ADR Case Updates
Parties Cannot Expand Exclusive Grounds To Vacate Arbitration Award Under FAA, 04/02/08
In case you have not seen them, the U.S. Supreme Court and California Courts of Appeal have rendered five ADR decisions (all dealing with arbitration) since my last update of March 1, 2008. You may view the Supreme Court case at: http://www.supremecourtus.gov/opinions/07slipopinion.html, and the Appellate Court cases at: http://www.courtinfo.ca.gov/cgi-bin/opinions.cgi.
In Hall Street Associates, L.L.C. v. Mattel, 552 U.S. ___, 2008 WL 762537 (Mar. 25, 2008), Mattel leased a manufacturing site from Hall Street. The lease required Mattel to indemnify Hall Street for any costs resulting from the failure of Mattel or its predecessor lessees to follow environmental laws while using the property. After it was discovered that the previous tenant had allowed pollutants to enter the well water, Mattel gave notice to terminate the lease. Hall Street filed suit claiming Mattel could not terminate the lease, and that Mattel was obligated to indemnify Hall Street for the costs of cleaning up the pollutants.
Upon conclusion of a bench trial, the District Court ruled that Mattel was entitled to terminate the lease. After unsuccessfully mediating the indemnification issues, the parties agreed to arbitrate them. The District Court was amenable, and approved as an order the arbitration agreement that the parties had drafted. The arbitration agreement included a provision that supplemented the grounds for vacatur and modification of the award under the Federal Arbitration Act (FAA). Specifically, the agreement provided that the court could vacate, modify, or correct the award where the arbitrators findings are not supported by substantial evidence or where the arbitrators conclusions of law are erroneous.
The arbitrator issued an award in favor of Mattel, but the District Court vacated the award for legal-error, expressly invoking the legal standard in the arbitration agreement. On remand, the arbitrator entered an award in favor of Hall Street, which the District Court substantially confirmed. The Ninth Circuit reversed on the basis that arbitration agreements purporting to fix the mode of judicial review are unenforceable in light of the exclusive grounds for vacatur and modification provided by the FAA. A writ of certiorari was granted.
Vacated and remanded. The FAAs grounds for prompt vacatur and modification of awards are exclusive for parties seeking expedited review. Under FAA, 11 U.S.C. §§ 9-11, grounds for vacating an award exist where the award was procured by corruption, fraud, or undue means, or where the arbitrators were guilty of misconduct, or exceeded their powers. Those sections demonstrate a national policy favoring arbitration with just the limited review needed to maintain arbitrations essential virtue of resolving disputes straightaway, and may not be supplemented by contract. Parties cannot expand the grounds to vacate an arbitration award under the FAA.
The second matter is a business breach of contract case, Brodke v. Alphatec Spine, Inc., 2008 WL 740379 (Mar. 20, 2008), holding that a party petitioning to enforce an arbitration clause under CCP § 1281.2 cannot simultaneously deny the existence of the contract containing the arbitration provision.
The third case is Advantage Medical Services, LLC v. Hoffman (Mar. 3, 2008) 160 Cal. App. 4th 806, a business litigation case, holding that an arbitrators interim award was properly vacated under CCP § 1286.2 when the arbitrator failed to disclose his connection to plaintiff and plaintiffs insurer.
The fourth case is Burks v. Kaiser Foundation Health Plan, Inc., 2008 WL 590872 (Mar. 5, 2008), holding that Kaisers arbitration provision was unenforceable where the arbitration disclosure was not prominently displayed on its enrollment form.
Finally, the fifth case is Duffens v. Valenti, 2008 WL 802369 (Mar. 27, 2008), holding that arbitration provisions are void where consulting agreements violate express requirements of dating service statutes.
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