News & Developments
New in Arbitration
Hall Street Associates, L.L.C. v. Mattel
On March 25, 2008, the U.S. Supreme Court issued its decision in Hall Street Associates, LLC v. Mattel, Inc., holding that the Federal Arbitration Act (FAA) precludes expanding the grounds available for review of arbitral awards by agreement of contracting parties. While the U.S. Supreme Court rejected Hall Street's arguments of an expandable judicial review of arbitration awards by contract under an FAA analysis, it remanded to the district court for consideration other possible authority for the judicial enforcement of arbitral awards independent of the Federal Arbitration Act.
Preston v. Ferrer
On February 20, 2008 the United States Supreme Court issued its opinion in Preston v. Ferrer, where the question presented was whether parties were required to first submit their dispute to a state administrative agency before filing an action in court or submitting the matter to an arbitrator. The controversy between Preston and Ferrer arose after parties had a disagreement about whether certain commissions were owed, and whether the dispute had to be heard in the first instance by a California Labor Commissioner pursuant to a state statute, or whether the dispute should be resolved in arbitration as a result of the parties’ agreement which provided for arbitration pursuant to the rules of the AAA.
In an opinion by Justice Ginsburg, the Court held in an 8-1 decision that when parties agree to arbitrate all questions arising under a contract the FAA supersedes state laws which give primary jurisdiction in another forum such as a state administrative agency. The Preston case therefore reflects the Supreme Court’s continued endorsement and support of the arbitration process and arbitrators’ authority. The opinion is also important because it discusses whether the parties’ incorporation of the AAA’s Rules into their agreement trumps choice of law provisions which might dictate that disputes are resolved in a manner other than arbitration. In connection with that issue, the Court cited to Rule 7(b) of the AAA’s Commercial Arbitration Rules, which states that “[t]he arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a party.” That language, the Court held, infers an understanding among the parties that their dispute would not be heard by the Labor Commissioner pursuant to California law, but instead by an arbitrator.
The opinion also reaffirms a number of other important arbitration law principles that have been previously expressed by the Supreme Court. Specifically, the Court stated that a “recurring question” under the FAA is who decides whether grounds exist to invalidate an arbitration agreement, and that attempts to invalidate agreements as a whole are decided by arbitrators, and not courts, unless the attack is made on the arbitration agreement specifically. This outcome is not impacted where an administrative agency has been designated by state law as the forum where disputes are to be resolved, even if the matter could be submitted to an arbitrator subsequently. In addition, the Court emphasized that state laws cannot conflict with the FAA’s “dispute resolution regime” where they grant jurisdiction to an administrative agency or where they impose prerequisites on arbitration agreements that are not applicable to contracts generally.
