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HALL STREET ASSOCIATES LLC v. MATTEL, INC.
THE UNITED STATES SUPREME COURT REJECTS EXPANDED REVIEW OF ARBITRAL AWARDS
THE DEATH KNELL FOR EXPANDED REVIEW

On March 25, 2008, the United States Supreme Court decided Hall Street Associates LLC v. Mattel, Inc.  This decision addresseswhether the parties to a contract providing for arbitration - as to which the Federal Arbitration Act applies - can agree to vest the federal courts with the power of 'expanded review' of the arbitrator's decision.

The typical view of arbitration is that even patently erroneous decisions of arbitrators are enforceable unless vitiated by the statutory exceptions, for instance, fraud.

Some parties resist arbitration because of the risk of unreviewable but erroneous decisions of arbitrators, on the basis that the appeals process available in courts provides some relief from that risk.

In Hall Street, the Supreme Court rejected the idea that the parties can vest the courts reviewing arbitral awards as to which the Federal Arbitration Act applies with the power to review decisions of arbitrators beyond those grounds found in the Federal Arbitration Act.

I have seen post - Hall Street marketing materials from large national law firms suggesting that expanded review, of sorts, can be retained - presumably by even more complicated arbitration provisions.

My opinion is to the contrary.  I see those ideas as invitations to extended litigation with little likelihood of success.  The dockets of the federal trial courts are full. The dockets of the state trial courts - which also hear appeals from decisions of arbitrators where the federal courts do not have jurisdiction - are fuller.  It is not likely that arbitration provisions with provisions for expanded judicial review will be found in the kinds of adhesion contracts where courts are already suspicious of arbitration, i.e., contracts involving consumer transactions.  Rather, provisions for expanded review will be found in commercial contracts drafted with input from lawyers on both sides (both as to contracts drafted in the past and those drafted in the future).  While some judges are protective of a broad scope of court powers - perhaps under the mantle of protecting party autonomy, the trend in most courts is to adopt any opportunity for docket clearing.  This docket clearing behavior is even more likely to occur in cases involving sophisticated parties with complicated civil disputes, which in my view, is where provisions for expanded review will be found.

With a mandate from the Supreme Court to reject expanded review, few federal or state courts applying the review provisions of the federal act will ever again undertake the task.  Nor will the effort be worthwhile in the few cases where the state arbitration statutes still hold sway.  First, most contracts involving transactions large enough to be worth investing the time to negotiate expanded review provisions will be governed by the federal act rather than states acts, because the transactions will involve or substantially affect interstate commerce.  Second, the review provisions of state arbitration statutes largely mirror the federal act, so, in the modest number of cases involving application of the state arbitration statutes, as a practical matter, the trial and appellate courts of the states will follow the lead of the the United States Supreme Court.

In my opinion, if parties wish 'expanded' review in the arbitration context, the only practical solution - if there is one at all - is to bargain for 'limited' arbitration.  For instance, agree to arbitral 'fact-finding', followed by judicial application of the law.  This is similar to the use of umpires or referees to find actual cash value in insurance disputes, with other issues resolved in court, or the use of arbitrators to determine entitlement and quantum in construction industry disputes, followed by determination of validity and priority of construction liens by the court.

The reality is that, once an arbitrator has rendered an award within the scope of his or her authority, there is little probability of judicial review on the merits.  Attempts to alter the review power granted by statute will be a wasted investment in legal resources at the front end of a transaction, which can only lead to more wasted investment in the form of expensive and unsuccessful litigation on collateral matters.

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© Frederic Cann 2008
This page last updated 5/3/2008

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