Arbitration Law: Who's in Charge?

Abstract

In interpreting the Federal Arbitration Act ('FAA'), the Supreme Court has not carried out the will of Congress, but instead, has created over the last twenty-five years a new law based upon its own policy preferences. The Court's interpretation in a recent case, Hall Street v. Mattel, in conjunction with its earlier decision in Mitsubishi v. Soler, demonstrates how it has undervalued or ignored both the text of the statute and its legislative history. In disregard of Congress's statutory commands, the Court has created a law which undercuts the protections Congress has adopted in the areas of civil rights, securities, consumer protection, antitrust and employment.

In Hall v. Mattell, the Court resolved a split in the circuit courts by determining that the FAA did not permit parties to determine by agreement that an award by an arbitrator could be reviewed on the merits by a court. Ignoring legislative history, which supports the enforcement of the parties' agreement according to its terms, the Court misapplied the canon ejusdem generis to find that the silence of the statute amounted to a prohibition. The court further determined that "manifest disregard of the law," a judicially created ground for reviewing an arbitrator error of law, did not constitute a separate ground for review, and that the narrow grounds set forth in the statute, which do not permit review for errors of fact or law, were exclusive.

In Mitsubishi, in 1985, the Court relied on the silence of the FAA to find that antitrust claims were arbitrable under the FAA. This is so despite the fact that it is clear from the text of the statute, its legislative history and at least 300 years of prior arbitration practice that the FAA was enacted to enforce contract claims arising out of business relationships. Thus, Mitusbishi created a paradigm shift in arbitration law. For the first time, the Court delegated to citizen-arbitrators the power to determine rights under statutes passed by Congress. In so doing, the Court has weakened rights under statutes adopted by Congress to protect investors, employees, consumers, investors and small businesses. Arbitrations take away the right to a jury trial, limit discovery, may eliminate a class action right, and permit no judicial review on the merits. Private-citizen arbitrators have an obligation to the parties before them, but unlike a judge, have no obligation to the public interest.

Thus, with respect to the arbitration of claims under mandatory law, many have called for heightened scrutiny of arbitrator awards. The Supreme Court, on the other hand, has shown in Hall v. Mattel that it wants no review whatsoever of an award based on a regulatory statute that may rest upon an erroneous conclusion of law. Congress needs to take back control of arbitration law and policy, consider overturning Hall v. Mattel through corrective legislation, and consider a complete overhaul of arbitration law to provide either for no arbitration of claims under mandatory law, or, at the least, for heightened scrutiny of arbitral awards based on such claims.

Keywords: Arbitration, Federal Arbitration Act, FAA, Legislation, Judicial Review, Arbitration Award, Statutory Claims, Manifest Disregard of the Law, Hall v. Mattel

JEL Classification: J52, J58, K4, K10, K12, K31