Much of the arbitration community heaved a sigh of relief when the U.S. Supreme Court held earlier this year in Hall Street Associates, L.L.C. v. Mattel, Inc. (128 S. Ct. 1396, 2008) that the grounds to vacate or modify an arbitration award in the Federal Arbitration Act (FAA) are exclusive; thus, parties cannot agree to allow judicial review of an award for errors or law made by the arbitrator. The decision resolved a split in the federal circuit courts, which have struggled with this issue for more than a decade. But did it finally resolve a drafting problem that has vexed lawyers?
Well, not quite. Five months after the Supreme Court ruled that parties cannot obtain judicial review of the merits of an arbitration award by express agreement, the California Supreme Court ruled in Cable Connection v. DIRECTV (2008 WL 3891556, Aug. 25, 2008) that they could, even when they also agree that their arbitration is governed by the FAA.
The split between federal and California state courts creates risks and opportunities for clients who arbitrate in California. And the tension between these conflicting positions underscores the importance of drafting detailed choice-of-law provisions with compatible forum-selection clauses.