Hall Street v. Mattel and the Future of Arbitration

Although this isn't an employment law case, the Supreme Court handed down an opinion today in Hall Street v. Mattel that may have important ramifications for arbitration of disputes involving employment discrimination and other statutory rights. Hall Street Associates, L.L.C. and Mattel entered into an arbitration agreement after a dispute had arisen and been partially litigated. The district court approved the agreement, which stated, in part:

[t]he United States District Court for the District of
Oregon may enter judgment upon any award, either
by confirming the award or by vacating, modifying or
correcting the award. The 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 scope of this review is more searching than the review provided by the Federal Arbitration Act (FAA), which allows an award to be vacated where procured by corruption, fraud, or undue means, where there was evident partiality or corruption in the arbitrator, where the arbitrator was guilty of misconduct in not postponing the arbitration or refusing to hear evidence, or 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." These are pretty narrow grounds.

The Ninth Circuit had held that the provision that expanded review was unenforceable because it exceeded the review provided for by the FAA (the circuits were split), and the Supreme Court affirmed. In an opinion by Justice Souter, the Court held that the language of the FAA demonstrated that the review it provided was exclusive, which meant that the parties could not contract for greater review. Although the Court suggested that because this was arbitration approved by the District Court that such an agreement could be construed as an order for court annexed arbitration, something the court might due under Fed. Civ. P. R. 16, which allows district courts to enter orders to manage its cases, which would not necessarily be subject to the same limitation. The Court declined to construe this agreement in this manner in this case.

Stevens dissented, and Kennedy joined that dissent. Stevens looked primarily to the purpose of the FAA, which was to allow parties to privately determine how disputes should be resolved without complying strictly with most of the traditional processes of the courts. That the Court should now say that the statutory language does not allow the parties to contract for these processes turns the FAA on its head.

Rick is much more of an expert on arbitration, so he may correct me, but the result here seems surprising and seems somewhat troubling to me. Could arbitration agreements that provide for court-like procedural protections violate the FAA? Maybe the distinction would be that review is clearly provided for by the FAA, while it is nearly silent on what an arbitration agreement might contain. The only provision that governs the content provides a default rule for selection of the arbitrator, but it explicitly allows the parties to contract for a different procedure. Additionally, the FAA explicitly provides that arbitration contracts will not be enforced if doing so would would violate the law of contracts. Still, viewing the FAA as a ceiling rather than a floor for the procedures used in arbitration and requiring that ceiling to remain well below the procedures a court would use might cast some doubt on decisions that have refused to enforce agreements for not providing enough procedures to satisfy due process.

MM