The U.S. Supreme Court has 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. 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, Justice 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. The case was sent back to the lower federal courts, where Hall Street may pursue the case.

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 circumstances.

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. Obviously, the American Arbitration Association likes the decision. The American Arbitration Association oversaw more than 137,000 cases in 2006, the large majority of them arbitrations. The association is on record as opposing expanded judicial review. A group representing small businesses said the ruling likely will limit reliance on arbitration. Karen Harned, executive director of the National Federation of Independent Business Legal Foundation, observed:

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.

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.”

Source: Associated Press

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