SUPREME COURT RULES THAT PARTIES MAY NOT CONTRACT FOR BASES FOR JUDICIAL REVIEW OF ARBITRATION AWARDS

The United States Supreme Court has held that the grounds for vacating or modifying arbitration awards set out in the Federal Arbitration Act are the exclusive grounds for such action, and can not be “supplemented” by contractual agreement. This ruling will end the practice of contracting for the judicial review of arbitration awards on grounds similar to those for the appeal of final judgments of courts after trials, in order to avoid the restrictive judicial review provisions of the FAA. In discussing the FAA’s judicial review provisions, the Court mentioned the manifest disregard of law basis for reviewing awards, noting that this theory is not explicitly mentioned in the FAA, but is implied from the FAA’s provisions. Some courts may take this mention as a criticism of the legitimacy of the manifest disregard of law theory, and it will be interesting to see how courts respond to this portion of the opinion. Given the clear trend in court opinions over the past 16 months or so of substantially restricting the scope of the manifest disregard theory, however, this portion of the opinion may have limited impact, no matter how it is interpreted. Hall Street Assoc. LLC v. Mattel, Inc., No. 06-989 (US Mar. 25, 2008).