Glen Wilkerson on Hall Street v. Mattel

Karl and I just got the following email from sometime contributor Hall Street v. Mattel, a recent U.S. Supreme Court opinion that many, including us, have blogged about. Glen’s comments are copied below without edits (with permission, of course):

Dear Colleague:

The US Supreme Court handed down an arbitration opinion on March 25, 2008, in
Hall Street Associates, L.L.C. v. Mattel, Inc., 28 S. Ct. 1396 (U.S. March 25, 2008).

The case has, in my view, great implications – – certainly for practitioners
in Texas.

The reasons are:

(a) the Court holds that the scope of judicial review under the FAA is
exclusive – AND – – the parties may not modify the specific scope of the FAA judicial
review provisions by contract;

(b) we all know that the reach of the FAA in Texas through the Texas
Supreme Court decisions is vast;

(c) hence in any case implicated under the FAA even in Texas state court –
– a party who LOSES an arbitration and seeks review under a case governed by the FAA in
state court will face this opinion being cited by the prevailing party as limiting the
scope of “judicial review” EVEN IF the underlying contract granted a wider scope of
judicial review;

(d) the “exclusivity” arguments on arbitration under the FAA has a vague
scope – – i.e. what OTHER parts of the negotiated arbitration agreement that may
“deviate” from the FAA will be held to be barred by the FAA – – a conclusion that could
be outcome determinative and definitely contrary to the expectations of the parties.

Conclusion: Very huge trap for the unwary. One that DRAFTERS may not have considered.

THIS IS A BRIEF SUMMARY OF THE CASE (see entire case for details)

Parties had an arbitration clause. The clause states that “[t]he United States
District Court for the District of Oregon may enter judgment upon any award, either by
confirming the award or by vacating, modifying or correcting the award. The Court shall
vacate, modify or correct any award: (i) where the arbitrator’s findings of facts are
not supported by substantial evidence, or (ii) where the arbitrator’s conclusions of
law are erroneous.”

On appeal to the District Court, the trial court found that arbitrator had made
a legal error and sent it back. Ultimately the winner in arbitration contended that
“legal error” was not a proper ground under the FAA EVEN THOUGH the contract permitted
“legal error” review.

That is, the winner at arbitration said: you can only obtain vacatur on the
EXACT grounds of the FAA – – the main ground being “manifest disregard of law” – – not
the same as “legal error”.

The opinion was 7 to 3.

The holding was: the FAA “scope of judicial review” provisions were EXCLUSIVE.

THUS – – the parties contractual agreement is of no force and is essentially
VOID.

The majority claims that reading the FAA as “exclusive” substantiates “. . . .
. . . a national policy favoring arbitration with just the limited review needed to
maintain arbitration’s essential virtue of resolving disputes straightaway.”

Stevens, in dissent, put the issue succinctly.

“Today, however, the Court holds that the FAA does not merely authorize the vacation or
enforcement of awards on specified grounds, but also FORBIDS enforcement of perfectly
reasonable judicial review provisions in arbitration agreements fairly negotiated by
the parties and approved by the district court. Because this result conflicts with the
primary purpose of the FAA and ignores the historical context in which the Act was
passed, I respectfully dissent.” (Emphasis Added)

Glen M. Wilkerson
Davis & Wilkerson, P.C.
wilkerson@dwlaw.com
(512) 482 0614