Ninth Circuit: Arbitration Agreement Provision Eliminating Federal Court Review is Not Enforceable

December 20, 2013

The Ninth Circuit has held unenforceable, in In re Wal-Mart Wage and Hours Employment Practices Litigation, (No. 11-17718, Dec. 17, 2013) a non-appealability clause in an arbitration agreement.  

The parties had acted as co-lead counsel for the plaintiffs in the Wal-Mart wage and hour multidistrict litigation. According to the resulting settlement agreement, any fee disputes among plaintiffs’ counsel were to be submitted to “binding, non-appealable arbitration.” As plaintiffs’ counsel (Carolyn Burton, Robert Mills, the Mills Law Firm, Carol LaPlant and Robert Bonsignore) could not agree on allocation of the $28 million fee award, the dispute was submitted to arbitration, and the arbitrator allocated over $6 million to Burton and Mills, over $11 million to Bonsignore, and over $730,000 to LaPlant. Bonsignore sought confirmation of the award while the others moved to vacate. The district court confirmed the award and found no legal basis for vacatur. The appellants contended on appeal that  the district court erred in declining to vacate the award under 9 U.S.C. §10(a) of the FAA.

According to the Ninth Circuit, the statutory grounds for vacatur in the FAA could not be waived or eliminated by contract. Recalling the Supreme Court’s ruling in Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), that the FAA vacatur grounds are exclusive and may not be supplemented by agreement of the parties, the appellate court found that the text of the FAA also compelled the conclusion that these grounds were not waivable or subject to elimination by contract.

CPR's Alternatives has covered the issue of whether, after Hall Street, parties could agree to narrow judicial review of arbitral awards; see Michael S. Oberman, “‘The Other Shoe’: Are Agreements Narrowing Judicial Review Enforceable?” 31 Alternatives 71 (May 2013).

- Bette Shifman, Alternatives  Editor