Ninth Circuit Says Arbitration Agreements Cannot Restrict Grounds For Vacating Award

Delete button on a keyboardIn the Hall Street decision in 2008, SCOTUS held that parties could not contractually enlarge Section 10 of the Federal Arbitration Act by agreeing that a court could vacate the arbitration award for reasons not found in that section.  This week, the Ninth Circuit held that parties also cannot contractually restrict Section 10 by providing for “binding, non-appealable arbitration.”  In re Wal-Mart Wage and Hour Employment Practices Litig., __ F.3d __, 2013 WL 6605350 (9th Cir. Dec. 17, 2013).

The dispute in In re Wal-Mart was among the successful counsel for plaintiffs in an employment suit.  The attorneys had been awarded $28 million in attorneys’ fees, but could not agree on how to divvy it up among the various firms who had handled the case.  They had an agreement calling for “binding, non-appealable arbitration” and they arbitrated their fee dispute.

After the arbitrator issued an award splitting up fees, one group of attorneys was unhappy and moved to vacate the award.  The district court confirmed the award and the unhappy attorneys appealed.

On appeal, the happy attorneys argued that the Ninth Circuit lacked jurisdiction to hear the dispute, because the parties had contractually agreed that the arbitration would not be appealable.  The Ninth Circuit disagreed for two reasons.  First, using an analysis similar to Hall Street, the court found the statutory language in the FAA “carries no hint of flexibility.”  And second, allowing parties to opt out of Section 10 review “would also frustrate Congress’s attempt to ensure a minimum level of due process for parties to an arbitration.”

This decision is important in that it protects consumers and other parties without negotiating power from arbitration agreements that write out even the minimal appeal bases in Section 10.  However, it also runs counter to SCOTUS’s oft-repeated point that the purpose of the FAA is to enforce arbitration agreements.  If that is true, why not also enforce an agreement that the award is final and not appealable?  Thoughts to ponder over some egg nog…