The Supreme Court on Tuesday refused to expand the role of the judiciary in
reviewing arbitration awards under federal law.
The 6-3 decision came in an environmental cleanup dispute, one of the
hundreds of thousands of disagreements companies and individuals choose to
submit to arbitrators each year.
Designed as a quick, inexpensive alternative to costly court battles,
arbitration is seen by some in the business community as too risky because the
opportunities for court review under the Federal Arbitration Act are narrow.
Writing for the majority, Justice David Souter said the law's essential
virtue is in "resolving disputes straightaway." The Supreme Court, Souter wrote,
has "no business" expanding judicial review beyond what the law allows.
The decision came in a cleanup dispute between toymaker Mattel Inc. and the
owner of a factory site in Oregon contaminated with an industrial solvent. An
arbitrator ruled in favor of Mattel, which won the case at the Supreme Court.
The justices did not rule on other possible avenues Hall Street and Mattel
could take outside the Federal Arbitration Act, and so sent the case back to the
lower federal courts, where Hall Street will pursue the case, its lawyers said.
The issue before the Supreme Court was whether Mattel and property owner 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, even though the toymaker failed to test the well
water. 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
The Hall Street-Mattel fight has bounced between arbitration and the courts
for seven years, a fact that opponents of expanded court review pointed to as
undermining the purpose of arbitration.
"The decision is good because it unequivocally answers a question that has
led to a substantial amount of litigation," said Eric Tuchmann, general counsel
at the American Arbitration Association." Over the years, he said, "these
decisions have resulted in conflicting outcomes among federal courts."
The American Arbitration Association oversaw more than 137,000 cases in 2006,
the large majority of them arbitrations. The association opposes expanded
A group representing small businesses said the ruling likely will limit
reliance on arbitration.
"Small business owners are probably going to be more likely to use
arbitration if they know that in instances like this they can get judicial
review," said Karen Harned, executive director of the National Federation of
Independent Business Legal Foundation.
In dissent, Justice John Paul Stevens said the majority's decision "conflicts
with the primary purpose" of the Federal Arbitration Act because it "forbids
enforcement of perfectly reasonable judicial review provisions."
The case is Hall Street v. Mattel, 06-989.
Copyright 2008 Associated Press