A March 25, 2008 decision by the United States Supreme Court in Hall Street Associates v. Mattel, No. 06-989, limited the ability of contracts with arbitration clauses to provide for enhanced federal court review of the arbitration results. The Supreme Court held that arbitration decisions subject to the Federal Arbitration Act (9 U.S.C. § 1, et seq.) (“FAA”) can only be vacated, modified or corrected on the limited grounds set out in the statute such as fraud and corruption.
Many commercial contracts provide that disputes will be resolved by an arbitrator rather than by a judge or jury in court. After an arbitrator has decided the case, the parties can then return to court for enforcement of the judgment.
In considering arbitration, contracting parties are sometimes concerned that an incorrect ruling by the arbitrator will not be subject to appeal. To provide for greater appeal rights, the parties may provide that the court enforcing an arbitration award will be allowed to review whether the arbitrator reached the correct result. For example, in the Hall case, the parties agreed to arbitrate their environmental clean-up dispute, but their contract provided that the district court
shall vacate, modify or correct any award: (i) where the arbitrator’s findings of facts are not supported by substantial evidence, or (ii) where the arbitrator’s conclusions of law are erroneous.
The Supreme Court ruled that this provision was not enforceable because the FAA limits the situations in which a court can change an arbitration award. In particular, 9 U.S.C. § 10(a) provides:
(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration–
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
Similarly, 9 U.S.C. § 11 specifies limited grounds for a court to correct or modify arbitration awards.
The Supreme Court held that in providing the limited grounds for review set out in sections 10 and 11 of the FAA, Congress did not intend to allow a contract to expand review.
The decision in Hall does not affect how a state court applying state law would review an arbitration award.