Client Alert: U.S. Supreme Court Rules that Federal Arbitration Act Provides the Exclusive Grounds for Vacating or Modifying Arbitration Awards

The United States Supreme Court recently addressed an important question of federal arbitration law: Whether private parties to an arbitration agreement may expand a court’s scope of review of an arbitral award. On March 25, 2008, the Court held that Sections 10 and 11 of the Federal Arbitration Act (FAA) establish the exclusive grounds for vacating or modifying arbitration awards, and that parties to an arbitration agreement cannot expand these grounds in their contract. Hall Street Associates L.L.C. v. Mattel, Inc., No. 06-989, Mar. 25, 2008. http://www.supremecourtus.gov/opinions/07pdf/06-989.pdf

The basis of the dispute was a commercial lease between Hall, the landlord, and Mattel, the tenant. At issue was Mattel’s right to terminate the lease and its obligation for certain environmental clean-up costs resulting from the manufacturing activities of a former tenant. The lease did not contain an arbitration clause.

Hall filed suit against Mattel in the United States District Court for the District of Oregon, contesting Mattel’s right to terminate and seeking indemnification for clean-up costs. Following a bench trial, the District Court ruled that Mattel had the right to terminate the lease. The parties then proposed to submit the issue of Mattel’s obligation to pay clean-up costs to arbitration. The District Court agreed, and the parties drafted an arbitration agreement which the court approved and entered as an order. The agreement provided that, following the arbitration, “the Court shall vacate, modify or correct any award: (i) where the arbitrator’s findings of fact are not supported by substantial evidence, or (ii) where the arbitrator’s conclusions of law are erroneous.” more...