Breaking News

More on Today’s Grant in No. 06-989, Hall Street Associates, L.L.C. v. Mattel, Inc.

The Federal Arbitration Act provides that if a party seeks a judicial order confirming an arbitration award, a federal court must grant that order unless very specific (and limited) conditions are met. Thus, the statute provides, an arbitration award may be vacated only if “the award was procured by corruption, fraud, or undue means,” “there was evident partiality or corruption in the arbitrators,” the arbitrators were “guilty of . . . misbehavior” that prejudiced the rights of a party, or “the arbitrators exceeded their powers.” Are the narrow grounds outlined in the FAA the only basis for overturning an arbitration award, even if the parties to the arbitration agreement have agreed to other, broader grounds for vacating the award? The Court will consider this question in No. 06-989, Hall Street Associates, L.L.C. v. Mattel, Inc., one of four cases in which cert. was granted today.

The case has its origins in a property lease between petitioner Hall Street, the landlord, and respondent Mattel, Inc., which used the property in its toy manufacturing business. After the well water on the property became badly contaminated (no word on whether this resulted from Mattel’s manufacture of its short-lived “Toxic Barbie”), Hall Street filed suit in state court, and Mattel removed the case to federal court. The parties then entered into an agreement to arbitrate the case that provided for de novo judicial review of the arbitrator’s legal rulings, the district court approved that agreement, and the case proceeded to arbitration.

Although the arbitrator initially ruled in Mattel’s favor, the district court deemed one of its key conclusions “legally erroneous”; on remand, the arbitrator ruled in Hall Street’s favor. The case then returned to the district court, which (as relevant here) upheld the award. Both sides appealed to the Ninth Circuit, which reversed and remanded. In so doing, it relied on circuit precedent holding that the Federal Arbitration Act vests federal courts with only “an extremely limited review authority,” which private parties may not agree to expand. After additional litigation — ultimately resulting in the denial of rehearing en banc – proved unsuccessful, Hall Street sought certiorari, alleging that the Ninth Circuit’s holding, while consistent with decisions of the Tenth Circuit, conflicted with the holdings of five other circuits and was also contrary with the “central purpose of the [Federal Arbitration Act]” – “enforc[ing] agreements to arbitrate according to their express terms.” Perhaps influenced by the fact (apparently not noted by Hall Street) that the circuit precedent on which the Ninth Circuit relied was authored by Judge Reinhardt, the Court granted review today. The case is expected to be argued in the fall.