07/31/2007
CONTACT: Melissa Sharp, (202) 314-2068
Washington, D.C.--When the U.S. Supreme Court returns to work this fall, they'll be considering an important case that will either encourage the use of arbitration or send many businesses back to resolving disputes through litigation. The case being considered is Hall Street Associates v. Mattel, Inc., and the National Federation of Independent Business Legal Foundation filed an amicus brief with the Court urging a ruling that will allow parties to contract for expansive judicial review under the Federal Arbitration Act.
The decision in this case will affect the attractiveness of arbitration as an alternative to litigation. The Federal Arbitration Act generally allows only very narrow judicial review of arbitrator awards. In this case, however, the parties agreed to allow for more expansive judicial review of the arbitrator's decision, but the 9th Circuit determined that the parties could not contract on their own terms for the expanded judicial review. Lower courts are split on this question.
"Most companies prefer to have a standard-of-review clause in arbitration agreements that permits a court to fix clearly erroneous awards," said Karen Harned, executive director of NFIB's Legal Foundation. "The Federal Arbitration Act was intended primarily to enforce the terms of the parties' arbitration agreements; the law was not intended to limit private parties from using their own terms. If both parties agree to allow the court to review an arbitration award, then this agreement should be respected."
Recent studies indicate that businesses are indeed avoiding arbitration and that the absence of judicial review is a strong motivating factor for these decisions.
"According to an NFIB Research Poll, 21 percent of small businesses use arbitration to resolve disputes." Harned said. "A decision confirming the right of parties to contract for expanded judicial review is expected to draw even more businesses back to arbitration as a viable alternative to litigation. The additional level of judicial review creates a safety net for the parties agreeing to use arbitration. If they are permitted to contract for the expanded judicial review, parties could rest assured that there is a review process in place to prevent erroneous awards from remaining final."
