Hall St. Associates v. Mattel--Summary of Decision

In deciding this arbitration-law case the Court both answered one question and opened another. The question it settled was whether, under the Arbitration Act of 1925 ("FAA" or "Act"), the Act provides the exclusive listing of factors which would allow judicial reconsideration of an arbitral award. On this question the Court decided, 6-3, that when considering the Arbitration Act of 1925, the only grounds for review of reward are those stated in sections 9-11 of the Act. Parties, therefore, cannot successfully contract for judicial review of arbitration awards if it goes beyond the Act. Thus, they cannot use the Act as a "threshold" for considering arbitration awards; it must be an exclusive statute. In deciding the case this way, the Court agreed with the 9th Circuit Kyocera decision and the decision of the 9th Circuit in this case.

However, even though parties may not expand the scope of judicial review under the FAA, the Court hesitated and said that according to the facts of this case, another statute might be helpful in allowing a judicial review of arbitration awards. That statute--Federal Rule of Civil Procedure 16, which allows the court to manage it own docket, might provide for a way to review the award which doesn't affect the reviewability of the award under the FAA. What this means is that the Court's majority was thinking that an arbitral award may be judicially reviewable for factors other than those listed in the FAA, but in order to get to get to that kind of judicial review, one must do so under a different statute. But the Court had to remand the case back to the District Court in Oregon for hearings on this issue because it wasn't adequately briefed and discussed at the 9th Circuit or before the Supreme Court.

The upshot of the Court's decision, then, is that even though arbitral awards are not judicially reviewable under the FAA apart from the exceedingly narrow grounds of secs. 9-11 of the FAA, they may be reviewable under another statute. Thus, the Court, at least for now, has preserved a sort of "reasonable" approach to allowing parties' the ability to contract around the FAA while, at the same time, limiting the review of arbitral decisions to the narrow grounds allowed in the FAA. The FAA, then, is retained "purely," even though the Court has now introudced another level of potential murkiness in the review of arbitral decisions.

In the remainder of this review I will quote the passage in the arbitration award between the two parties in this case, for it is this passage which caused the Court ultimately to go through the contortions it did.

The Clause at Issue

Hall Street (Mattel's landlord) and Mattel were unable to agree on how much money Mattel owed Hall for contamination at the property leased by Hall to Mattel. As a result, during the arbitration to determine what Mattel owed Hall, the parties drew up the following agreement:

"[t]he United States District Court for the District of Oregon may enter judgment upon any award, either by confirming the award or by vacating, modifying or correcting the award. The Court shall vacate, modify or correct any award: (i) where the arbitrator's findings of facts are not supported by substantial evidence, or (ii) where the arbitrator's conclusions of law are erroneous.” App. to Pet. for Cert. 16a.

If we take a moment to look at these bolded lines we see how they could have thrown the federal court system into turmoil. They purport to give the federal district court authority to overturn an arbitral award if the arbitrator's finding of facts wasn't supported by substantial evidence or if the arbitrator screwed up on his/her conclusions of law. This authority, however, exceeds that given to courts by the FAA. So, can parties "add to" the FAA by their individual contract? In many areas of law a personal contract between parties is enforceable if it goes beyond a law, as long as it is not inconsistent with the law. The law, then, functions as a kind of "default" statute, declaring what will be the case unless the parties adopt some other regime. This is actually a very common situation of law; we see it, for example, most readily in Article 2 of the Uniform Commercial Code. Parties are held to the language of the Code (as adopted in each state) unless their contracts state something more specific.

The two views of the FAA, that it is either a "threshold" or an exclusive statute, have been circulating through the federal courts for the last decade. By this decision, the Court unequivocally declared that the FAA was an exclusive remedy--that parties couldn't contract for "more protections" or more "expanded judicial review" than the Act allowed. But here is the technical point. Parties must consider the Act exclusive as to claims brought under the Act. But if you want to claim that there ought to be judicial review of an arbitral award, you just don't base it on the Act--but perhaps on another statute. Here is a summary, then, of what the court decided on this issue:

"In holding the § 10 and § 11 grounds exclusive with regard to enforcement under the FAA's expedited judicial review mechanisms, this Court decides nothing about other possible avenues for judicial enforcement of awards. Accordingly, this case must be remanded for consideration of independent issues. Because the arbitration agreement was entered into during litigation, was submitted to the District Court as a request to deviate from the standard sequence of litigation procedure, and was adopted by the court as an order, there is some question whether it should be treated as an exercise of the District Court's authority to manage its cases under Federal Rule of Civil Procedure 16. This Court ordered supplemental briefing on the issue, but the parties' supplemental arguments implicate issues that have not been considered previously in this litigation and could not be well addressed for the first time here. Thus, the Court expresses no opinion on these matters beyond leaving them open for Hall Street to press on remand."

Conclusion

This case actually will cause more litigation than it solves, because parties now will comb every aspect of an arbitration agreement and legal process to see if there are other federal laws, expecially gleaned from the Federal Rules of Civil Procedure, that may now allow more expanded judicial review of arbitral awards. The subject is, really, just beginning.

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