Supreme Court Update Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. ____ (2008) Decided March 25, 2008 | See opinion here On March 25, the Supreme Court issued its opinion in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S.____ (2008), a closely-watched case addressing the freedom of parties to an arbitration agreement falling under the aegis of the Federal Arbitration Act ("FAA" ) to contract for broader judicial review of a resulting arbitration award than that specified in the FAA.  In its 6-3 decision, the Court held that the FAA's statutory grounds for vacatur and modification of arbitrations awards are exclusive.  (The full text of the Court's decision is available at http://www.scotusblog.com/wp/wp-content/uploads/2008/03/06-989.pdf).  Hall Street and Mattel found themselves in litigation in the U.S. District Court for the District of Oregon, over a lease provision requiring Mattel to indemnify Hall Street for costs arising from the failure of Mattel (or its predecessors) to follow environmental laws while leasing Hall Street's property.  During the lawsuit, the parties determined that arbitration was appropriate to determine the indemnification claim.  The parties drafted and executed an arbitration agreement, which the District Court entered as an order.  When the arbitrator ruled first for Mattel and then, at the District's Court's insistence, reversed the award and ruled for Hall Street, the matter proceeded to appeal. At issue in the case was the validity of a provision in the arbitration agreement, specifying that the District Court must "vacate, modify, or correct any [arbitration] award: (i) where the arbitrator's findings of fact are not supported by substantial evidence, or (ii) where the arbitrator's conclusions of law are erroneous."   Justice Souter, writing for the majority, noted that §§ 10 and 11 of the FAA provide the exclusive grounds by which a court may vacate or modify an award resulting from an arbitration conducted pursuant to the FAA.  Section 10 of the FAA permits vacatur only (1) where the award was procured by fraud or corruption; (2) where the arbitrator(s) exhibited evident partiality; (3) where the arbitrator(s) refused to postpone the hearing where good cause was shown, or refused to hear material and pertinent evidence; or (4) where the arbitrator(s) exceeded their authority.  Section 11 authorizes the court to modify an award where (1) the award contains a material miscalculation or material mistake in describing people, things or property; (2) where the arbitrators made an award on a matter not submitted to them; or (3) where there is an imperfection in the award that does not affect the merits of the dispute.  The Court noted that under § 9 of the FAA, a court "must" confirm such an award "unless" the court vacates, modifies or corrects the award pursuant to §§ 10 or 11.  The provision for judicial review in the arbitration agreement between Hall Street and Mattel exceeds the scope of §§ 10 and 11. The Court rejected Hall Street's argument that a prior decision by the Court, Wilko v. Swan, 346 U.S. 427 (1953), set forth "manifest disregard of the law" as another ground for a court to vacate an arbitration award.  Rather, the Court noted, the Wilko opinion clearly rejects the notion that courts have the authority to conduct a "general review for an arbitrator's legal errors." The Court also rejected Hall Street's argument that because arbitration is a creature of contract, and the FAA represents Congress' desire to enforce such agreements, that the parties' agreement on the scope of legal review ought to be given effect.  According to Justice Souter, the wording of §§ 10 and 11 force the conclusion that they were intended to be the exclusive grounds for vacatur or modification, rather than a non-exclusive set of examples of such grounds.  Justice Souter concluded that "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."   The argument postulated by Hall Street would "open the door to full-bore legal and evidentiary appeals that can render informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process." The Court left open other possible approaches for expanded judicial review of arbitration awards.  The Court noted that "the FAA is not the only way into court for parties wanting review of arbitration awards" and that parties may seek enforcement of such awards under state statutory or common law grounds, where the scope of judicial review may be different.  Finally, the Court addressed, but did not pass on, the possible impact on the scope of judicial review arising from the fact that the arbitration agreement in question was fashioned mid-litigation and entered as an order by the District Court.  The issue, raised by the Court at oral argument, is whether by virtue of these circumstances the arbitration agreement should be treated as an exercise of the District Court's authority to manage its cases under the Federal Rules of Civil Procedure.  The Court declined to rule on this issue, noting that the parties' supplemental briefing on this point implicated issues that had not been raised below and could not be properly addressed for the first time by the Court.  Rather, the Court invited Hall Street to raise these issues to the Court of Appeals on remand. The import of this decision is uncertain.  Hall Street argued that parties will avoid arbitration if expanded review is not available; one of Mattel's amici argued the opposite.  Because arbitration has, until very recently, consistently grown in popularity, it seems unlikely to us that this decision will significantly impact parties' views of arbitration.  The reality is that contracting for expanded judicial review of arbitration awards, while certainly occurring from time to time, is not something done with great frequency.  The absence of this freedom, therefore, probably will not have a significant impact on adoption of arbitration provisions in commercial contracts.