Hall St. Assocs., L.L.C. v. Mattel, Inc.

• Decision Date: 25 March 2008
• Docket Number: No. 06–989.,06–989.
• Citation: 170 L.Ed.2d 254,2008 A.M.C. 1058,128 S.Ct. 1396,76 USLW 4168,552 U.S. 576,2008 Daily Journal D.A.R. 3997,08 Cal. Daily Op. Serv. 3313,21 Fla. L. Weekly Fed. S 121
• Parties: HALL STREET ASSOCIATES, L.L.C., Petitioner, v. MATTEL, INC.
• Court: U.S. Supreme Court

08 Cal. Daily Op. Serv. 3313

128 S.Ct. 1396

170 L.Ed.2d 254

2008 A.M.C. 1058

2008 Daily Journal D.A.R. 3997

21 Fla. L. Weekly Fed. S 121

552 U.S. 576

76 USLW 4168

HALL STREET ASSOCIATES, L.L.C., Petitioner,

v.MATTEL, INC.

No. 06–989.

Supreme Court of the United States

Argued Nov. 7, 2007.Decided March 25, 2008.

Syllabus ^*

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, 74 S.Ct. 182, 98 L.Ed. 168. 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, 74 S.Ct. 182 (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, 105 S.Ct. 3346, 87 L.Ed.2d 444, 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, 105 S.Ct. 1238, 84 L.Ed.2d 158. 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, 105 S.Ct. 1238, distinguished. Pp. 1403 – 1406.

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. 1406 – 1408.

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.

Carter G. Phillips, Virginia A. Seitz Sidley Austin LLP, Washington, D.C., Michael T. Garone, Counsel of Record, Michael A. Cohen, Jay T. Waldron, Sara Kobak Schwabe, Williamson & Wyatt, P.C., Portland, OR, for Petitioner.

Shirley M. Hufstedler, Peter Hsiao, Morrison & Foerster LLP, Los Angeles, CA, Drew S. Days, III, Beth S. Brinkmann, Counsel of Record, Seth M. Galanter, Ketanji Brown Jackson Morrison & Foerster LLP, Washington, DC, for Respondent.

Michael T. Garone, Counsel of Record, Michael A. Cohen, Jay T. Waldron, Sara Kobak Schwabe, Williamson & Wyatt, P.C., Portland, OR, for Petitioner.Justice SOUTER delivered the opinion of the Court.^*

The Federal Arbitration Act (FAA or Act), 9 U.S.C. § 1 et seq. , provides for expedited judicial review to confirm, vacate, or modify arbitration awards. §§ 9–11 (2006 ed.).^† The question here is whether statutory grounds for prompt vacatur and modification may be supplemented by contract. We hold that the statutory grounds are exclusive.

I

This case began as a lease dispute between landlord, petitioner Hall Street Associates, L.L.C., and tenant, respondent Mattel, Inc. The property was used for many years as a manufacturing site, and the leases provided that the tenant would indemnify the landlord for any costs resulting from the failure of the tenant or its predecessor lessees to follow environmental laws while using the premises. App. 88–89.

Tests of the property's well water in 1998 showed high levels of trichloroethylene (TCE), the apparent residue of manufacturing discharges by Mattel's predecessors between 1951 and 1980. After the Oregon Department of Environmental Quality (DEQ) discovered even more pollutants, Mattel stopped drawing from the well and, along with one of its predecessors, signed a consent order with the DEQ providing for cleanup of the site.

After Mattel gave notice of intent to terminate the lease in 2001, Hall Street filed this suit, contesting Mattel's right to vacate on the date it gave, and claiming that the lease obliged Mattel to indemnify Hall Street for costs of cleaning up the TCE, among other things. Following a bench trial before the United States District Court for the District of Oregon, Mattel won on the termination issue, and after an unsuccessful try at mediating the indemnification claim, the parties proposed to submit to arbitration. The District Court was amenable, and the parties drew up an arbitration agreement, which the court approved and entered as an order. One paragraph of the agreement provided that

“[t]he United States District Court for the District of Oregon may enter judgment upon any award, either by confirming the award or by vacating, modifying or correcting the award. The Court shall vacate, modify or correct any award: (i) where the arbitrator's findings of facts are not supported by substantial evidence, or (ii) where the arbitrator's conclusions of law are erroneous.” App. to Pet. for Cert. 16a. Arbitration took place, and the arbitrator decided for Mattel. In particular, he held that no indemnification was due, because the lease obligation to follow all applicable federal, state, and local environmental laws did not require compliance with the testing requirements of the Oregon Drinking Water Quality Act (Oregon Act); that Act the arbitrator characterized as dealing with human health as distinct from environmental contamination.

Hall Street then filed a District Court Motion for Order Vacating Modifying And/Or Correcting Arbitration Accord, App. 4, on the ground that failing to treat the Oregon Act as an applicable environmental law under the terms of...