Labor & Employment Law

Hall Street v Mattel: An FAA case? Or not?

It is better that I eat crow now, while it is young and tender. So let the feast begin.

Up until now I have viewed Hall Street Associates v. Mattel [Details; all briefs] as an ordinary FAA case, raising the issue of whether courts must (or may) enforce a private arbitration agreement that purports to give a district court broader review powers than the FAA specifies.

Recently-filed supplemental briefs have made it clear to me that this case is in a unique posture, and that it might not be an FAA case at all.

The parties agreed - in the middle of litigation - to submit some of their issues to an arbitrator, and to reserve to the district court the authority to review the arbitrator's award for legal errors. The district court signed-off on this agreement by entering it as an order in the litigation. Later, the district court did review the arbitration award for legal error.

The 9th Circuit's holding, which is now being reviewed by the US Supreme Court, was that the Federal Arbitration Act (FAA) barred this kind of court review of an arbitrator's award. The idea, which I think is correct in a normal FAA case, was that private parties cannot expand the Congressionally-determined role of the courts in reviewing arbitration awards.

Hall Street Associates v. Mattel is quite different from the ordinary FAA case because the arbitration agreement was entered as a court order during ongoing litigation. The Supreme Court, after hearing oral arguments on November 7, asked the parties for more briefs on three questions. Here are the questions, and an outline of the parties' responses filed November 27:

1. Does authority exist outside the Federal Arbitration Act (FAA) under which a party to litigation begun without reliance on the FAA may enforce a provision for judicial review of an arbitration award?
   • Hall Street: Yes. (1) The district court has authority from its local rules and the Federal Rules to order the parties to arbitrate the way they did, and then review the award as ordered. (2) The common law of Oregon allows enforcement of arbitration awards.
   • Mattel: No. (1) Oregon courts would not allow this form of judicial review. (2) No case-management or other authority would allow grounds for judicial review that differ from state law or the FAA.
2. If such authority does exist, did the parties, in agreeing to arbitrate, rely in whole or part on that authority?
   • Hall Street: Yes. The parties relied on state law and the district court's case-management authority.
   • Mattel: No. The parties relied exclusively on the FAA.
3. Has petitioner in the course of this litigation waived any reliance on authority outside the FAA for enforcing the judicial review provision of the parties? arbitration agreement?
   • Hall Street: No. Hall Street sought judicial review under the court's order effectuating the arbitration agreement, and did not bring a claim under the FAA.
   • Mattel: Yes. Non-FAA arguments were first presented on appeal to the 9th Circuit. Hall Street's petition for certiorari relied exclusively on the FAA, and enforcement "under the FAA" was the thrust of Hall Street's brief on the merits and oral argument.

Now what? One thing is clear to me: If the procedure followed by the district court was allowed by either its local rules or state law, then the FAA does not purport to disallow that. Therefore, the Supreme Court should (1) declare that the FAA does not block the procedure followed here if it is otherwise allowed by local rules or state law, and (2) remand to the lower courts to decide whether the procedure is allowed. (The Supreme Court should not tackle local issues that have not been previously ruled on by the lower courts.)

If I'm right this time, this case will not resolve the basic question of whether, in a normal FAA case, the courts must (or may) enforce an agreement that provides for expanded judicial review.

Full post as published by Arbitration Blog on December 01, 2007 (boomark / email).