Can parties play games with arbitration awards? How Mattel may put an end to prolonged gamesmanship.

• Author: Polenberg, Jon

Florida courts have held that the bases for vacating an arbitration award are those expressly stated in F.S. [section]682.13. (1) But on occasion, some Florida courts have vacated arbitration awards based on nonstatutory grounds. (2) Since the Supreme Court's decision in Hall Street Associates LLC v. Mattel,--U.S.--, 128 S. Ct. 1396 (2008), federal and state courts have been busily reviewing long-held notions regarding arbitral awards. The statutory grounds came from either the Federal Arbitration Act (FAA) or the corresponding state equivalent codified in several states, including Florida. Nonstatutory grounds have their roots in Wilko v. Swan, 346 U.S. 427, 436-437 (1953), which put forth the vacatur ground of "manifest disregard of the law," which also exists in Florida. (3) Mattel has called into doubt whether there were truly nonstatutory grounds for vacatur.

The Mattel decision challenged long-held notions about the available standards of review governing arbitral awards by attacking the premise for underlying nonstatutory grounds of review. To fully understand Mattel, the article discusses the facts and procedural history for that decision. Next, the article addresses the actual language used by the Supreme Court in its opinion. Then the article analyzes the effects of Mattel on the federal courts and state courts, focusing on Florida.

The issue in Mattel was whether parties could draft an arbitration agreement that allowed the federal district court to review an arbitrator's final award for errors of law, a standard not expressly included in the FAA. (4) The petitioners argued that, because courts could use nonstatutory standards of review like manifest disregard, parties could also use nonstatutory standards of review, like clear errors of the law. (5) Rejecting this argument, the Supreme Court held parties could not agree to extrastatutory grounds for court review. (6) The bottom line is the Supreme Court found the parties had agreed to a judicial standard for reviewing an arbitration award that fell outside the FAA. (7)

But the Mattel opinion goes at least one step further, stating "manifest disregard of the law" was not a nonstatutory ground for review. (8) Instead, manifest disregard of the law referred to the analysis a court should use when deciding motions to vacate under the express bases for vacatur provided under FAA [section]10. (9) The FAA is quite simple in its language, requiring a court to enforce an arbitral award unless the award violates the four following provisions stated in [section]10:

1) when the award was procured by corruption, fraud, or undue means;

2) when the arbitrators' conduct exhibited evident partiality or corruption;

3) when the arbitrators were guilty of misconduct or misbehavior prejudicing the rights of a party to the arbitration; and

4) when the arbitrators exceeded their powers, or so imperfectly executed those powers that they failed to make a mutual, final, and definite award on the dispute submitted to them.

Although [section]10 does use the more permissive word "may" in conferring courts with the discretion to vacate an arbitral award, [section]9 expressly directs courts to enforce an arbitral award unless the reviewing court should vacate the award under [section]10. (10) Thus, the mandated grounds for vacatur under the FAA are exclusive.

Until Mattel, courts have broadened the bases for vacatur, creating several nonstatutory grounds for vacating arbitral awards. Among the extrastatutory grounds for vacatur, courts have relied on the following: 1) manifest disregard of the law; 2) conflict with public policy; 3) arbitrary and capricious; 4) completely irrational; or 5) failure to draw its essence from the parties' underlying contract. (11) Notably, the Fourth Circuit Court of Appeals has stood alone in refusing to expand vacatur beyond the express provisions of the FAA. (12)

Each of these nonstatutory standards comes from the court's discussion in the seminal case of Wilko v. Swan. (13) In Wilko, the Supreme Court referred to the term "manifest disregard," which had led to the expansive interpretation receded from in Mattel:

While it may be true, as the Court of Appeals thought, that a failure of the arbitrators to decide in accordance with the provisions of the Securities Act would "constitute grounds for vacating the award pursuant to section 10 of the Federal Arbitration Act," that failure would need to be made clearly to appear. In unrestricted submission, such as the present margin agreements envisage, the interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation. (14) Until Mattel, the Supreme Court had not elaborated on what it meant in Wilko. During the interim 55 years, additional nonstatutory grounds arose, and often each court of appeals developed different standards of review for each of those grounds. (15)

Mattel Works its Way through the Judicial System

Mattel started quite innocuously as a landlord-tenant dispute in Oregon concerning the ability of the tenant to get out of a lease. (16) As plaintiff in...