Labor & Employment Law

Hall Street: No expansion of FAA grounds for vacating award

The Federal Arbitration Act (FAA) contains specific grounds for a federal court to vacate or correct an arbitrator's award. None of the statutory grounds includes correcting the award if the arbitrator's conclusions of law were erroneous.

In Hall Street Associates v. Mattel [details] the parties agreed to arbitrate a portion of their lawsuit, and included an agreement that a federal district 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."

The US Supreme Court decided (6-3) on March 25

1. "§§10 and 11 respectively provide the FAA?s exclusive grounds for expedited vacatur and modification."

   In other words, if you're using the FAA's statutory method for vacating (or confirming) an award, then you can use only the statutory grounds. You can't make a court review the arbitrator's award under a more expansive standard.

   [My comment on October 22, 2007: "It is beyond my imagination that the Supreme Court would allow private parties to convey on federal courts a review power that Congress withheld."]

2. The Hall Street case was a bit more complex than some cases because the agreement to arbitrate was approved by the district court, and was entered as a court order. Therefore, it is possible that court review of the award could be had in some way other than the FAA. For example, there might be a state statutory method or a common law method. In the alternative, it could be that the district court had authority as part of its case-management powers. However, these possibilities did not become part of the parties' arguments until after the case got to the Supreme Court, and the Court did not want to consider them without giving lower courts the first chance. Therefore, the Court remanded so the lower courts can look at these possible alternatives.

   [My comment on December 1, 2007: "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.)"]
   

Many onlookers are asking what effect the Hall Street case will have on other "non-statutory" grounds for overturning an arbitrator's award: manifest disregard for the law, public policy, arbitrary and capricious, irrational, etc. I'll give you my answer in a later post.

I was surprised that a couple of law professors were surprised by this decision. See Marcia McCormick, Hall Street v. Mattel and the Future of Arbitration on Workplace Prof Blog; and Sarah Cole, Hall Street Decision Today: Parties Cannot Expand Judicial Review of Arbitration Awards on ADR Prof Blog.

Other comments on this case:

• The Word on Hall Street Is No Expanded Review on National Arbitration Forum Blog
• U.S. Supreme Court finds Federal Arbitration Act states exclusive grounds for review of arbitration awards on Northwest Business Litigation Blog (from the Ater Wynne law firm)
• SCOTUSwiki
• No Longer can you Craft Your Own Arbitral Standard of Review on Disputing

Full post as published by Arbitration Blog on March 27, 2008 (boomark / email).