Around the water cooler

Each week I will highlight a different case or legal happening, and solicit your thoughts on the impact of it in the legal community.

 This week we will talk about Hall Street Associates, LLC v. Mattel, Inc. (http://www.supremecourtus.gov/opinions/07pdf/06-989.pdf)

The U.S. Supreme Court considered the question of whether the Ninth Circuit Court of Appeals erred when it held that the Federal Arbitration Act precludes a federal court from enforcing the parties’ clearly expressed agreement providing for more expansive judicial review of an arbitration award.

The Supreme Court’s 6-3 decision on March 25 regarding this case limits the role of the federal courts in reviewing arbitration awards. The Supreme Court rejected the concept that the parties could, by agreement, have a court rule on an arbitration award outside of what’s allowed in the Federal Arbitration Act.

Rod Heard is a partner at Wildman Harrold who handles commercial litigation and arbitration, and teaches arbitration at DePaul University College of Law and Northwestern University School of Law.

Heard said the Supreme Court has preserved the integrity of the Federal Arbitration Act, and ruled that only Congress may decide how arbitration decisions can be reviewed in federal court. The parties involved in arbitration cannot expand that jurisdiction by agreement, he said.

The Federal Arbitration Act provides expedited judicial review to confirm, vacate or modify judicial review. Grounds for vacating an award include where the award was procured by corruption, fraud or undue means, and where the arbitrators were guilty of misconduct or exceeding their powers.

“The notion that arbitration somehow had to be perfect was never part of its attraction,” Heard said. “It was a system that afforded an economical and final decision. And if companies had that kind of matter, that bet-the-company kind of case, they would probably prefer litigation, except in an international context when you don’t have a choice.”

The Supreme Court decision will be very good for arbitration, Heard said. Some parties had woven into contracts the right for appellate review to nullify an arbitration decision, but those companies will either have to revise those contracts or at least know that they are not enforceable, he said.

            “It’s a victory for arbitration as a private process,” Heard said. “The courts are not going to second-guess arbitrators about anything else but those decisions that go to the fundamental fairness of the process … Most companies that liked arbitration liked that it was final. Those that didn’t like it will not be affected. [Their matters] will stay in the court system.”

 What is your take on this case? What impact will this have on arbitration?