LawyersUSA

Parties to a contract may not agree by their contract terms to broader court review of an arbitration agreement and thus go beyond what federal law allows, the U.S. Supreme Court has ruled.

The parties were a landlord and tenant-manufacturer involved in litigation in federal court over whether the manufacturer should indemnify the landlord for costs associated with environmental contamination at the leased property.

They agreed to arbitrate the dispute, and stipulated that they wanted the court to be able to vacate, modify or correct the arbitration award if it found that the arbitrator's "findings of fact are not supported by substantial evidence, or conclusions of law are erroneous."

The 9th Circuit determined that the contract terms controlling the mode of judicial review were unenforceable. It remanded the case to the trial court, with instructions to affirm the arbitrator's award for the manufacturer unless it found the grounds set forth in the Federal Arbitration Act warranted vacating, modifying or correcting the award.

The Supreme Court, in an opinion written by Justice David Souter agreed that the FAA's terms could not be altered by contract.

"Under the terms of §9 [of the FAA], a court 'must' confirm an arbitration award 'unless' it is vacated, modified, or corrected 'as prescribed' in §§10 and 11. Section 10 lists grounds for vacating an award, while §11 names those for modifying or correcting one," the Court said.

"Instead of fighting the text, it makes more sense to see the three provisions, §§9–11, as substantiating a national policy favoring arbitration with just the limited review needed to maintain arbitration's essential virtue of resolving disputes straightaway. Any other reading opens the door to the full-bore legal and evidentiary appeals that can 'rende[r] informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process' … and bring arbitration theory to grief in post-arbitration process."

Justices John Paul Stevens, Anthony Kennedy and Stephen Breyer dissented.

U.S. Supreme Court. Hall Street Associates, L.L.C. v. Mattel, Inc., No. 06-989. March 25, 2008. Lawyers USA No. 9939539. Click here for the full text of this opinion.