In Hall Street Associates, LLC v. Mattel, Inc., 2008 WL 762537 (U.S. 2008), the Supreme Court held that the grounds for vacatur and modification of arbitration awards provided by §§ 10 and 11 of the Federal Arbitration Act (“FAA”) are exclusive.
The case began as a lease dispute between a landlord, Hall Street Associates, LLC, and tenant, Mattel, Inc., involving a piece of property long used as a manufacturing site. The lease required Mattel to indemnify Hall Street for costs related to the tenant’s failure to follow environmental laws. After pollutants were discovered on the property and Mattel gave notice of intent to terminate the lease, Hall Street filed suit, claiming a right to indemnification under the lease. The parties reached an arbitration agreement providing that the district court “shall” vacate, modify or correct any award where the arbitrator’s factual findings were not adequately supported or were legally erroneous.
The arbitrator found in Mattel’s favor, but the district court vacated the arbitration award, citing the agreement’s provision regarding review for legal error and a 9th Circuit case interpreting the FAA as leaving the parties “free to draft a contract that sets rules for arbitration and dictates an alternative standard of review.” On remand, the arbitrator found for Hall Street. The district court upheld but slightly modified the award, each party appealed to the Ninth Circuit, and the Ninth Circuit reversed in favor of Mattel. Finally, the Supreme Court granted certiorari to decide whether the grounds for vacatur and modification of arbitration awards provided by §§ 10 and 11 of the Federal Arbitration Act are exclusive, and held that they are.
The Supreme Court noted that the FAA was enacted to create a “national policy favoring arbitration” and to “plac[e] arbitration agreements on equal footing with other contracts,” and that the statute supplies mechanisms for enforcing arbitration awards. Under Section 9, a court “must” confirm an arbitration award “unless” it is vacated, modified, or corrected as prescribed in Sections 10 and 11. Section 10 lists grounds for vacating an award, including where the award was procured by corruption or fraud, and where the arbitrators were guilty of misconduct, evident impartiality, or exceeded their powers. Section 11 provides grounds for modification of an award, including “evident material miscalculation,” “evident material mistake,” and “imperfect[ions] in matter of form not affecting the merits.”
In its opinion, the Court rejected an argument that the district court could vacate an award for “manifest disregard of the law” under Wilko v. Swan, 346 U.S. 427 (1953), finding that Wilko had actually rejected the idea of general review of an arbitrator’s legal errors. The Court also rejected an argument to uphold the agreement because the FAA was designed to enforce parties’ contractual agreements. The Court held that while the FAA does allow parties to tailor some features of arbitration, the text of the FAA compels a reading of §§ 10 and 11 as exclusive. Further, the Court cited the statutory interpretation rule of esjudem generis: when a statute includes a list of specific terms followed by a general term, the general term only covers subjects comparable to the specific terms. Here, the Court found that §§ 10 and 11 addressed “egregious departures from the parties’ agreed-upon arbitration” – corruption, fraud, evident partiality, etc. – and “fraud and a mistake of law are not cut from the same cloth.” In addition, Section 9 of the FAA contained no indication of flexibility, providing that the court “must grant” the arbitration award order “unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11.” The Court also briefly examined the FAA’s legislative history, finding this history to support its holding. Finally, the Court noted that these provisions of the FAA do not necessarily exclude “more searching review” of arbitration awards based on authority outside the FAA, such as a state statute or common law. Thus, after Hall Street, parties seeking review of arbitration awards still may seek such review under authorities other than the FAA.
For the Supreme Court opinion, see http://www.supremecourtus.gov/opinions/07pdf/06-989.pdf.