The Supreme Court decided Hall Street Associates today. Find the decision at: http://www.scotusblog.com/wp/
I am surprised by the 6-3 decision, authored by Justice Souter. The Court emphatically stated that sections 10 and 11 of the FAA are the exclusive grounds for expedited vacatur and modification of arbitration awards.
The Court rejected the argument that the existence of the manifest disregard review standard, created in Wilko v. Swan, supported expansion of judicial review. The Court said:  manifest disregard is different because the Court created it — in Hall Street, the parties are attempting to create the standard of review; and  manifest disregard may be part of section 10 already — it may refer to the section 10 grounds “collectively, rather than adding to them.” Moreover, manifest disregard may just be a shorthand for the grounds identified in 10(a)(3) and 10(a)(4), the “subsections authorizing vacatur when the arbitrators were ‘guilty of misconduct’ or ‘exceeded their powers.'”
The Court also rejected Hall Street’s freedom of contract argument on the ground that the FAA’s text does not permit an interpretation that allows room for parties to contract. The Court used the principle of ejusdem generis to hold that the provisions of section 10 are exclusive. The Court also concluded that section 9’s use of “must” (a court “must grant” an order “unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title”) meant that section 10 could not be flexibly interpreted.
Although the Court acknowledged the concern that businesses will flee from arbitration if not allowed to expand judicial review of arbitration awards, it nevertheless concluded that “the statutory text gives us no business to expand the statutory grounds.”
The Court left open the possibility that parties might use something other than the FAA as a means for obtaining expanded judicial review of arbitration awards. The inherent authority of the trial judge under Rule 16 might permit the parties here to obtain the review requested because the agreement was reached during the course of the proceedings. Perhaps parties writing arbitration agreements in the future will continue to add these provisions and then seek declaratory judgments of legal error following arbitration awards not in their favor. This may get complicated if the winning arbitral party seeks confirmation of the award under the FAA!
I find this decision surprising from an allegedly “pro-business” court. The decision is decidedly not pro-business. Although the Court implies that the FAA’s statutory language compelled this result, I think it is clear from the numerous debates on the issue that the Court could have gone either way. How this fits in to the Court’s general jurisprudence (alleged to be pro-business), I do not know.
In addition, the Court’s treatment of the manifest disregard standard was unconvincing. I do not believe that courts using manifest disregard believe that the standard derives from section 10. I think courts and commentators treat manifest disregard as separate from section 10. Even if manifest disregard is part of section 10, what about all the other standards courts use to evaluate arbitration awards. “Arbitrary and capricious”, public policy and irrationality are all bases courts have used to evaluate arbitration awards. What is their fate following Hall Street???