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WASHINGTON � For most of the 30 years that Donald J. Friedman has been handling commercial arbitrations, companies and their lawyers have been willing to use the procedure without all the “bells and whistles,” said the partner at Seattle-based Perkins Coie. But now, he added, “My general sense is arbitration is not quite as popular as it had been.” Cautious litigators and risk-averse clients are seeking more judicial review, expanded document production and more depositions, he noted. “Once you do all of that, it begins to look a little less like the animal it was intended to be,” said Friedman. The U.S. Supreme Court on Nov. 7 will look under the skin of the arbitration animal to see if the Federal Arbitration Act (FAA) allows parties to an arbitration agreement to expand judicial review of an arbitration decision beyond the explicit terms of the statute. Hall Street Associates v. Mattel Inc., No. 06-989, is one of two arbitration cases on the docket this term and the first arbitration challenge since Chief Justice John G. Roberts Jr. and Justice Samuel A. Alito Jr. joined the court. Both Hall Street Associates LLC and Mattel Inc. had agreed to judicial review for legal errors of the arbitration decision in their dispute. But the 9th U.S. Circuit Court of Appeals held that that type of review went beyond what was permitted by the FAA. If the Supreme Court holds that these agreements are enforceable, “You’ll see an increase in this type of arbitration agreement, and this type is not tremendously effective in terms of cost and the time it takes,” said Eric P. Tuchmann, general counsel to the American Arbitration Association, which filed an amicus brief supporting Mattel. “It’s an incompatible hybrid between arbitration and litigation,” he said. “We feel we really need to preserve arbitration as a cost-effective and efficient means of resolving disputes.” But the main motivation of the drafters of the FAA was “to ensure enforcement of the parties’ agreement as written,” said Sarah Rudolph Cole, director of the Program on Dispute Resolution at Ohio State University Michael E. Moritz College of Law. “I think the drafters would say, ‘If that’s what the parties want to do, we should enforce the contract as written,’ ” she said, adding that companies, particularly those with much at stake, may refuse to use arbitration if there is no provision in the agreement providing for this type of judicial review. But enforcing those agreements could have a similar effect, particularly in the international arena, according to the United States Council for International Business. “If expanded review provisions should become pervasive . . . international and U.S. businesses will begin to perceive arbitrations seated in the U.S. as merely a preliminary step to prolonged and costly litigation in the U.S. courts � and will be less likely to choose the U.S. as a seat for arbitrations,” Mark D. Beckett, a partner in Latham & Watkins’ New York office, wrote in an amicus brief on behalf of the council. The high court case reflects “the drift of arbitration and the expansion of the process into a virtual full-fledged surrogate for public litigation,” manifested in many different ways in recent years, according to Thomas Stipanowich, director of the Straus Institute for Dispute Resolution at Pepperdine University School of Law and an occasional arbitrator. “I would describe arbitration as the new litigation,” he said. “It has taken on many of the trappings of litigation at a time when [the] public trial is dramatically contracting.” The high court case stems from a property dispute between Hall Street, the property owner, and Mattel, its lessee. While in federal court, the parties agreed to arbitrate certain issues with de novo judicial review of the arbitrator’s legal rulings. The FAA provides four statutory grounds for vacating an arbitration award and three grounds for modifying one. The 1st, 3d, 4th, 5th, and 6th circuits hold that parties to an arbitration agreement may agree to nonstatutory grounds for vacating arbitration awards. But the 9th and 10th circuits hold that parties are constrained by the statutory grounds. Hall Street lost before the arbitrator, prevailed in de novo review and then lost before the 9th Circuit. In the high court, Hall Street, represented by Michael T. Garone, shareholder in Schwabe, Williamson & Wyatt in Portland, Ore., argues that Section 9 of the FAA gives the parties the flexibility to specify conditions in the agreement � different from the statutory grounds � for court confirmation of an arbitration award. Key to the enforceability of those conditions, contends Garone, is that they do not offend the FAA’s goals and policies or unduly burden the federal judiciary. Review for legal error is a normal judicial function of federal courts, writes Garone in his brief, adding, “Allowing parties the freedom to stipulate to judicial review for legal error promotes arbitration by appealing to parties who otherwise would be reluctant to arbitrate for fear of a legally erroneous award without a chance for meaningful review.” But Mattel, represented by veteran high court litigator Beth Brinkmann, chairwoman of Morrison & Foerster’s appellate practice group from the firm’s Washington office, counters that the grounds in the FAA are explicit and exclusive and do not authorize a court to vacate, modify or correct an award based on errors of law or fact. “That is consistent with the limited role of the court under the FAA, which is to enter an arbitration award as an enforceable judgment of the court, not to review the merits of the award,” argued Brinkmann. She contends there is “no meaningful stopping point” to Hall Street’s attempt to limit its argument to judicial review that is consistent with a normal judicial function. “There are a multitude of standards that parties could agree to have a court apply to their arbitration award, including de novo review, which certainly would render arbitration a mere dress rehearsal for full-scale court litigation in contravention of the purpose of the FAA,” she wrote. Underlying tension A handful of amicus briefs in the case clearly describe the underlying tension in the case between those who view the principal purpose of the FAA as enforcement of the written terms of the arbitration agreement and those who, while agreeing with party autonomy, add economy and finality as of equal importance. In a brief filed on behalf of CTIA-Wireless Association, whose members use or are considering using arbitration agreements with judicial-review provisions, Evan Tager, a partner in the Washington office of Chicago-based Mayer Brown, said that federal arbitration law is animated by two overarching principles: “that contractual arbitration agreements should be enforced as written and that private parties should be encouraged to arbitrate their disputes.” A ruling for Mattel, he contends, would undermine both of those policies. Party autonomy extends to the full scope of the arbitration process in designing the process in a manner that suits the parties, counters Tuchmann of the American Arbitration Association, but “it has to end when it gets to the point of a court’s role in oversight of the process. The other aspect of this is finality and predictability.” The latter will be undermined by a decision favoring Hall Street, he said. Legally speaking, it’s a “tough case,” said Pepperdine’s Stipanowich. Practically speaking, it’s a “lousy idea” to allow expanded judicial review, he added, because drafters of those agreements often don’t think through all of the implications of expanded judicial scrutiny. The “drift of arbitration into a full-fledged surrogate” for litigation, he said, results from a concern by lawyers, particularly in large cases, that zealous advocacy requires them to embrace all of the tools in arbitration that they have employed in litigation, including full-blown discovery, extensive motion practice and, if possible, appellate review. “Many arbitrators may be reluctant to curb these tendencies,” he said. Perkins Coie’s Friedman said he is “certainly sympathetic” to the notion that, in a really big case, parties may feel the need for the extra protection of enhanced judicial review. “But the answer to that may be that the really big case is not appropriate for arbitration,” he said. In an earlier case raising the same legal issue, Judge Alex Kozinski of the 9th Circuit called the question “closer than most.” Not surprisingly then, those following this case are reluctant to predict what the court will decide. But less unpredictable, Ohio State’s Cole said, is what will happen if the high court says the FAA permits expanded judicial review in arbitration agreements. “There has been a sense that this wasn’t a big issue for corporations and most weren’t including these provisions in arbitration agreements,” she said. “But if the Supreme Court says they can do it, we will see more of it.”

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