Monday, March 31, 2008

Review of Arbitration Awards under the FAA

Last week the Supreme Court handed down its opinion in Hall Street Associates v. Mattel.  Mattel was Hall Street's tenant in a manufacturing facility.  Hall Street filed suit against Mattel for breach of the lease agreement and to indemnify it for environmental cleanup costs.  Following a bench trial at which Mattel prevailed on the lease termination issue, the parties agreed to arbitrate the indemnification claim.  The district court entered the parties arbitration agreement as an order.  The agreement/order granted the district court the power to vacate, modify, or correct the award "where the arbitrator's conclusions of law are erroneous."  This ground for vacatur, modification, or correction is not contained in the FAA.  The arbitrator decided for Mattel, but the district court vacated the award on the ground that the arbitrator based the decision on an erroneous legal conclusion.  The Supreme Court held that the grounds set out in the FAA for vacating and modifying an award are exclusive, even when the parties attempt to change the standard in their arbitration agreement.

The Supreme Court noticed an interesting wrinkle in the case and ordered supplemental briefing on the issue.  Should the agreement be treated as an exercise of the district court's authority to manage its cases under FRE 16 since the district court entered the agreement as an order?  The Supreme Court did not answer this question, instead remanding the case for the district court to determine whether its "authority to manage litigation independently warranted that court's order on the mode of resolving the indemnification issues remaining in the case."

Wouldn't an affirmative answer to the remaining question raise a number of other questions, especially in cases (unlike Hall Street) involving pre-dispute arbitration agreements?  For example, would parties resist arbitration in federal court only to gain sufficient leverage to convince the opposing party and the district court to enter a new, expanded arbitration agreement as an order in the case?  Would district courts simply refuse to enter such orders after Hall Street?  Would parties want such an order when they don't yet know if the award is favorable?  For discussion of these and other questions raised by Hall Street, click here.--Counseller      

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