S.Ct. takes restrictive view of arbitration review

The Supreme Court held 6-3 that the Federal Arbitration Act (FAA) does not provide for review of an arbitration decision by a district court on the basis that the parties contractually agreed to it. Hall Street Associates, LLC v. Mattel, Inc., --- S.Ct. ----, 2008 WL 762537 (March 25, 2008) (NO. 06-989).

 

            The Court said that the limited grounds for review stated in the FAA are the exclusive grounds under that statute, but also stated that “the FAA is not the only way into court for parties wanting review of arbitration awards.” Accordingly, the Court remanded for consideration of whether any other federal law authorizes judicial review in these circumstances. The direct impact of this ruling, in a suit between two corporations, is not immediately clear – but the Court’s opinion exemplifies the tendency to give a cramped reading to federal statutes where access to courts is concerned.  Justice Souter wrote for the Court. Justice Scalia joined all of the opinion except a footnote concerning legislative history. Justice Stevens wrote a dissent, which Justice Kennedy joined. Justice Breyer wrote a separate dissent.

 

            After Hall Street sued Mattel in federal court, the parties signed an arbitration agreement, which provided for broad legal and factual review of any arbitration award by the district court. Mattel later argued, however, that the provision for legal review was unenforceable under the FAA. The FAA, 9 U.S.C. §§ 9-11, provides for judicial review in circumstances such as fraud, corruption, and obvious miscalculation. The Court noted a circuit split “over the exclusiveness of these statutory grounds…with some saying the recitations are exclusive, and others regarding them as mere threshold provisions open to expansion by agreement.”  The Court concluded they were exclusive, saying:

 …even if we assumed [the named grounds] could be supplemented to some extent, it would stretch basic interpretive principles to expand the stated grounds to the point of evidentiary and legal review generally. … Given [the statute’s] emphasis on extreme arbitral conduct, the old rule of ejusdem generis has an implicit lesson to teach here. Under that rule, when a statute sets out a series of specific items ending with a general term, that general term is confined to covering subjects comparable to the specifics it follows. Since a general term included in the text is normally so limited, then surely a statute with no textual hook for expansion cannot authorize contracting parties to supplement review for specific instances of outrageous conduct with review for just any legal error. “Fraud” and a mistake of law are not cut from the same cloth.

The court further concluded that “expanding the detailed categories would rub too much against the grain” of FAA’s statement that an arbitral award “must” be confirmed “unless [it] is vacated, modified, or corrected as prescribed in [the sections stating grounds for review].” The court said that this was limiting language with “no hint of flexibility.” The court said that “whatever the consequences of our holding, the statutory text gives us no business to expand the statutory grounds.”

 

            Despite this forceful language, the court explicitly left open the question of whether authority existed outside the FAA’s statutory grounds for the legal review agreed upon by the parties – a question that had not been squarely presented to the Court. The Court raised the possibility that such authority might exist under  F.R.C.P. 16 (district court’s power to manage its cases), or under the federal Alternative Dispute Resolution Act, 28 U.S.C. § 652 et seq., but left these matters for consideration on remand.

 

            Justice Stevens’s dissent assailed the court’s narrow reading of the FAA:

It is true that a wooden application of ‘the old rule of ejusdem generis,’ might support an inference that the categories listed in §§ 10 and 11 are exclusive, but the literal text does not compel that reading – a reading that is flatly inconsistent with the overriding interest in effectuating the clearly expressed intent of the contracting parties.
 

Justice Breyer thought the Court’s approach to the case mistaken, noting that the question it certified was whether the FAA precluded the contractually-provided legal review, not whether it directly authorized it. Since all of the Justices apparently agreed that, the FAA did not preclude such review, Breyer thought it unnecessary to remand the case.