This post follows up yesterday's about questions asked by the Supreme Court Justices during oral argument in the Hall v. Mattel case. For a more thorough analysis than I was capable of providing, I put out a call to my arbitration law posse and was greatly rewarded by the following comments.
Eric van Ginkel writes from Amsterdam:
Courts and scholars have traditionally ignored the distinction between vacatur (as to which section 10 limits the grounds, and there should not be any additional, non-statutory grounds) and appeal, about which the FAA is silent (other than perhaps section 9 which conditions the confirmation of an award on whether the parties have agreed that judgment on the award can be entered, arguably leaving that until later if they have agreed on an appeal to a court or a panel of appeal Arbitrators).
Sadly, the petitioners have also ignored this distinction, so the chances are that the Supremes will come out against appeal. As I have pointed out in the past, the clearest example of appeal next to vacatur as two distinct remedies can be found in the English Arbitration Act of 1996.
AAA arbitrator Jay McCauley, who teaches Arbitration Law at Pepperdine School of Law writes:
This case tests the limits of the power of contracting parties to curtail the power of their arbitrator. Section 10 of the Federal Arbitration Act (i.e., the provision stating the grounds for vacatur) already provides that an award may be vacated if the arbitrator exceeds his or her powers. The question before the Supreme Court is whether parties may contractually define those powers by specifying that the arbitrator exceeds them if he or she fails to base his or her decision on the law.
There appear to be five lines of argument supporting the proposition that such contracts should not be enforced:
1. Congress intended the grounds for vacatur to be limited to those expressly set forth in Section 10, and none of those permits vacatur based on the content of the award.
2. Part of the ethos of arbitration is that it shall be quick and efficient (not slow and accurate), regardless of what the contracting parties desire.
3. Contracting parties should not be able to dictate to courts what courts should do.
4. Allowing vacatur on the basis of the content of the award will put too big a burden on trial courts handling vacatur motions, who are not used to the reviewing function.
5. Judicial review is often not in the parties' interests. We need to prohibit review to save the parties from their own bad judgment.
I think each of these arguments is faulty.
As to Argument 1: Congress expressly said Courts may vacate when the arbitrator exceeds his power. It never prohibited the contracting parties from defining what those powers are. There is no reason to consider the four Section 10 grounds for vacatur as exclusive. As long ago as 1953, the Supreme Court itself added a content based non-statutory basis for vacatur ("manifest disregard of the law") without an excuse as great as we have here, i.e., that the parties asked for it.
The agreement at issue in Mattel calls for a deeper level of review than manifest disregard of the law. Nevertheless, the Supreme Court would be hard pressed to say that such a review would contravene Congressional intent. The Court long ago broke that supposed barrier. In any event, what Congress said it intended was to put arbitration agreements "on the same footing" as all other agreements. That should mean "carry out what the parties contracted for" so long as their contract is neither illegal nor contrary to public policy.
As to Argument 2: There is no ethos to Arbitration other than the ethos of parties' freedom to customize their own adjudication process in any way they see fit. There are many in the ADR community who think about, and advocate for, arbitration as if it were an institution that must conform to a Platonic ideal. The largest arbitration provider in the world, the American Arbitration Association, filed an amicus brief in the Mattel case, arguing that the customized arbitration the parties contracted for in this case should not be permitted because, inter alia, it runs afoul of the ethos of arbitration (i.e., quick, efficient and un-litigation-like). I have no idea why AAA, a neutral provider, would put its oar in this water at all. Nor can I fathom why they did so to pull against the direction of contractual freedom.
As to Argument 3: It is the Courts that should not be able to dictate what they do or do not do. It is Congress that has that power. And Congress already used that power to dictate to Courts what they should do in this instance: that is, "enforce the parties' agreement as written."
As to Argument 4: The best of the arguments against permitting the parties to include judicial review in their private dispute resolution process is the long recognized common law limitation on contractual freedom: impossibility or impracticability. The kind of judicial review called for here, however, is not onerous or novel. District courts have been conducting content based reviews of administrative decisions as a significant part of their ordinary duties since the 1930s.
As to Argument 5: I am the first to admit that judicial review of an arbitration award is usually, maybe even almost always, a bad idea. But those who oppose enforcement of contracts calling for judicial review are saying something more: that it is always a bad idea, and that it is such a bad idea that parties themselves should not be able to decide for themselves just how bad an idea it is for them.
It turns out that this case is the very worst scenario for judicial paternalism. Not only were the parties sophisticated players engaged in a commercial dispute, they entered into the agreement after the dispute arose (i.e., it was a true "submission agreement"), so they had reason to know precisely what they were getting into.
Something extra to watch: Just as the U.S. Supreme Court is now reviewing the Mattel case, the California Supreme Court is reviewing the Crowell case. The Crowell arbitration arose under the California Arbitration Act and raises the identical issue as that raised by Mattel.
But here is the real irony in California: One of the reasons trial courts are already experienced with vacating arbitration awards for legal error is that they have already been told to do so by the California Supreme Court in employment cases (Armendariz). They must do so even though the California vacatur statute (CCP section 1286.2) like the federal vacatur statute (FAA section 10), does not include legal error as a ground for vacatur.
Under Armendariz, California courts are not permitted to enforce an arbitration agreement if it does not provide a mechanism for judicial review. If California now prohibits private contracts requiring judicial review of commercial arbitration awards, it will be imposing two directly contrary limitations on contractual freedom: Parties may neither limit the power of commercial arbitrators (by requiring judicial review) nor expand the power of employment arbitrators (by failing to provide for judicial review).
Imposing both limitations would not be a contradiction -- they arise in different contexts. But such a decision would starkly elevate the policy of protecting employees over the policy in favor of the freedom to contract. That is, the California court would be saying that employee protection is a good enough reason to override all of the arguments against thejudicial review of arbitration awards, but freedom of contract is not.
Finally, AAA arbitrator Les J. Weinstein writes:
While some might argue that judicial review would add transparency to the arbitration process by opening up the private proceeding to public judicial review would fuel the notion of a tailored private system for the rich and powerful using public resources.
Suppose the parties contract for judicial review under seal; is that OK?
If we like contract so much, why not let the parties "rent" an appellate panel? Maybe the Supreme Court will review arbitrations as well?
If we go down this road, we would need new rules as well as Congressional authority.
Who will pay for this potential new burden on the appellate system?
I doubt that mere contract alone will cut it under the current law but I predicted a Gore victory and a Supreme Court abstention so what do I know?
There you have it. Three lawyers. Three very good opinions. Don't you LOVE the law?
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Just a quick note on a recent appellate case here holding that where the parties have agreed to conduct their arbitration in accordance with California law, the Federal Arbitration Act does not preempt state law on arbitrability. 
When we bought our house 6 years ago, Mr. Thrifty struck all ADR provisions from the sales contract. He's come to respect ADR much more in the last few years. Still, I believe he'd choose access to the justice system over its alternatives.
Why do you think they call it recess?
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Greg May
Thank you to our friend Alicia Freundlich, a Straus LL.M candidate, for passing along this case summary copied verbatim from the Newsletter of the Business Law Section of the State Bar of California. 
Where it was discovered after arbitration that the judge who granted order compelling arbitration had, prior to granting such order, engaged in discussions concerning possible employment as a dispute resolution neutral, it was proper to disqualify judge who granted the order compelling arbitration and vacate that order, but it was premature to vacate arbitration award. Where order compelling arbitration is void because judge was disqualified from granting it but is not set aside until after arbitration is concluded, award may stand if newly assigned judge makes a de novo determination that the parties were contractually bound to arbitrate, that acts of disqualified judge did not taint the arbitration, and that no other grounds exist to vacate the award. 
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