ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, December 30, 2013

Ninth Circuit Strikes Down Arbitration Clause that Renders Arbitral Decision Unappealable

I have been thinking a lot about Peggy Radin's book Boilerplate and her arguments about how boilerplate contacts threaten a democratic degradation (discussed elsewhere on the blog by Brian Bix, with Peggy Radin responding here, and by David Horton) because they permit private parties, powerful companies, to negate statutory or common law rights.  The Ninth Circuit has put its foot down and refused to permit a potential innovation in the direction of democratic degradation, but the odd thing about the case is that the arbitration agreement at issue here seems to have been among parties with fairly even bargaining power.  

9th CircuitOn December 17, 2013, the Ninth Circuit issued its opinion in In re Wal-Mart Wage & Hour Employment Practices Litigationaffirming the District Court's confirmation of an arbitration award and rejecting appellee's argument that the Court was without jurisdiction because the parties agreed to binding, non-appealable arbitration.

The dispute at issue arose in the aftermath of an $85 million settlement agreement between Wal-Mart and a class of employee-plaintiffs.  As part of that settlement, the parties agreed to have all disputes as to fees decided by an arbitrator.  The District Court awarded $28 million in attorneys' fees, but plaintiffs' counsel quarreled over the proper allocation of that fee award.  That dispute was submitted to "binding, non-appealable arbitration." 

The arbitrator divided the fee among three law firms, and one of them brought suit in District Court challenging the allocation.  The District Court found no grounds to vacate the arbitrator's award, and the law firm that challenged the award appealed.  The firm that got the lion's share of the fee award argued that there could be no appeal due to the "non-appealable" language in the arbitration agreement.

The Ninth Circuit found the language of the agreement ambiguous.  "Non-appealable" could just preclude courts from reviewing the merits of the arbitrator's decision, or it could mean that no federal court could exercise jurisdiction in the case.  The Ninth Circuit concluded that the second meaning would be unenforceable in any case, as inconsistent with the provision for judicial review of arbitration awards under Section 10 of the Federal Arbitration Act (FAA).  Citing Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), in which the Supreme Court rejected an arbitration agreement that expanded the grounds for judicial review of an arbitration award, the Ninth Circuit reasoned that "[j]ust as the text of the FAA compels the conclusion that the grounds for vacatur of an arbitration award may not be supplemented, it also compels the conclusion that these grounds are not waivable, or subject to elimination by contract."  As if the Court had the concept of democratic degradation in mind, the opinion continues:

Permitting parties to contractually eliminate all judicial review of arbitration awards would not only run counter to the text of the FAA, but would also frustrate Congress’s attempt to ensure a minimum level of due process for parties to an arbitration. . . .  If parties could contract around this section of the FAA, the balance Congress intended would be disrupted, and parties would be left without any safeguards against arbitral abuse.

Well, yeah.  

In a separate memorandum disposition, the panel affirmed the District Court's confirmation of the aribral award.


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