Academic journal article The Review of Litigation

Snatching Arbitral Freedom from Hall Street's Clenched Fist

Academic journal article The Review of Litigation

Snatching Arbitral Freedom from Hall Street's Clenched Fist

Article excerpt


The world of arbitration changed on March 25, 2008. Arbitration - once a dispute resolution system that demonstrated the nature of America's freedom- and market-based system - became constrained to a take-it-or-leave-it bargain.1 The Supreme Court of the United States held that parties agreeing to arbitrate could no longer contractually supplement the grounds on which an arbitration award might be vacated. Instead, in Hall Street Associations v. Mattel, Inc.,2 the Supreme Court held the Federal Arbitration Act's3 (FAA) list is exclusive. By taking this freedom away from the parties, Hall Street whittles away at arbitration's distinguishing character: contractual freedom. The parties' free choice no longer completely defines this dispute resolution avenue. Instead, the Court, at its most paternalistic, has determined that the parties do not know what is good for them.4 If the parties want the benefits of binding arbitration, they cannot pick and choose what will and will not be binding between them.

The ugly remains of Hall Street have left questions scattered across the arbitration landscape. Are the statutory grounds for vacatur simply exclusive, so as to provide a mere formal textual limit? Or instead, do those grounds actually reject any agreement that substantively makes arbitral determination of legal issues nonbinding? If so, what are the parties even permitted to choose that is not contrary to such a take-it-or-leave-it bargain? In fact, some parties continue to desire the possibility of arbitration awards that are non-binding with respect to legal errors. This isn't surprising; individuals trust the determinations of experts in the relevant fields - the doctor for his medical opinion, a lawyer for his legal advice. Likewise, it is common sense for the parties to trust an arbitrator, who has more experience within the particular field, to be more capable of understanding and determining the particular facts than a judge. Conversely, it makes sense that the parties would trust a judge's ability to understand and determine the applicable law over that of an arbitrator. So, why, in the free choice domain of arbitration, should the parties not have the same ability to operationalize their bifurcated trust between arbitrators and judges in their arbitration agreement?

Indeed, the Court specified a few alternative avenues for parties to achieve the effect of an agreement to arbitrate and yet maintain judicial review of legal determinations despite its prohibitive holding in Hall Street. First, the parties may select the application of non-prohibitive state arbitration law, instead of the FAA, which might provide grounds for vacatur in excess of those permitted by the FAA.5 Second, in settlement conferences the parties may agree to arbitration as a form of settlement per the federal judiciary's case management powers.6

But outside the Court's specified alternatives, it might be possible for the parties to achieve the effect of judicial review of legal determinations under the FAA, depending on how courts apply Hall Street. First, the parties might contractually define the arbitrator's powers, effectively the arbitrator's "jurisdiction," limiting it to awards on facts only, specifically excluding the determination of legal issues from his jurisdiction. Second, the parties might make their arbitration non-binding. But what once might have been hope of an extra-statutory ground for vacatur, "manifest disregard for the law," is now extinct, unless the court sees the parties' use of it as shorthand for the FAA's "exceeded their powers." Regardless, the truth remains: the parties are not without avenue to otherwise assert freedom in their arbitration agreements, despite what appears to be the Court's prohibitive holding in Hall Street.


A. Hall Street Associates v. Mattel

In Hall Street, the Supreme Court answered the question of "whether statutory grounds for prompt vacatur and modification may be supplemented by contract. …

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