The U.S. Supreme Court’s Hall Street opinion in March 2008 made clear that the Court believes that the FAA does not provide a basis for parties to expand contractually the scope of judicial reviews of arbitral awards. But the Court specifically left open the possibility that state statutory or common law might provide a basis for such expanded review.
Now, less than six months later, it appears that the California Supreme Court has taken up that invitation (if that’s what the Supreme Court was offering), in a case called Cable Connection, Inc. v. DIRECTTV, Inc., ___ Cal. Rptr. 3d ___ (August 25, 2008).
I’ve not spent as much time with the case as I will need to spend in order to be confident of its implications, but briefly, the case appears to present precisely one of the possible situations the Hall Street opinion suggested were possible. The parties’ contract included an arbitration provision that included the following phrase:
The arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.
The question then became whether (1) that phrase signaled an intention to provide an expanded basis for judicial review of the arbitrator’s award, and if so (2) whether such a contractual provision would be enforceable.
The California Supreme Court said Yes to both questions. In responding to the argument that the FAA might preempt the enforcement of such a provision, the Cable Connection court describes Hall Street’s opposition to contractual expansion of judicial review as being limited to proceedings to review under the FAA. And it reads California state law precedent to weigh in favor of giving effect to parties’ intentions with respect to arbitration–including the possibility of expanded judicial review.
Thus, despite my law students’ fervent hope to the contrary each year shortly before final exams, it appears that arbitration’s patchwork of preemption analyses persists.
Michael Moffitt
