U.S. Supreme Court Holds That Parties May Not Contract for Expanded Judicial Review of an Arbitration Award in Proceedings Governed by the Federal Arbitration Act

Hall Street Associates, LLC v. Mattel, Inc.
2008 U.S. LEXIS 2911 (U.S. Mar. 25, 2008)

In a 6-3 decision, the Supreme Court held that in an arbitration case subject to the Federal Arbitration Act (“FAA”), the scope of judicial review of an award could not be expanded by agreement of the parties beyond the grounds for vacating or modifying an award specified in the FAA.

The case originally stemmed from a lease dispute between the toy maker Mattel and its landlord, Hall Street Associates. Mattel terminated its lease when the property’s water tested for high levels of contaminants, which was the result of the previous tenant’s use of the property as a manufacturing site. Hall Street filed suit claiming that a provision in the lease obligated Mattel to indemnify Hall Street for the costs of cleaning up the site.

The parties agreed to submit the claim to arbitration, and drew up an arbitration agreement which included a provision expanding district court review of an award to include review for legal error. The arbitration took place, and the arbitrator ruled in favor of Mattel.

Hall filed for district court review of the arbitrator’s award for errors of law. After several rulings by the lower courts, the Supreme Court granted certiorari to determine whether the parties could supplement by contract the FAA’s provisions governing judicial review of awards.

The Supreme Court reviewed the FAA and held that Mattel and Hall could not supplement by contract the FAA’s mechanisms for judicial review. The Court noted that the FAA provides that a court “must” confirm an arbitration award “unless” otherwise provided in other sections of the FAA. Further, the Court reasoned that the grounds for vacating an award under the FAA were limited to the circumstances of extreme arbitrator misconduct, and that limiting judicial review to this extent comports with the FAA’s policy of favoring arbitration.

Accordingly, the Court held that the FAA’s specified grounds for vacating or modifying awards provide the sole bases for review of an award made in an arbitration subject to the FAA.

This entry was posted in Arbitration and tagged , , , . Bookmark the permalink.