WASHINGTON (CN) – The Supreme Court rejected a company’s bid to expand the role of the judiciary in reviewing arbitration awards under the Federal Arbitration Act. The 6-3 decision came in an environmental cleanup dispute between toymaker Mattel and Hall Street Associates, the owner of a factory site in Oregon.
After signing a consent order with the Oregon Department of Environmental Quality to clean up the high levels of industrial solvent in the site’s well water, Mattel notified Hall Street in 2001 that it intended to terminate the lease.
Hall Street filed suit, challenging Mattel’s right to end the lease early and claiming the lease required Mattel to indemnify Hall Street for cleanup costs.
The parties drew up an arbitration agreement that allowed the court to “vacate, modify or correct” an award if the arbitrator’s findings lack evidence or the arbitrator’s legal conclusions are erroneous.
The arbitrator initially ruled for Mattel, then reversed on remand to remedy a “legal error” found by the district court.
Mattel successfully appealed to the 9th Circuit, arguing that courts cannot enforce the arbitration agreement’s provision for judicial review of a legal error.
The Supreme Court said the text of the Act supported the 9th’s Circuit’s ruling for Mattel because it limits judicial review to awards involving fraud, corruption, evident bias, abuse of power and other egregious circumstances.
Because parties use arbitration to solve disputes quickly, allowing judicial review “opens the door to the full-bore legal and evidentiary appeals” that arbitration is supposed to circumvent, Justice Souter wrote.
Justices Stevens, Kennedy and Breyer dissented.