On November 7, 2007, the United States Supreme Court heard oral arguments in a case with the potential to drastically change the commercial-arbitration landscape. The key question in Hall Street Associates, L.L.C. v. Mattel, Inc. (Docket No. 06-989) is whether parties in arbitration have the right to request judicial review when both parties agree that the arbitrator’s conclusions of law are erroneous, and when this option has been clearly documented in the language of the arbitration agreement. Until the Court’s decision is announced, businesses considering arbitration may wish to include a judicial-review clause in their own arbitration agreements.
The lack of a right to judicial review of arbitration awards has long been a sticking point for parties involved in commercial disputes. Many view arbitration as an attractive, cost-effective option to traditional litigation. Since most arbitrator’s decisions are final (the Federal Arbitration Act allows for arbitration awards to be vacated only on limited statutory grounds), the process can avoid the lengthy delays and challenges that may occur in the civil court system.
However, this very finality has dissuaded others from pursuing the arbitration option. The inability to appeal a legally erroneous award is seen as too much of a risk; although the appellate process may be costly, it at least offers the opportunity to clarify and correct judicial and jury decisions based on errors of law or fact.
Those in favor of arbitration finality also suggest that opening arbitrators’ awards to judicial review will flood the courts, thus defeating the very purpose of arbitration. Those in favor of judicial review argue that such an option will not encourage frivolous actions, but will simply provide a corrective process subject to the same business and legal considerations as any other form of judicial appeal.
Clearly, the Supreme Court’s decision in Mattel will have a major impact on how business disputes are resolved. As Justice Stephen Breyer noted during oral arguments, the issue at hand "…makes this case the case of the century." Until the decision is released, parties in the process of negotiating an arbitration agreement may wish to consider including a clause allowing for judicial review. If the Court finds that such clauses are enforceable, parties will only be able to pursue this option if such language is in the original agreement. Even if the Court finds that such clauses are not enforceable, the remainder of the arbitration agreement will remain in force.
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