Hall Street Decision Today: Parties Cannot Expand Judicial Review of Arbitration Awards

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: [1] manifest disregard is different because the Court created it — in Hall Street, the parties are attempting to create the standard of review; and [2] 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???

4 thoughts on “Hall Street Decision Today: Parties Cannot Expand Judicial Review of Arbitration Awards”

  1. The clearest purpose I can see for the ruling is an institutional perogative of the judicial branch which does not want to be compelled to provide a la carte justice on demand.

  2. In response to Sarah Cole’s initial posting on the Hall Street decision, ohwilleke wrote:

    The clearest purpose I can see for the ruling is an institutional perogative of the judicial branch which does not want to be compelled to provide a la carte justice on demand.
    What’s interesting about the hypothesis ohwilleke offers is that courts ARE compelled to provide justice on demand. (Or I suppose more technically, on pleading.) That leaves only the “a la carte” aspect as potentially problematic.

    And I guess I’m not sure I fully understand the underlying nature of the objection to the idea that courts might be made available in customized ways.

    For more heresy on the subject, see Michael Moffitt, Customized Litigation: The Case for Making Civil Procedure Negotiable, 75 George Washington Law Review 461 (2007).

    Michael Moffitt

  3. I was not surprised to see the court come down as it did. (I was surprised, howver, that the court actually got an arbitration case right.)

    I continue to think that efficiency interests often drive the Supreme Court’s arbitration jurispridence. Moreover, the court recognized that substantial judicial review is fundamentally inconsistent with “arbitration’s essential virtue of resolving disputes straightaway.” See P. 11, where the court also says “Any other reading opens the door to the full-bore legal and evidentiary appeals that can render infomral arbitration a mere prelude tot he more cumbersome and time-consuming judicial review process and bring arbitration theory to grief in post-arbitration process.” This, to me, is one of the more telling parts of the opinion.

    As to other non-statutory grounds, I see the court’s decision as foreclosing all but “manifest disregard.” While the court acknowledges it doesn’t know what it means, it does leave the door open for a text-based interpretation.

    To me, the more interesting part of the opinion was the last part, Section IV, where the court invited litigation on the questions of whether state statutory or common law could provide a basis to uphold the agreement, or whether federal district courts could engage in judicial review of an arbitration award as a function of their inherent powers under Rule 16.

    This strikes me as ill-advised, and one that raises a host of problems. Is the court here trying to open up state arbitration law, and if so on what issues? Do we really need another circuit court split on the inherent powers question? Would a court decision accepting the inherent powers argument open the door for greater federal judicial supervision of the arbitration process as well as the result? Would all of this further “legalize” arbitration so as to undermine its attractiveness as an alternative to trial.

    One step forward, two steps back.

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