Wednesday, December 18, 2013
In an opinon issued yesterday, the Ninth Circuit ruled that parties' freedom of contract does not extend to contracting away federal court jurisdiction conferred under § 10 of the Federal Arbitration Act (FAA). In re Wal-Mart Wage & Hour Employment Practices Litig., 11-17718, 2013 WL 6605350 (9th Cir. Dec. 17, 2013). Section 10 of the FAA states the bases for court vacatur of an arbitration decision, such as fraud, corruption, arbitral misconduct, and exceeding arbitral authority.
The Ninth Circuit previously held, and the Supreme Court, agreed, that parties cannot contractually expand the federal courts' jurisdiction under § 10 an § 11. Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) ("[W]e granted certiorari to decide whether the grounds for vacatur and modification provided by §§ 10 and 11 of the FAA are exclusive….We agree with the Ninth Circuit that they are"). Nor under the In re Wal-Mart Wage decision may parties' eliminate (or reduce) review under § 10. This holding is consistent with other circuits' decisions, which have ruled that parties may use the phrase "binding, non-appealable arbitration" to preclude judicial review of the merits of the arbitration, but they cannot prevent the federal courts from reviewing the arbitration for the statutory bases for vacation under § 10 of the FAA.
The Appellee's argument against jurisdiction relied heavily on the "binding, non-appealable" language and did not confront the distinction between review on the merits and review for reasons stated in § 10. Appellees ably and persuasively presented the authority from other circuits that that contractual language has been interpreted to bar only review on the merits and not review under § 10.
Ultimately, the Ninth Circuit held broadly that, "the statutory grounds for vacatur in the FAA, may not be waived or eliminated by contract." It reasoned that the FAA strikes a balance between promoting arbitration as a method of efficiently resolving disputes and ensuring a minimal level of due process. If parties can contract out of § 10, federal district courts would be forced to confirm arbitral decisions tainted by fraud or corruption and parties would have no safeguards against arbitral abuse.
Interesting, the In Re Wal-Mart Wage court did not extend its holding to § 11, the provisions for federal court modification of an arbitration award. It seems to me that the same principles apply to an attempt to contract out of § 11, perhaps with even greater force, given that § 11 involves correcting miscalculations or mistakes of form.