Originially from: World Arbitration and Mediation Review (WAMR)

Co-opting the Federal Judiciary:
Contractual Expansion of Judicial
Review of Arbitral Award
by
Victoria L. C. Holstein
“[T]he legal order must be flexible as well as stable. It must be
overhauled continually and refitted continually to the changes in the
actual life which it is to govern.
I. Introduction
The proliferation of expensive, lengthy, and complex litigation has
led to an increased reliance on private adjudication to relieve overcrowded
court dockets. Implicitly recognizing the need to maximize scarce judicial
resources, the U.S. Supreme Court has emphatically endorsed arbitration
as a viable remedial alternative to the judicial resolution of disputes. For
more than a decade, the Court has relied upon contract principles to
promote arbitral autonomy and prevent judicial and state legislative
encroachment on the enforceability of arbitration agreements and awards.
However, the Court has yet to clarify the extent to which party autonomy,
based on freedom of contract principles, can justify the contractual
expansion of judicial review permitted under the Federal Arbitration Act
(FAA). Absent legislative or Supreme Court guidance, federal circuit
courts currently are split over how to apply the Court’s pro-arbitration
dicta to this question. Recently, just weeks after the Third Circuit joined
the Fifth and Ninth Circuits in recognizing the enforceability of
contractual provisions requiring substantive review of any resultant
arbitral award, the Tenth Circuit became the first federal appellate court to
hold definitively that parties may not dictate how Article III tribunals
operate by contracting for a standard of review that departs from that
statutorily proscribed in the FAA. The ability of parties to contract for an
expanded scope of review has become of increasing concern, particularly
in light of the development of arbitration as a substitute for litigation in
areas other than the commercial disputes for which it was originally
designed. In particular, by upholding the arbitrability of statutory claims
previously reserved to public adjudication and recognizing the broad
remedial authority of arbitrators to fashion any relief, including punitive
damages, the Court has engendered renewed suspicion regarding arbitral
competence that its expansive construction of the FAA, sought to
eliminate.