Originally from American Review of International Arbitration - ARIA

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In the Supreme Court’s recent decisions regarding the Federal Arbitration Act, the Court has often stressed the need to respect party autonomy in arbitration. In Hall Street Associates, L.LC. v. Mattel, Inc., the Court faced what was argued to be a conflict between the FAA’s statutory language and Congress’s intent that private arbitration agreements be enforced according to their terms. However, in holding that judicial review under the Federal Arbitration Act is exclusively limited to the grounds listed in 9 U.S.C. §§ 9 and 10 and may not be expanded by agreement of the parties, the Court respected both party autonomy and the efficiency of the arbitration process created by the FAA. The Court made clear that the parties’ autonomy extends to the arbitration process itself, but that once an award is rendered the courts have limited powers to review and overturn that award. In fact, the Court even questioned whether the judicially created ground of “manifest disregard of the law,” which has been increasingly used by lower courts to vacate awards, is a valid basis on which to challenge an award. The Hall Street decision carefully preserved the benefits of arbitration and avoided a multitude of problems that could have arisen if parties had been given full authority to draft their own grounds for judicial challenges to arbitration awards.

Hall Street arose out of a commercial landlord-tenant dispute between Mattel, the tenant, and its landlord, Hall Street Associates. Following the discovery of environmental contamination on the leased property, Mattel notified Hall Street that it intended to terminate the lease. After the initial litigation over the termination provisions in the lease was won by Mattel, Hall Street and Mattel agreed to submit the indemnification issue to arbitration. The arbitration agreement, which was approved and entered as an order by the federal district court, provided that “[t]he Court shall vacate, modify, or correct any award: (i) when the arbitrator’s findings of facts are not supported by substantial evidence, or (ii) where the arbitrator’s conclusions of law are erroneous.” The arbitrator decided the dispute in Mattel’s favor, but the district court found, pursuant to the arbitration provision, that the arbitrator had made an erroneous conclusion of law and vacated the award. The district court remanded the case to the arbitrator for further consideration, after which the arbitrator decided the dispute in Hall Street's favor. The district court then upheld the arbitrator's second award. The Ninth Circuit reversed on the ground that the provision of the arbitration agreement allowing the district court to vacate the intitial award because of an erroneous conclusion of the law was not enforceable under the FAA. The Supreme Court granted certiorari on the question of whether the FAA's statutory grounds for vacatur and modification may be supplemented by contract.