Arbitration is supposed to be easier and faster than litigation. But the ongoing battle between Mattel Inc. and Hall Street Associates proves it has the potential to be anything but. What should have been a relatively simple landlord-tenant dispute resolved after a weeklong hearing by an arbitrator has taken three tangled trips through the federal court system over the course of nearly eight years, finally landing on the Supreme Court's October 2007 docket.
In Hall Street Associates v. Mattel the Supreme Court will decide a relatively bland legal issue--whether the terms of the Federal Arbitration Act (FAA) preclude companies from agreeing to expanded grounds for judicial review of an arbitration award outside of the four narrow bases for such review the FAA sets forth. The 9th Circuit had ruled that FAA did preclude such agreements. As the Supreme Court determines that issue and finally puts Hall Street and Mattel's battle to rest, the future of arbitration as a viable way to resolve important commercial disputes hangs in the balance.
"Although the arbitrator's assessment of the merits of the case contains possible errors of law, those errors are not a sufficient basis for a federal court to overrule an arbitration award," the court wrote.
Efficiency Versus Accuracy
Five other circuit courts--the 1st, 3rd, 4th, 5th and 6th--have allowed parties to commercial arbitration to contractually agree to any level of judicial review they see fit, reasoning that the FAA's review provisions merely set the default standard of review in the absence of explicit contractual provisions. These courts have ruled that the FAA doesn't prevent parties from specifying broader grounds for which to seek judicial review.
"If you need to assume you'll have no ability to appeal no matter how far off the target the award is, arbitration will be very risky," Boeder says. "Inability to appeal would be a major defect in arbitration as a mechanism to resolve large disputes."