On November 7, 2007, the Supreme Court will hear arguments in Hall St. Assocs. LLC v. Mattel, Inc. 196 F. App’x (9th Cir. 2006), cert. granted, 127 S.Ct. 2875 (May 29, 2007) (online merits brief at http://www.abanet.org/publiced/preview/briefs/nov07.shtml#hallstreet). This case will finally address whether parties may agree to expand judicial review of arbitration awards. The federal circuit courts have split almost evenly on this issue, with some circuits holding that courts should enforce party agreements to expand judicial review of arbitration awards and others rejecting party attempts to alter the existing judicial review standards outlined in Federal Arbitration Act (FAA) § 10(a). In support of enforcement, courts typically cite the importance of party freedom of contract. In rejecting party agreements, courts usually focus on the FAA’s articulation of several grounds for limited review and the theory that parties may not create federal jurisdiction by contract. My view is that the drafters of the FAA never contemplated the question of party agreements to expand judicial review of arbitration awards. In the absence of statutory guidance, I believe that the preferred approach would be to treat the FAA as a set of default rules, around which the parties may contract, because default rules better preserve the concept of freedom of contract by permitting parties to opt out of them in favor of regime they prefer. But some limitations on parties’ ability to fashion their own contracts are necessary, since to give free rein to parties might result in undermining the institutional integrity of the courts. In an article to be published in the UNLV Law Journal, I propose that the Supreme Court adopt an arbitrary and capricious standard to review party agreements to expand judicial review of arbitration awards. Such a standard would protect the courts’ institiutional integrity while, at the same time, provide a more meaningful judicial review of arbitration awards for those who want it. In addition, the case may send a nice signal to Congress that the FAA is greatly in need of revision. One focus of such revision would be the language of FAA § 10, which should be amended to permit parties to agree to expand judicial review of arbitration awards.
Sarah Cole
