By James M. Gaitis
Last week’s United States Supreme Court decision in AT&T Mobility LLC v. Concepcion, 2011 WL 1561956 (U.S., April 27, 2011) no doubt will provide arbitration law commentators with ample fodder to debate merits the Court’s opinion as pertains not only to class arbitration but, also, related questions concerning federal preemption under the Federal Arbitration Act (FAA) and the “substantive federal law of arbitration” (to use a phrase coined by Professor Stipanowich). Still, the Court’s ultimate decision in AT&T Mobility was predictable in light of the Court’s prior ruling in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S.Ct. 1758, 1773 (2010), in which the Court made it clear that courts and arbitrators are not authorized to order class arbitration unless the application of controlling contract interpretation principles shows the parties have agreed thereto. The prospects for class arbitration in the United States now will remain dismal, at least until such time as Congress passes new legislation providing for class arbitration or until the composition of the Supreme Court significantly changes. Neither of those events seems likely in the near future.
But that does not mean that discussions of AT&T Mobility must be relegated solely to postmortem commentary on class arbitration and the broad topic of preemption. As is often the case, buried within the Court’s opinion in AT&T Mobility are clues as to how the Court might rule on other significant matters related to the FAA. One obvious example of such a clue is the Court’s discussion of party autonomy principles and the enforceability of the parties’ mutually agreed arbitration processes and guidelines. Among other things, that aspect of the Court’s AT&T Mobility opinion relates directly to questions concerning both the ongoing viability and enforceability of choice of law provisions in contracts subject to arbitration and the so-called “manifest disregard of the law” standard, both of which happen to be the subject of my forthcoming article entitled Clearing the Air on “Manifest Disregard” and Choice of Law in Commercial Arbitration: A Reconciliation of Wilko, Hall Street, and Stolt-Nielsen, 21 Am. Rev. Int’ Arb __ (forthcoming summer 2011).
Largely lost amid the ongoing debate regarding the viability of the so-called manifest disregard of the law doctrine is the fact that the manifest disregard controversy directly implicates the viability and enforceability of choice of law provisions contained in contracts subject to arbitration. As obscure as that issue might seem, it is now beginning to garner attention. Based on his perception that manifest disregard died with the issuance of the Court’s opinion in Hall Street Associates L.L.C. v. Mattel, Inc., 522 U.S. 576, 585 (2008), at least one academic, Professor Reuben, has already asserted that choice of law provisions are no longer enforceable in contracts governed by the FAA.
In my forthcoming article, I take a different and opposing view. I argue not only that the origins and meaning of “manifest disregard of the law” are generally misunderstood by the courts and commentators, but also that in order for the Supreme Court to maintain logical consistency in its arbitration decisions, the Court must ultimately hold that choice of law provisions are enforceable under some degree of judicial review. The “degree” of that enforcement and judicial review might be as weak as to require that arbitrators at least purport to attempt to apply the chosen law of the parties. Ironically, as weak as that potential standard seems, such a standard of review would actually be more vigorous than the currently prevailing court-applied manifest disregard standard in the sense that the law would not require intent on the part arbitrator in order for courts to vacate an award for arbitral failure to apply the chosen substantive law of the contract. Egregious mistake, gross negligence, and the like would suffice.
The analysis of the question regarding whether choice of law provisions in contracts subject to arbitration should be deemed enforceable under the FAA requires an in-depth inquiry in which I will not fully engage here. For the purposes of this comment it is important to note that the AT&T Mobility decision lends further support to the conclusion that choice of law provisions must be deemed enforceable under the FAA, such that an arbitral failure to apply the parties’ chosen law should give rise to potential vacatur. I make that assertion for the following reasons. In AT&T Mobility, the Court re-affirmed its prior conclusion in Hall Street that the only valid grounds for vacatur under the FAA are found in Section 10 of the FAA. In that regard, the Court expressly recited the vacatur grounds found in Section 10, including two grounds set forth in Section 10(a)(4)—i.e, “any misbehavior by which the rights of any party have been prejudiced” and when “arbitrators exceed their powers.” In emphasizing the broad and enforceable right of contracting parties to craft their own arbitration processes, the Court in AT&T Mobility then observed, by way of hypothetical example, that “Parties could agree to arbitrate pursuant to the Federal Rules of Civil Procedure, or pursuant to a discovery process rivaling that in litigation” and that, because “[a]rbitration is a matter of contract . . . the FAA [would] require courts to honor [the] parties’ expectations.” (Emphasis in the original).
[Continue to Part II here. ]
James M. Gaitis is the former Director of the International Dispute Management Programme at the Centre for Energy, Petroleum & Mineral Law & Policy, University of Dundee, Scotland, where he remains a member of the Global Faculty. He is the Editor-in-Chief of the second edition of The College of Commercial Arbitrators Guide to Best Practices in Commercial Arbitration (J. Gaitis, C. von Kann, R. Wachsmuth forthcoming Fall 2010) and the author of numerous law review articles on the topic of arbitration, several of which have been repeatedly cited to the United States Supreme Court and lower state and federal appellate courts. Over the past twenty years he has served on a diverse array of arbitration rosters, including as a Fellow of the College of Commercial Arbitrators, a Fellow of the Chartered Institute of Arbitrators, and as a panelist on the AAA Complex Case Panel and the Energy/Oil & Gas Panels of the AAA and CPR. He received his BA from the University of Notre Dame and his JD from the College of Law at the University of Iowa where he was an editor of the Iowa Law Review. He is also the author of two published novels. He may be reached via email at: firstname.lastname@example.org.