In a recent decision, the Ninth Circuit Court of Appeals ruled that parties cannot agree under a contract to limit the scope of judicial review of an arbitration award as delineated by the Federal Arbitration Act (the “FAA”). This ruling complements a 2008 Supreme Court case, Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), where the Court held that a clause in an arbitration agreement providing for expanded judicial review beyond what was provided for in the FAA was unenforceable. In light of the Ninth Circuit’s new ruling, parties also cannot go the other way and curtail the scope of review to which the parties are entitled under the Federal Arbitration Act.
In In re Wal-Mart Wage & Hour Employment Practices Litigation, No. 11-17718, Dec. 17, 2013, the Ninth Circuit rejected the appellants’ argument that a non-appealability clause the parties had in their contract was enforceable. The Ninth Circuit, citing to the Hall Street decision, held that the statutory grounds for vacatur in the FAA could not be waived or eliminated by contract. Therefore, the court upheld the decision to deny the appellants’ motion for vacatur and confirmed the arbitration award.
Under § 10 of the FAA, a court may only vacate an award if “(1) the award was procured by corruption, fraud, or undue means; (2) … there was evident partiality or corruption in the arbitrators; (3) … the arbitrators were guilty of misconduct in refusing to postpone the hearing on sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; (4) or [there was] any other misbehavior by which the rights of any party are prejudiced, or the arbitrators exceeded their powers or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” At least in the Ninth Circuit, parties are now bound by these judicial review standards and cannot agree to either supplement or contract the scope of that review.
It is important to note, however, that obtaining vacatur of an award remains an extremely difficult proposition and that this ruling has no bearing on that issue. Rather, this ruling cements the notion that the scope of judicial review is to be strictly construed under the terms provided by the FAA, and that the parties cannot agree to either enhance or eliminate the availability of that review – even though a motion to vacate will likely be denied and result in confirmation of the award.