High Court Rules in Arbitration Case
(by PETE YOST, March 25, 2008)
WASHINGTON (AP) — The Supreme Court has limited the role of the courts in reviewing arbitration awards under federal law.
In a 6-3 decision Tuesday, the justices said, however, that there may be other legal avenues besides the Federal Arbitration Act to enable a larger role for the courts in examining the work of arbitrators. The case before the Supreme Court involved a cleanup dispute between toymaker Mattel Inc. and the owner of a factory site in Oregon contaminated with an industrial solvent.
An arbitrator initially ruled in favor of Mattel, and the Supreme Court ruling is helpful to the toy manufacturer. The Federal Arbitration Act "confines its expedited judicial review" to narrow circumstances, Justice David Souter wrote in the majority opinion. Souter added, however, that the court is "is no position" to address possible alternatives to reliance on the FAA.
The issue before the Supreme Court was whether Mattel and Hall Street Associates L.L.C. could agree in advance to broad court review of an arbitration award to correct any errors of law.
An arbitrator ruled that Mattel did not have to pay for environmental cleanup on Hall Street's property. A federal judge subsequently rejected the arbitrator's legal reasoning. The 9th U.S. Circuit Court of Appeals in San Francisco sided with Mattel, saying the Federal Arbitration Act bars judicial review of arbitration awards in such circumstances. The appeals court finding in favor of Mattel underscores the concern of some businesses that are hesitant to settle disputes through arbitration. These businesses say that in most cases they cannot appeal to a judge if an arbitrator rules against them.
Expanding judicial review could have a positive impact, encouraging parties in a dispute to enter arbitration, knowing that serious errors could be corrected by the courts. Others in the business community say that the downside to expanded court review is that it could lead to an increase in the cost and time that result from losing parties attempting to overturn arbitration awards. The American Arbitration Association oversaw more than 137,000 cases in 2006, the large majority of them arbitrations. The association opposes expanded judicial review.
