAA. Mattel's position is that the best way to preserve the integrity of arbitration proceedings is to limit the review power of courts to the grounds contained in the FAA. Because the Supreme Court's decision in this case will affect the amount of freedom disputing parties have in crafting their arbitration agreements, ultimately it may affect whether parties choose to undergo the arbitration process at all.
Questions as Framed for the Court by the Parties
Did the Ninth Circuit Court of Appeals err when it held, in conflict with several other federal Courts of Appeals, that the Federal Arbitration Act ("FAA") precludes a federal court from enforcing the parties' clearly expressed agreement providing for more expansive judicial review of an arbitration award than the narrow standard of review otherwise provided for in the FAA?
The outcome of Hall Street Associates v. Mattel will determine the extent to which arbitrating parties are limited by the statutory provisions of the Federal Arbitration Act.� A decision for Hall Street will encourage freedom of contract policies by permitting parties to stipulate in their arbitration agreements as to the level of judicial review they can request a federal court to give to the arbitrator's award.� On the other hand, a decision for Mattel will limit the standards under which a federal judge can review or vacate an arbitration award to those specified in the FAA, which may discourage parties from arbitrating for fear being bound by a legally erroneous decision.Written by:
The authors would like to thank Professor John Barceló and his colleague Tibor Varady for their insights into this case.