No Longer can you Craft Your Own Arbitral Standard of Review

Almost three years ago, we started monitoring the rapidly developing law of arbitration by way of a CLE paper Karl presented to a State Bar seminar in Dallas. That paper was called Standards of Review as Applied to Arbitral Decisions, and at its conclusion we advised seminar attendees and other readers that even though arbitral awards were for most intents and purposes not appealable, nothing prevented parties, in the Fifth Circuit anyway, from crafting their own standards of review and grounds for appeal of arbitral awards. Since arbitration is a creature of contract, the argument went, parties should be able to contract for an appeal.

Yesterday, in Hall Street v. Mattel (link is to .pdf file), the United States Supreme Court slammed the door on that option, rendering our prior paper dangerously wrong in the event anyone finds a copy on the internet or at a law library and refers to it. As of today, the Federal Arbitration Act provides the exclusive standards a court may employ when deciding whether to confirm an arbitral award or vacate it. Our paper, in the non-dangerously wrong sections, explains those standards.

Interestingly, the Court does not on the face of the opinion preclude the continued use of the manifest disregard standard for reviewing arbitral awards that federal courts have employed under the FAA. This standard, of course, is not found in the FAA, so Hall Street’s logic probably ought to eviscerate it as well, but the Court specifically does not do so. Instead, the opinion muses that manifest disregard may simply be a shorthand method of referring to explicit statutory grounds for vacatur in the aggregate. In any event, it is a question of trees falling in an abandoned forest (to abuse a metaphor), since manifest disregard is almost never actually found, in the Fifth Circuit anyway.

Finally, the other interesting point about the Hall Street opinion is its exclusive applicability to FAA cases. The Court makes a point to note that its rule does not apply to state laws governing the review of arbitral awards. That being the case, in a pure Texas Arbitration Act case one can argue that Hall Street does not apply. This may well become another entry on the short list of important reasons a lawyer needs to consider whether she wants the TAA or the FAA to apply to the consideration of an arbitral award.

Hall Street Associates v. Mattel, Inc., ___ U.S. ___ (2008) (Cause No. 06-989)

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