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The Federal Arbitration Act was originally enacted in 1925 to replace judicial opposition to arbitration with a national policy favoring arbitration. The FAA sought to place arbitration agreements on equal footing with all other contracts. In this regard, Section 2 of the FAA expressly provides contracts to arbitrate disputes are “valid, irrevocable, and enforceable” and an arbitration award may be enforced by a judicial decree confirming it. But this statutory finality came with certain statutory exceptions. Specifically, the FAA provides that a court “must” confirm an arbitration award “unless” it is vacated, modified or corrected. Section 10 of the FAA specifies the grounds upon which a vacatur can be made, namely: (1) the award was procured by corruption, fraud or undue means; (2) the arbitrators exhibit “evident partiality” or “corruption”; (3) the arbitrators were guilty of misconduct; or (4) the arbitrators exceeded their power. These exceptions, however, have provided for substantial deference to an arbitrator’s award and, thus, substantial finality for the parties. Over time, it was not clear from the statute whether parties could, by contract, expand the exceptions upon which a court could justify refusing to confirm the award. Asplit developed amongst the regional circuit court of appeals and, in view of that split, the U.S. Supreme Court was called upon to decide whether the enumerated statutory grounds for vacatur may be supplemented by agreement. That is, may parties tailor the scope of judicial review, just as they tailor other features of the arbitration (e.g., number and qualifications of arbitrators). In response, the court held that the statutory grounds enumerated in the FAAare exclusive, that is, parties may not supplement them by agreement. (Hall Street Associates LLC v. Mattel Inc.) Before the Supreme Court’s decision in Hall Street, some courts had held the statutory grounds were exclusive, reasoning that allowing private parties to expand the FAA’s grounds for review could jeopardize the benefits of arbitration, rendering informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process. Other courts held the grounds for review are merely a threshold open to expansion by agreement. Indeed, as noted by the court in its opinion, when the litigation in Hall Street began, the 9th U.S. Circuit Court of Appeals was on the threshold side of the split. During the course of the litigation, however, it departed en banc in favor of the exclusivity view, which it followed in this case. The issue decided in Hall Street arose from a unique procedural history. Hall Street owned property it leased to Mattel. After Mattel gave notice of its intent to terminate the lease, Hall Street sued Mattel contesting the right to terminate the lease. Hall Street claimed, among other things, the lease obliged Mattel to indemnify it for cleanup costs resulting from Mattel’s alleged failure to follow environmental laws. The district court ruled for Mattel on the termination claim. After an unsuccessful effort at mediating the indemnification issue, the parties entered into a written agreement to arbitrate it, which the district court approved and entered as an order. That agreement included a provision requiring the court to vacate, modify, or correct any award if the arbitrator’s conclusions of law are “erroneous,” grounds more lenient than those in the FAA. The arbitrator decided the indemnification issue in Mattel’s favor. On Hall Street’s motion, the district court vacated the arbitration award for “legal error” and remanded the case for further consideration by the arbitrator. On remand, the arbitrator followed the district court’s ruling and amended the award in favor of Hall Street. But for correcting the arbitrator’s calculation of damages, the district court otherwise upheld the award. On appeal, the 9th Circuit reversed in favor of Mattel, finding the judicial review provision severable and unenforceable as exceeding FAA’s exclusive grounds for appeal, and it remanded the case to the district court. After the district court again held for Hall Street, and the 9th Circuit again reversed, the Supreme Court granted Mattel’s petition for certiorari. In a 6-3 decision, the court agreed with the 9th Circuit that the grounds for modification and vacatur enumerated in the FAA were the exclusive grounds for parties seeking review. The parties confronted the Supreme Court in deciding the issue under consideration with differing policies they espoused the FAA is meant to promote. In Hall Street’s view, if the purpose of the FAAis to give effect to the contracting parties’ agreements, then the parties’ agreement in this case, seeking expansion of the scope of review, corresponds with that purpose. Mattel argued on the other hand, that if the purpose of the FAAis to encourage the expeditious and efficient resolution of disputes, then expanding the scope of review is counter to that purpose. In reaching its decision, the court rejected Hall Street’s argument that parties should be able to expand the grounds for judicial review in the FAA simply because arbitration is a creature of contract and the FAA effectuates a general policy of treating arbitration agreements as enforceable. The court reasoned that applying this policy to the issue before it was at odds with “textual features” in the FAA requiring the more limited review. According to the court, “instead of fighting the text” (the literal reading of the FAA) it makes more sense to see the relevant provisions of the FAA as substantiating a national policy favoring arbitration with just the limited review needed to maintain arbitration’s essential virtue of resolving disputes promptly. As many other courts had expressed previously, any other reading of the FAA opens the door to a more cumbersome and time-consuming judicial review process. In holding the grounds for review in the FAA were exclusive, the Supreme Court made clear it did not purport to say its ruling in Hall Street excludes a “more searching review” outside the FAA. In this regard, the court acknowledged the FAA is not the only way into court for parties wanting arbitration awards reviewed, such as under state statutory or common law. Thus, parties desiring a more searching appellate review than the FAA provides and are willing to forgo the FAA’s streamlined review procedure may have other options if their agreement is not governed by the FAA. It remains to be seen, however, whether courts will give effect to expanded review procedures that may exist in state arbitration acts or to which parties may agree in private agreements or find them contrary to the FAA. The court in Hall Street did not ignore practical concerns raised by both parties concerning the possible effects of its decision, but neither did it rule a particular way based upon them. Hall Street and its amici prognosticated a “flee from arbitration” if the court does not permit expanded review, while one of Mattel’s amici foresaw “flight from the courts” if the court does permit expanded review. Having no evidence supporting either dire prognostication, the court was not in a position to determine which party was correct, noting it could not say whether its reading of the statute was more of a threat to the popularity of arbitrators or courts. Notwithstanding the possible consequences of its holding, the bottom line to the court was that “the statutory text gives us no business to expand the statutory grounds.” With the previous split in the circuit courts (some permitting expanded review and others not) it bears noting whether there is any data that can be used to determine, from this past experience, what lies in the future. That is, in those jurisdictions in which expanded judicial review of arbitration awards was permitted under the FAA, did parties favor arbitration over litigation for that reason. And in those jurisdictions, which did not permit parties to expand the scope of review under the FAA, did parties favor litigation for that reason. Might Hall Street’s prognostications come true that parties will flee from the use of arbitration in view of the Supreme Court’s holding in this case. Insofar as various considerations and decisions impact how and why parties arrive at arbitration in resolving their dispute, past practices in the regional circuit courts may not be an accurate predictor of the future post Hall Street. Moreover, notwithstanding the fact that in some regional circuit courts parties were permitted the flexibility of adopting a scope of review differing from that set forth under the FAA, parties nonetheless generally considered the scope of review “narrow” and steered clear of arbitration for that reason, while others found its finality (limited review) a significant benefit. Indeed, in conjunction with the generally held belief that arbitration is an alternative dispute resolution process having limited review, ADR providers such as JAMS and the International Institute for Conflict Prevention & Resolution developed optional appellate arbitral review procedures by which an arbitrator’s award may be reviewed by a three, or even one, arbitrator panel. Thus, notwithstanding the significance of Hall Street in putting to rest a split in the regional circuit courts regarding the interpretation of an 83-year-old statute, perhaps the Supreme Court simply made what’s old new again and business will go on as usual. • Harrie Samaras is a shareholder with the law firm of Ratner Prestia, where she chairs the firm’s litigation and dispute resolution department. She has worked in the field of intellectual property for more than 20 years in both firm and corporate positions. She can be contacted at [email protected].

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