The Crumbled Difference between Legal and Illegal Arbitration Awards: Hall Street Associates and the Waning Public Policy Exception

Abstract:     
As a matter of general contract law, illegal contracts are unenforceable in court pursuant to the public policy exception. In addition, illegal arbitration awards are generally unenforceable on the same basis. Everything has now changed.

Earlier this year, the United States Supreme Court decided Hall Street Associates, Inc. v. Mattel, Inc., 128 S. Ct. 1396 (2008). In Hall, parties entered into a commercial lease that included an arbitration provision. In addition to other provisions, the arbitration provision permitted a reviewing court to vacate the decision of the arbitrator on grounds not included within the Federal Arbitration Act ("the FAA"). Applying a strict, plain meaning analysis, the Court held the review provisions of the FAA were exclusive, ruling the language of the Statute "unequivocally tells courts to grant confirmation in all cases, except when" the FAA explicitly provides a method for vacatur. Thus, the Court held vacatur is only permitted on the basis of procedural irregularities such as fraud, corruption, bias, and exceeding contractual powers.

While the holding in Hall did not specifically mention the public policy exception, the Court's reasoning invariably questions its continued existence in the context of arbitration awards under the FAA, as the FAA does not include a "void against public policy" standard. Furthermore, because the public policy exception is a creature of the common law, the FAA's provisions are in derogation of it.

This Article argues the Hall opinion has displaced the public policy exception in the context of enforcing arbitration awards and that displacement offends traditional notions of Lockean social contract theory. This Article further argues the courts should adopt the public policy exception as an inherent power of the courts deriving from the social contract.

Keywords: arbitration, hall street associates, faa, federal arbitration act, public policy exception, john locke

Working Paper Series