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Argument recap: Hall Street v. Mattel

Soon after petitioner’s attorney, Carter Phillips, began presenting his argument, Justice Ginsberg interjected to ask whether expanded judicial review should extend to de novo review. Phillips responded that dictating the standard of review would intrude further into judicial functions than is required here – even though the FAA has a strong preference for party autonomy, there are limits. Justice Kennedy wondered where the line should be drawn between a preference for party autonomy and interference with the functions of the court. Phillips answered that he was not arguing for an “extreme approach” whereby the court would be “either flipping a coin or looking at the entrails of dead birds for the basis of a decision.”

State contract law was a primary concern for the Court, particularly Chief Justice Roberts. Why couldn’t Hall St. forgo the FAA and simply enforce the agreement as a contract? Phillips responded that his client seeks the benefit of the efficiency that the FAA attempts to promote.

As the possibility of multiple sources authorizing the arbitral agreement arose, Justice Breyer became concerned. None of the authority was very clear and the open questions could make this “the case of the century” or at least one that could last a century – Phillips quipped that he only desired the “case of the day.” Returning to seriousness, petitioner’s counsel pointed to § 2 as the authorization for the arbitral agreement, but also Justice Story’s nearly two-century-old opinion authorizing a common law notion of restricted arbitration.

Focusing on the FAA, Justice Souter centered his questions on § 9. Why should the court overlook the plain language and “deliberate choice” in language of § 9 that make it restrictive? Phillips answered that § 9 does not control this matter because of the “if clause.” The section states that “if the parties in their agreement have agreed that a judgment of the court shall be entered upon the award…” Petitioner claims that they did not agree because they only consented “on the basis of whether there was a non-erroneous declaration of law by the arbitrator.” Since the agreement is outside § 9, § 2 and its emphasis on the parties’ intent, which has been recognized as the single most important objective of the FAA, controls.

Addressing the statutory predecessors, Phillips dismissed the discussion of the Illinois and New York models as a “red herring.” As Justice Scalia opined, both of the state arbitration laws contain default rules for judicial review; Scalia also stated that none of the cases that the respondent had cited were “in the teeth of an arbitration agreement that said something differently.” Ginsberg said that §§ 10 and 11 do not read like default rules. Phillips reminded, however, that the court had twice ruled that these lists were non-exhaustive – see Wilko (manifest disregard) and W.R. Grace (public policy).

Respondent’s attorney, Beth Brinkmann, began her argument by claiming that petitioners were attempting to insert a new provision into the FAA. Scalia wasted no time in asking her how she explained Wilko’s “manifest disregard” exception. Brinkmann answered that this exception already existed in § 10(a)(4) and the other legal issues in Wilko left the impression that “manifest disregard” was outside of § 10. Respondent also dismissed the public policy exception as either covered by § 2 or by applicable state contract law.

The Chief Justice then steered the debate back toward his theme: why should the FAA be applied instead of state contract law? Respondent’s counsel cited finality and reduced cost of litigation as support for enforcing this case under the FAA. This conversation returned Breyer to his concern about multiple authorities of law. If the state fails to enforce the contract, then the question arises of whether federal judges can “peel off bits of cases and decide them in different ways.” This mess could lead to his “trial of the century.”

Souter also took the opportunity to return to his theme of the day: § 9. Responding to petitioner’s argument, Brinkmann asserted that the point was moot since the 9th Circuit had severed the “judicial review for legal error” clause from the arbitration agreement. Therefore, the clause no longer existed to invalidate confirmation under § 9 and bring the agreement under § 2.

The discussion then focused on the respondent’s policy arguments. Justice Stevens wondered why review for legal error would be so harmful. Brinkmann stated this expansion would undermine the efficient streamlined enforcement of the FAA. Looking for proof, Breyer queried whether a natural experiment existed in either labor arbitration, which is outside the FAA, or in circuits adhering to respondent’s interpretation of the FAA. Admitting ignorance to the workings of labor arbitration, she responded that there has yet to be widespread use of expanded judicial review under the FAA. However, this “hybrid animal” outside the FAA was simply waiting to be born from a Supreme Court ruling.

Scalia inquired why the court could not simply limit the breadth of the FAA. Appealing to Scalia’s disdain for judicial activism, Brinkmann responded that the court should defer to Congress for such decisions. Otherwise, a new federal common law would be bred.

On rebuttal, Phillips framed the question as a matter of where the burden lay at the outset of this arbitration controversy. Should petitioner have to find authorization for the arbitral agreement or rather, does the respondent need to find something in the FAA that precludes enforcement? Petitioner, predictably, placed this burden on the respondent. Addressing respondent’s severability argument, Phillips answered that since the court is reviewing the initial decision over the arbitration agreement, you need not arrive at the severability decision.