Hall Street Assoc. v. Mattel

Question presented:

(1) Does authority exist outside the Federal Arbitration Act (FAA) under which a party to litigation begun without reliance on the FAA may enforce a provision for judicial review of an arbitration award?

(2) If such authority does exist, did the parties, in agreeing to arbitrate, rely in whole or part on that authority?

(3) Has petitioner in the course of this litigation waived any reliance on authority outside the FAA for enforcing the judicial review provision of the parties’ arbitration agreement?

As arbitration becomes an increasingly standard part of American business, the Supreme Court agreed to consider whether parties to arbitration agreements may give federal courts far more oversight power than envisioned by the Federal Arbitration Act.

The case arose when toy manufacturer Mattel was sued by its landlord Hall Street Associates in a dispute over a property lease. After the litigation went to federal court both parties agreed to resolve the case by arbitration according to the procedures outlined in the Federal Arbitration Act (FAA).

The arbitration agreement was a departure from the norm because it stipulated that the District Court could override the arbitrator's decision if "the arbitrator's conclusions of law are erroneous." This provision of the agreement granted the federal courts a much broader role in supervising the arbitration than is specifically granted in the FAA. The Act explicitly mentions only a narrow set of circumstances under which courts can override an arbitration award, such as corruption, partiality, or misbehavior on the part of the arbitrator.

The arbitrator heard the parties' arguments and handed down a decision in favor of Mattel. Hall sought review from the District Court, and that court found that the arbitrator's decision contained legally erroneous conclusions. Accordingly, the arbitrator ruled for Hall Street, and the District Court affirmed.

On appeal, the U.S. Court of Appeals for the Ninth Circuit ruled that the original arbitration award favoring Mattel must stand. Even if the arbitrator did make legal errors, it was not the place of the courts to review the soundness of the arbitrator's decision. The Ninth Circuit viewed the FAA's list of circumstances meriting judicial review as an exclusive list. As far as the original arbitration agreement expanded the scope of judicial review of the arbitration, the agreement could not be enforced.

A decision expanding arbitrating parties' right to seek federal court review could undermine the FAA's goal of reducing litigation.

On March 25, a divided court affirmed the Ninth Circuit's holding.

Justice David H. Souter wrote for the 6-3 majority. Justice John Paul Stevens filed a dissenting opinion in which Justice Anthony M. Kennedy joined. Justice Stephen G. Breyer also filed a dissenting opinion