Hall Street Associates, L. L. C. v. Mattel, Inc., 552 U.S. 576 (2008)
SYLLABUS
OCTOBER TERM, 2007
HALL STREET ASSOCIATES, L.L.C. V. MATTEL, INC.
SUPREME COURT OF THE UNITED STATES
HALL STREET ASSOCIATES, L. L. C. v. MATTEL, INC.
certiorari to the united states court of appeals for the ninth circuit
No. 06–989. Argued November 7, 2007—Decided March 25, 2008
The Federal Arbitration Act (FAA), 9 U. S. C. §§9–11, provides expedited judicial review to confirm, vacate, or modify arbitration awards. Under §9, a court “must” confirm an award “unless” it is vacated, modified, or corrected “as prescribed” in §§10 and 11. Section 10 lists grounds for vacating an award, including where the award was procured by “corruption,” “fraud,” or “undue means,” and where the arbitrators were “guilty of misconduct,” or “exceeded their powers.” Under §11, the grounds for modifying or correcting an award include “evident material miscalculation,” “evident material mistake,” and “imperfect[ions] in [a] matter of form not affecting the merits.”
After a bench trial sustained respondent tenant’s (Mattel) right to terminate its lease with petitioner landlord (Hall Street), the parties proposed to arbitrate Hall Street’s claim for indemnification of the costs of cleaning up the lease site. The District Court approved, and entered as an order, the parties’ arbitration agreement, which, inter alia, required the court to vacate, modify, or correct any award if the arbitrator’s conclusions of law were erroneous. The arbitrator decided for Mattel, but the District Court vacated the award for legal error, expressly invoking the agreement’s legal-error review standard and citing the Ninth Circuit’s LaPine decision for the proposition that the FAA allows parties to draft a contract dictating an alternative review standard. On remand, the arbitrator ruled for Hall Street, and the District Court largely upheld the award, again applying the parties’ stipulated review standard. The Ninth Circuit reversed, holding the case controlled by its Kyocera decision, which had overruled LaPine on the ground that arbitration-agreement terms fixing the mode of judicial review are unenforceable, given the exclusive grounds for vacatur and modification provided by FAA §§10 and 11.
Held:
1. The FAA’s grounds for prompt vacatur and modification of awards are exclusive for parties seeking expedited review under the FAA. The Court rejects Hall Street’s two arguments to the contrary. First, Hall Street submits that expandable judicial review has been accepted as the law since Wilko v. Swan, 346 U. S. 427. Although a Wilko statement—“the interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation,” id., at 436–437 (emphasis added)—arguably favors Hall Street’s position, arguable is as far as it goes. Quite apart from the leap from a supposed judicial expansion by interpretation to a private expansion by contract, Hall Street overlooks the fact that the Wilko statement expressly rejects just what Hall Street asks for here, general review for an arbitrator’s legal errors. Moreover, Wilko’s phrasing is too vague to support Hall Street’s interpretation, since “manifest disregard” can be read as merely referring to the §10 grounds collectively, rather than adding to them, see, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U. S. 614, 656, or as shorthand for the §10 subsections authorizing vacatur when arbitrators were “guilty of misconduct” or “exceeded their powers.” Second, Hall Street says that the agreement to review for legal error ought to prevail simply because arbitration is a creature of contract, and the FAA is motivated by a congressional desire to enforce such agreements. Dean Witter Reynolds Inc. v. Byrd, 470 U. S. 213, 220. This argument comes up short because, although there may be a general policy favoring arbitration, the FAA has textual features at odds with enforcing a contract to expand judicial review once the arbitration is over. Even assuming §§10 and 11 could be supplemented to some extent, it would stretch basic interpretive principles to expand their uniformly narrow stated grounds to the point of legal review generally. But §9 makes evident that expanding §10’s and §11’s detailed categories at all would rub too much against the grain: §9 carries no hint of flexibility in unequivocally telling courts that they “must” confirm an arbitral award, “unless” it is vacated or modified “as prescribed” by §§10 and 11. Instead of fighting the text, it makes more sense to see §§9–11 as the substance of a national policy favoring arbitration with just the limited review needed to maintain arbitration’s essential virtue of resolving disputes straightaway. Dean Witter, supra, at 217, 219, distinguished. Pp. 7–12.
2. In holding the §10 and §11 grounds exclusive with regard to enforcement under the FAA’s expedited judicial review mechanisms, this Court decides nothing about other possible avenues for judicial enforcement of awards. Accordingly, this case must be remanded for consideration of independent issues. Because the arbitration agreement was entered into during litigation, was submitted to the District Court as a request to deviate from the standard sequence of litigation procedure, and was adopted by the court as an order, there is some question whether it should be treated as an exercise of the District Court’s authority to manage its cases under Federal Rule of Civil Procedure 16. This Court ordered supplemental briefing on the issue, but the parties’ supplemental arguments implicate issues that have not been considered previously in this litigation and could not be well addressed for the first time here. Thus, the Court expresses no opinion on these matters beyond leaving them open for Hall Street to press on remand. Pp. 13–15.
196 Fed. Appx. 476, vacated and remanded.
Souter, J., delivered the opinion of the Court, in which Roberts, C. J., and Thomas, Ginsburg, and Alito, JJ., joined, and in which Scalia, J., joined as to all but footnote 7. Stevens, J., filed a dissenting opinion, in which Kennedy, J., joined. Breyer, J., filed a dissenting opinion.
OPINION OF THE COURT
HALL STREET ASSOCIATES, L.L.C. V. MATTEL, INC.
552 U. S. ____ (2008)
SUPREME COURT OF THE UNITED STATES
NO. 06-989
HALL STREET ASSOCIATES, L.L.C., PETITIONER v. MATTEL, INC. on writ of certiorari to the united states court of appeals for the ninth circuit [March 25, 2008] Justice Souter delivered the opinion of the Court.*
STEVENS, J., DISSENTING
HALL STREET ASSOCIATES, L.L.C. V. MATTEL, INC.
552 U. S. ____ (2008)
SUPREME COURT OF THE UNITED STATES
NO. 06-989
HALL STREET ASSOCIATES, L.L.C., PETITIONER v. MATTEL, INC. on writ of certiorari to the united states court of appeals for the ninth circuit [March 25, 2008] Justice Stevens, with whom Justice Kennedy joins, dissenting. May parties to an ongoing lawsuit agree to submit their dispute to arbitration subject to the caveat that the trial judge should refuse to enforce an award that rests on an erroneous conclusion of law? Prior to Congress’ enactment of the Federal Arbitration Act (FAA or Act) in 1925, the answer to that question would surely have been “Yes.”[Footnote 1] Today, however, the Court holds that the FAA does not merely authorize the vacation or enforcement of awards on specified grounds, but also forbids enforcement of perfectly reasonable judicial review provisions in arbitration agreements fairly negotiated by the parties and approved by the district court. Because this result conflicts with the primary purpose of the FAA and ignores the historical context in which the Act was passed, I respectfully dissent. Prior to the passage of the FAA, American courts were generally hostile to arbitration. They refused, with rare exceptions, to order specific enforcement of executory agreements to arbitrate.[Footnote 2] Section 2 of the FAA responded to this hostility by making written arbitration agreements “valid, irrevocable, and enforceable.” 9 U. S. C. §2. This section, which is the centerpiece of the FAA, reflects Congress’ main goal in passing the legislation: “to abrogate the general common-law rule against specific enforcement of arbitration agreements,” Southland Corp. v. Keating, 465 U. S. 1, 18 (1984) (Stevens, J., concurring in part and dissenting in part), and to “ensur[e] that private arbitration agreements are enforced according to their terms,” Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468, 478 (1989). Given this settled understanding of the core purpose of the FAA, the interests favoring enforceability of parties’ arbitration agreements are stronger today than before the FAA was enacted. As such, there is more—and certainly not less—reason to give effect to parties’ fairly negotiated decisions to provide for judicial review of arbitration awards for errors of law. Petitioner filed this rather complex action in an Oregon state court. Based on the diverse citizenship of the parties, respondent removed the case to federal court. More than three years later, and after some issues had been resolved, the parties sought and obtained the District Court’s approval of their agreement to arbitrate the remaining issues subject to de novo judicial review. They neither requested, nor suggested that the FAA authorized, any “expedited” disposition of their case. Because the arbitrator made a rather glaring error of law, the judge refused to affirm his award until after that error was corrected. The Ninth Circuit reversed. This Court now agrees with the Ninth Circuit’s (most recent) interpretation of the FAA as setting forth the exclusive grounds for modification or vacation of an arbitration award under the statute. As I read the Court’s opinion, it identifies two possible reasons for reaching this result: (1) a supposed quid pro quo bargain between Congress and litigants that conditions expedited federal enforcement of arbitration awards on acceptance of a statutory limit on the scope of judicial review of such awards; and (2) an assumption that Congress intended to include the words “and no other” in the grounds specified in §§10 and 11 for the vacatur and modification of awards. Neither reason is persuasive. While §9 of the FAA imposes a 1-year limit on the time in which any party to an arbitration may apply for confirmation of an award, the statute does not require that the application be given expedited treatment. Of course, the premise of the entire statute is an assumption that the arbitration process may be more expeditious and less costly than ordinary litigation, but that is a reason for interpreting the statute liberally to favor the parties’ use of arbitration. An unnecessary refusal to enforce a perfectly reasonable category of arbitration agreements defeats the primary purpose of the statute. That purpose also provides a sufficient response to the Court’s reliance on statutory text. It is true that a wooden application of “the old rule of ejusdem generis,” ante, at 9, might support an inference that the categories listed in §§10 and 11 are exclusive, but the literal text does not compel that reading—a reading that is flatly inconsistent with the overriding interest in effectuating the clearly expressed intent of the contracting parties. A listing of grounds that must always be available to contracting parties simply does not speak to the question whether they may agree to additional grounds for judicial review. Moreover, in light of the historical context and the broader purpose of the FAA, §§10 and 11 are best understood as a shield meant to protect parties from hostile courts, not a sword with which to cut down parties’ “valid, irrevocable and enforceable” agreements to arbitrate their disputes subject to judicial review for errors of law.[Footnote 3] §2. Even if I thought the narrow issue presented in this case were as debatable as the conflict among the courts of appeals suggests, I would rely on a presumption of overriding importance to resolve the debate and rule in favor of petitioner’s position that the FAA permits the statutory grounds for vacatur and modification of an award to be supplemented by contract. A decision “not to regulate” the terms of an agreement that does not even arguably offend any public policy whatsoever, “is adequately justified by a presumption in favor of freedom.” FCC v. Beach Communications, Inc., 508 U. S. 307, 320 (1993) (Stevens, J., concurring in judgment). Accordingly, while I agree that the judgment of the Court of Appeals must be set aside, and that there may be additional avenues available for judicial enforcement of parties’ fairly negotiated review provisions, see, ante, at 13–15, I respectfully dissent from the Court’s interpretation of the FAA, and would direct the Court of Appeals to affirm the judgment of the District Court enforcing the arbitrator’s final award.
BREYER, J., DISSENTING
HALL STREET ASSOCIATES, L.L.C. V. MATTEL, INC.
552 U. S. ____ (2008)
SUPREME COURT OF THE UNITED STATES
NO. 06-989
HALL STREET ASSOCIATES, L.L.C., PETITIONER v. MATTEL, INC. on writ of certiorari to the united states court of appeals for the ninth circuit [March 25, 2008] Justice Breyer, dissenting. The question presented in this case is whether “the Federal Arbitration Act … precludes a federal court from enforcing” an arbitration agreement that gives the court the power to set aside an arbitration award that embodies an arbitrator’s mistake about the law. Pet. for Cert. i. Like the majority and Justice Stevens, and primarily for the reasons they set forth, I believe that the Act does not preclude enforcement of such an agreement. See ante, at 13 (opinion of the Court) (The Act “is not the only way into court for parties wanting review of arbitration awards”); ante, at 3–4 (Stevens, J., dissenting) (The Act is a “shield meant to protect parties from hostile courts, not a sword with which to cut down parties’ ‘valid, irrevocable and enforceable’ agreements to arbitrate their disputes subject to judicial review for errors of law”). At the same time, I see no need to send the case back for further judicial decisionmaking. The agreement here was entered into with the consent of the parties and the approval of the District Court. Aside from the Federal Arbitration Act itself, 9 U. S. C. §1 et seq., respondent below pointed to no statute, rule, or other relevant public policy that the agreement might violate. The Court has now rejected its argument that the agreement violates the Act, and I would simply remand the case with instructions that the Court of Appeals affirm the District Court’s judgment enforcing the arbitrator’s final award.