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U.S. Supreme Court considering the enforceability of agreement to expand judicial review of arbitration

November 12th, 2007 by Erich Vieth

In a case argued before the United States Supreme Court on November 7, 2007, the United States Supreme Court heard oral argument on the issue of whether a “hybrid” arbitration was appropriate pursuant to the Federal Arbitration Act.  Hall Street Associates, L.L.C. v. Mattel Inc. 196 Fed.Appx. 476, 2006 WL 2193411, **1 (C.A.9 (Or.) 2006). 
 
In their arbitration agreement, the two parties expressly provided that the District Court should vacate, modify or correct the arbitration award “where the arbitrator’s conclusions of law erroneous.” The parties had agreed to arbitrate several issues under an agreement that allowed for de novo judicial review of the arbitrator’s legal rulings.  According to Hall Street’s Petition for Writ of Certiorari, “this agreement for expanded judicial review was central to the party’s agreement to arbitrate their dispute.”
 
Even though Hall Street Associates and Mattel Inc. had agreed to allow a court to review their arbitration for legal errors, the Ninth Circuit Court of Appeals held that this provision allowing judicial review of the arbitrator’s conclusions of law went beyond what is permitted by the Federal Arbitration Act.  The Court of Appeals held that its task was to review the procedural soundness of the arbitrator’s decision, not substantive merit.  It held that the arbitrator’s decision in this case could not be said to be “completely irrational,” and it thus passes judicial muster. 

The dissent held that the arbitrator’s decision was “completely irrational” and the arbitrator used an inappropriate legal standard when it resolve this case. The majority of the Ninth Circuit Court reversed the District Court’s decision and remanded the case back to the District Court to enforce the arbor traders award:

Although the arbitrator’s assessment of the merits in this case contains possible errors of law, those errors are not a sufficient basis for a federal court to overrule an arbitration award.

Many of the filings regarding this litigation can be found here free of charge.

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