Archives for August 2009

Arbitration Clauses

More and more frequently, citizens who seek to enter a business relationship with a commercial entity such as a bank, credit card company, or even a real estate agent is expected, or indeed required, to accept an arbitration provision. Generally, an arbitration provision is a clause calling for the resolution of any dispute by arbitrator, and the result is binding, without any right of appeal for either errors of fact or law.

In a recent decision the US Supreme Court in Hall Street Associates LLC v Mattel Inc, decided March 25, 2008, concluded that when a party seeks to vacate an arbitration award by using the Federal Arbitration Act’s procedure for expedited judicial review, the Federal Arbitration Act’s grounds for vacating an award are exclusive, and federal courts cannot enforce a contractual expansion of those grounds. The Court ruled that a provision added to an Arbitration Clause that purported to expand the extent of judicial review beyond that specified in the Federal Arbitration Act, 9 U S C §§9-11 was invalid. On June 9, 2009, the Fifth Circuit Court of Appeals (with retired Associate Justice O’Connor sitting on the panel) ruled that Hall Street precluded any non-statutory basis for judicial reversal of an arbitration award. Saipem America v Wellington Underwriting Agencies, Case No. 08-20247.

Michigan’s Arbitration Act , MCL 600.5001, does not include the same degrees of specific limitation as are found in the FAA. Nonetheless, the validity of additional terms regarding judicial review beyond those in the statute does not appear to have been addressed by Michigan courts as it was in Hall.

Hence, in any case where an Arbitration Clause is insisted upon, the party who may be faced with such a clause may want to think twice about signing such an agreement, especially where it is suggested that it could be revised to expand the scope of judicial review. Such may prove to be ineffective. As a result, parties will be bound by the arbitrator’s decision, even if premised upon serious errors of fact, law or both that may be committed by the arbitrator.

Philip R. Rosi