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IN THE SUPREME COURT OF THE UNITED STATES
- - - - - - - - - - - - - - - - - x
HALL STREET ASSOCIATES, :
L.L.C., :
Petitioner :
v. : No. 06-989
MATTEL, INC. :
- - - - - - - - - - - - - - - - - x
Washington, D.C.
Wednesday, November 7, 2007
The above-entitled matter came on for oral
argument before the Supreme Court of the United States
at 10:05 a.m.
APPEARANCES:
CARTER G. PHILLIPS, ESQ., Washington, D.C.; on
behalf of the Petitioner.
BETH S. BRINKMANN, ESQ., Washington, D.C.; on
behalf of the Respondent.
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C O N T E N T S
ORAL ARGUMENT OF PAGE
CARTER G. PHILLIPS, ESQ.
On behalf of the Petitioner 3BETH S. BRINKMANN, ESQ.
On behalf of the Respondent 31REBUTTAL ARGUMENT OFCARTER G. PHILLIPS, ESQ.
On behalf of the Petitioner 62
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P R O C E E D I N G S
(10:05 a.m.)
CHIEF JUSTICE ROBERTS: We'll hear argument
first today in Case 06-989, Hall Street Associates v.
Mattel, Inc.
Mr. Phillips.
ORAL ARGUMENT OF CARTER G. PHILLIPS
ON BEHALF OF THE PETITIONER
MR. PHILLIPS: Thank you, Mr. Chief Justice,
and may it please the Court:
In this case two very sophisticated parties
agreed to arbitrate an ongoing dispute that was pending
in litigation before the United States District Court
for the District of Oregon. Their agreement states
plainly that after an arbitration award is issued the
district court -- and this is at Pet. App. 16A -- "shall
vacate, modify, or correct any award where the
arbitrator's conclusions of law are erroneous."
Ultimately what this Court must decide is whether there
is anything in either the Federal Arbitration Act or any
other Federal law that renders this non-adhesive,
unambiguous contract agreement unenforceable.
JUSTICE GINSBURG: Mr. Phillips, would you
say the same thing if the agreement provided for de novo
review in the district court?
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MR. PHILLIPS: I would be more concerned
about identifying a standard of review for the district
court than identifying a standard for modifying the
arbitration award pursuant to the agreement. So I think
that's a different issue. I think that's closer to
dealing with a judicial function than this is, which is
simply implementing the intent of the parties as to what
the standard ought to be for enforcing an initial award.
JUSTICE GINSBURG: That would be -- I am
assuming that the parties wrote that standard into their
contract, so to the extent you're relying on party
autonomy why couldn't the parties elect whatever
standard of review they wish?
MR. PHILLIPS: Justice Ginsburg, I recognize
that there is a limit to party autonomy. I think there
ought to be a very strong preference for party autonomy,
and I'm not saying that if I were here and I had an
agreement by which de novo review is the standard I
wouldn't defend that autonomy. All I'm saying is that I
recognize that there are limitations on autonomy that
recognize the functions of the Judiciary. But that
limitation isn't remotely implicated in this particular
case.
JUSTICE KENNEDY: Well, in some -- one of
the functions of a judicial -- what about an agreement,
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arbitration agreement, that the district court can find
facts de novo?
MR. PHILLIPS: That one I think worries me
less because it doesn't -- it doesn't suggest -- I mean
it just says that we will leave to the district, to the
district court the findings, and essentially renders the
arbitration agreement --
JUSTICE KENNEDY: Well, suppose it's a
complex matter of monitoring emissions, looking at water
quality, and the arbitrator has to sit by the river for
a month, the district judge had to go down and sit by
the river for a month.
MR. PHILLIPS: But again, the parties under
those circumstances it seems to me are perfectly free to
decide whether they want those issues to be decided
conclusively by the arbitrator or to have them
adjudicated at the end of the day by the Federal court.
And so, if they choose to go through the arbitral
process, and then still say nevertheless that's
nonbinding and that the district court's free to
evaluate that on a de novo record, that it seems to me
doesn't in fact implicate the judicial function in quite
the same way that the standard of review does.
JUSTICE SCALIA: Indeed, are there not such
things as nonbinding arbitration's?
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MR. PHILLIPS: Precisely, Justice Scalia.
JUSTICE SCALIA: Which in effect say that
when we're done the district court will do it as an
original matter.
MR. PHILLIPS: Right. And in that context
you're not raising the same problem that you're
referring to, Justice Ginsburg, because you're not
saying anything about the standard of review. You're
just simply saying that the court ought to decide the
legal issues.
Now, I do think that when the parties agree
that it's a question of law that the question of law is
for the district court to decide. My assumption is that
the district court in fact will use de novo review, but
the parties are not dictating that. That's a matter
that's left -- I'm sorry.
JUSTICE ALITO: Doesn't the arbitration
agreement in this case set out a standard of review and
say on findings of fact they have to be supported by
substantial evidence?
MR. PHILLIPS: They do, but that issue --
that standard of review is not at issue in this
particular case. The only question here is whether or
not there has been an error of law committed, and
obviously the district court found that there was a
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clear error of law committed. Indeed, the dissenting
judge below said it was an irrational decision on the
law.
CHIEF JUSTICE ROBERTS: Mr. Phillips --
JUSTICE GINSBURG: But they were both --
they were both in this agreement, both the substantial
evidence rule and the standard of review of legal error.
So are you saying that you -- we don't have to deal with
that question or you're not going to defend it, because
the standard was dual. Am I not right about what they
MR. PHILLIPS: No. There are, there are
clearly two different standards that are set out in the
arbitration agreement and one of them is substantial
evidence. But when the matter went from the arbitrator
to the district court there was no issue presented by
Hall Street on the question of substantial evidence. We
didn't challenge any of the factual findings by the --
by the arbitrator, and therefore that issue is not
presented. I'm not saying I wouldn't defend it. All
I'm saying is I don't have to defend it in this
particular case because the only issue here is whether
there has been an error of law.
JUSTICE KENNEDY: But you have to give us a
standard. You said, you mentioned, oh, functions of the
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district court. I don't know the standard you're
proposing that will allow us to draw the line and to put
cases on one side of the line or the other. You said,
well, you can't interfere with the functions of the
court. I don't quite understand that.
MR. PHILLIPS: Well, the problem there --
and again, I think this is largely a fanciful concern
because I don't think serious parties who are engaged in
arbitration agreements are likely to come up with
standards that are completely alien to the judicial
process, and indeed there's no empirical evidence to
support that. Certainly Respondent didn't cite anything
and our amici didn't cite anything like that.
But to be sure, Judge Kozinski in his
concurring opinion in the original panel decision in
Kyocera said he would have a very different reaction to
this case if we were talking about the district court
either flipping a coin or looking at the entrails of
dead birds as the basis for decision. And our basic
point is we're not embracing that extreme approach. I
mean, we recognize party autonomy as a significant part
of what Section 2 of the Arbitration Act is all about
and we think that ought to drive the analysis of this
Court significantly, particularly in how you interpret
Section 9.
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CHIEF JUSTICE ROBERTS: Mr. Phillips, why do
you care? If this is not enforceable under the Federal
Arbitration Act, which gives you kind of a shortcut --
the district court must confirm it if certain criteria
are met -- I assume you have a normally enforceable
contract that the district court can enforce just like
it enforces any other contract.
MR. PHILLIPS: That's absolutely true,
particularly in this context, Mr. Chief Justice, because
here we have a situation where we were before the
district court, this arrangement came out of the
mediation process, the district court reviewed it,
blessed it, sent it to the arbitrator --
CHIEF JUSTICE ROBERTS: So you should lose.
MR. PHILLIPS: -- and it came right back.
CHIEF JUSTICE ROBERTS: So you should lose.
MR. PHILLIPS: No, no, I should win.
CHIEF JUSTICE ROBERTS: No. We should
conclude that you don't fall within the Federal
Arbitration Act and it's not a big deal because you can
bring -- you can have the contract enforced. The
district court as far as I can tell wants to enforce
this agreement, presumably will enforce it as a
contract. So you don't need the Federal Arbitration
Act, so why should we fly in the face of its plain
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language to accommodate your interests?
MR. PHILLIPS: Because the problem here is
not what happens in the instance if, Section 9 not
applying, that we're suddenly -- we go back to square
one and start over. That might be true in a different
case, but in this particular case we started in Federal
district court. We brought this action as a -- as a
contract action.
CHIEF JUSTICE ROBERTS: Is there a basis --
well, the Federal Arbitration Act doesn't provide
jurisdiction anyway. So I assume you have a basis for
being in Federal court --
MR. PHILLIPS: Diversity, Your Honor.
CHIEF JUSTICE ROBERTS: -- in the first
place. So you're just enforcing a contract in diversity
in Federal court.
MR. PHILLIPS: Right, and that's exactly
what we would ask this Court to be doing here.
CHIEF JUSTICE ROBERTS: No, you're asking us
to bring it under the Federal Arbitration Act and say
that the district court must confirm it despite the fact
that you've changed the standards under Section 9 to 11.
MR. PHILLIPS: No, Mr. Chief Justice, you've
flipped it around. Remember, we lost in the
arbitration. We won in the district court. The
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district court was prepared to enforce the agreement.
CHIEF JUSTICE ROBERTS: Right.
MR. PHILLIPS: Both the underlying lease
agreement and the arbitration agreement. It was the
court of appeals that said no, you can't do that, you
can't enter a final judgment in this case, and the
reason is --
CHIEF JUSTICE ROBERTS: But my point --
MR. PHILLIPS: -- because of the Federal
Arbitration Act.
CHIEF JUSTICE ROBERTS: My point is that if
you have an ordinary contract action the district court
will, because your contract provides a particular
standard of review, enforce that. Right?
MR. PHILLIPS: Right. No, that's absolutely
true. But that's exactly what we're asking you to do
here.
JUSTICE BREYER: On that point -- the reason
I think you're -- there's a little chaos here is because
you said -- your question is phrased, does the FAA
preclude enforcement of your arbitration agreement? And
you're going to say: We answer that question, no, it
doesn't preclude it.
MR. PHILLIPS: Right.
JUSTICE BREYER: It doesn't require it; it
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doesn't preclude it.
But then would we have to go back and say
what is the source? There has to be some source of law
that authorizes this contractual agreement, and there
could be two possible sources. And my question here is,
is it clear that in fact either of these two sources
does?
The first source is State law. I gather the
difficulty is that the State of Oregon has an act just
like the Federal Arbitration Act, so we'd have to ask
the Oregon courts: Is this a legitimate contract under
Oregon State law.
The alternative source of law is the Federal
judge's case management authority. And there we have a
statute which clearly gives the judge some kind of
authority, but not for your case because your case
exceeds the jurisdictional amount. Therefore, in the
absence of that statute, is there inherent authority in
the district judge?
Now, I don't know the answer to either of
those questions.
MR. PHILLIPS: I thought that --
JUSTICE BREYER: My temptation is to say
they're open questions and they'd have to be argued on
remand, which makes this case the case of the century, I
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guess, in a certain respect. It's quite a difficult
case.
MR. PHILLIPS: I was just looking for the
case of the day, Your Honor, actually.
(Laughter.)
JUSTICE BREYER: All right. Well, in a
certain area. I overstate.
But the -- is there any light you can shed
on those two questions, or is there some third possible
source of law?
MR. PHILLIPS: Well, we know that -- I think
the answer to that is that Section 2 of the Federal
Arbitration Act, which this Court has recognized
repeatedly has a very strong preference for enforcing
the agreement of the parties, is a part of the answer to
that. And you couple that with the fact that Justice
Story, back as early as 1814, said that as a matter of
common law that the notion of restricted arbitration is
a matter completely left to the parties.
So I think that there are general common law
standards. Now, you know, could Oregon law have gone
the other way on that? Maybe. I think it would be an
interesting preemption question. But the Respondent has
never argued that this is unenforceable as a matter of
Oregon law. So I don't think that issue is in this
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case.
As a matter of case management, if the Court
wants to defer to anything then it ought to refer to the
district court's own assessment that this agreement
should be utterly enforceable, that --
JUSTICE BREYER: Have you ever argued that
this is a matter governed by Oregon law and it is
enforceable?
MR. PHILLIPS: Right. They never --
JUSTICE BREYER: Have you ever argued that?
MR. PHILLIPS: That it is enforceable?
JUSTICE BREYER: Yes, under Oregon law.
Have you ever argued Oregon law?
MR. PHILLIPS: No, we've never argued --
JUSTICE BREYER: No?
MR. PHILLIPS: -- Oregon law.
JUSTICE BREYER: Well, then it's not
surprising they haven't argued that Oregon law doesn't
apply.
MR. PHILLIPS: No, no.
CHIEF JUSTICE ROBERTS: But they have in
fact. On page 43 of their brief, they say that if you
prevail the parties would be left to a State law
contract action to determine the enforceability of the
award.
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MR. PHILLIPS: Right, but the State law
contract action that they're talking about is precisely
the State law contract action we brought in this case
before the Federal district court under diversity
jurisdiction. And at the end of the day what we're
asking for is for the Court to enforce --
CHIEF JUSTICE ROBERTS: No, no. I --
MR. PHILLIPS: -- the district judge's
determination --
CHIEF JUSTICE ROBERTS: No. Their citation
is to an arbitration treatise. The contract they're
referring to is the contract to arbitrate. And, unless
I'm mistaken, what you want is for the district court to
be able to enforce your agreement under the Federal
Arbitration Act. Right?
MR. PHILLIPS: Because it falls squarely
within the Federal Arbitration Act.
CHIEF JUSTICE ROBERTS: Well, it doesn't
fall squarely within it because the Federal Arbitration
Act sets different standards of review. And all I'm
saying is I don't see what the big deal is because you
-- okay, don't use the Federal Arbitration Act, which
gives you kind of an express remedy the district court
must confirm. Use normal contract law and say to the
district court: Well, you don't have the Federal
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Arbitration Act, you don't have to confirm it as a
judgment, but we have a contract, it's perfectly valid,
it sets a different standard of review, you should
enforce it.
MR. PHILLIPS: Right. But I think the
answer to that is that if Congress had a choice as
between those alternatives, Congress clearly in Section
9 made it absolutely indisputable that there's a simple
way to enforce it, but it didn't suggest the
alternative, which is that you relegate it to some kind
of State law, completely complicated process to try and
get this arbitration award enforced under those
circumstances.
JUSTICE SCALIA: Excuse me. I'm just not
following this discussion. Does it assume that you can
bring an action on the contract and just bypass the
provision of the contract which says there will be
arbitration? How can you do that? You -- you don't
assert you can do that?
MR. PHILLIPS: No, we clearly can't do that.
JUSTICE SCALIA: You clearly can't do that.
MR. PHILLIPS: Right.
JUSTICE SCALIA: So somebody has to decide
on this arbitration provision.
MR. PHILLIPS: Right. And I think the
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Court, this Court is the court that's got to decide that
at this point and --
CHIEF JUSTICE ROBERTS: The arbitration
provision, the arbitration agreement is just a contract.
Right?
MR. PHILLIPS: To be sure.
CHIEF JUSTICE ROBERTS: Well, then I don't
understand why it's not enforceable as a contract.
MR. PHILLIPS: I don't think we disagree on
that, Mr. Chief Justice. I think the -- I think that's
enforceable.
CHIEF JUSTICE ROBERTS: Well, if it's
enforceable -- I'm obviously missing something here. If
it's enforceable as a contract, what is the great
benefit you get out of prevailing and saying this should
be enforced under the Federal Arbitration Act?
MR. PHILLIPS: Well, the benefit is the
efficiency that the Federal Arbitration Act is trying to
promote. I mean, to be sure, there -- there could
potentially be any number of routes you might want to
identify. The clearest one is where the parties don't
care about what happens on the back end, where they say,
once you get your -- you have your -- you get your
arbitration award and then you go off and you do Section
9 and we don't have any agreement on that. And that one
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is easy, and that's the most efficient.
Then the question is what do you do in a
situation where the parties don't agree with that, where
they want the district court to review it.
CHIEF JUSTICE ROBERTS: What do you do if
you have a contract, an arbitration agreement that's not
covered by Section 2, it's not concerning a maritime
transaction or involving commerce?
MR. PHILLIPS: Those are regulated by State
law.
CHIEF JUSTICE ROBERTS: Okay.
MR. PHILLIPS: Purely by State law. But
this is the contract that falls within Section 2, Mr.
Chief Justice.
JUSTICE SCALIA: But this -- but this one
isn't, and if we say that you lose under the Federal
Arbitration Act, is it open to the State court to say,
well, that's what the Federal Arbitration Act says, but
we handle arbitration differently?
MR. PHILLIPS: Well, that's sort of the core
question I think that sort of comes out of Southland
and --
JUSTICE SCALIA: I think if you lose on the
arbitration here, you've got to lose on the arbitration
before State court.
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MR. PHILLIPS: I mean, I think that's what
Southland --
JUSTICE SCALIA: I mean you don't have to
admit that. That's --
MR. PHILLIPS: That's the logic of
Southland, Your Honor.
CHIEF JUSTICE ROBERTS: Why in the -- why is
that the case? I mean, this doesn't purport to occupy
the field of arbitration and to preempt State law. It
provides that a very direct order -- the district court
must confirm the arbitration award as a judgment --
MR. PHILLIPS: Right.
CHIEF JUSTICE ROBERTS: -- if you fall
within the criteria. And all I'm saying is they'll say,
okay, I don't have to confirm it as a judgment.
MR. PHILLIPS: But I think the answer to the
conundrum you've raised, Mr. Chief Justice, is that if
you're not in Section 9, then you ought to be in Section
2, and there you should do precisely what the contract
says, which is that you should vacate or set aside the
arbitration agreement --
CHIEF JUSTICE ROBERTS: Oh, no. You're in
Section 2, I agree --
MR. PHILLIPS: -- unless -- if there's an
error in law.
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CHIEF JUSTICE ROBERTS: I agree that you're
in Section 2, and the State court can't invalidate your
agreement under some special rule that applies only to
arbitration. But you want to be under Section 9, and
that says --
MR. PHILLIPS: No, I --
CHIEF JUSTICE ROBERTS: -- that the district
court must confirm the arbitration award if it meets
certain standards.
MR. PHILLIPS: No, I don't need Section 9.
All I need is Section 2 because if -- because under our
agreement, what we specifically say is that the district
court shall vacate, modify, or correct. We're looking
for them to correct this award by saying that the right
interpretation of this lease is that this is an
applicable environmental law, and therefore the
indemnification extends and we are protected.
CHIEF JUSTICE ROBERTS: But the only basis
MR. PHILLIPS: That's what I want under
Section 2.
CHIEF JUSTICE ROBERTS: The only basis you
have for getting them to correct the award is a
different standard of review than the one provided in
Section 10.
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MR. PHILLIPS: That's true, but that's -- it
seems to me that just makes my point, which is I don't
need Section 9, Your Honor. All I need -- all I need is
an aggressive, not even aggressive -- a fair
interpretation of Section 2 that says that the parties'
intent controls under these circumstances.
JUSTICE SOUTER: It's not that you don't
need Section 9. You want to get rid of Section 9 --
MR. PHILLIPS: That's quite true.
JUSTICE SOUTER: -- because Section 9 on its
face seems to provide the opposite to what you're
asking. Isn't that the problem?
MR. PHILLIPS: Well, I don't know that
that's the problem. You're right, I don't want Section
9 to be controlling here, but I don't think it's meant
to be controlling under these circumstances. I think
what -- I mean they're making the Section 9 argument.
All I'm saying is that there's not a problem created by
Section 9.
JUSTICE SOUTER: Why isn't -- I mean the
argument that it is meant to be controlling is an
argument, first, for the plain language.
MR. PHILLIPS: I'm sorry, Justice Souter.
JUSTICE SOUTER: Pardon me?
MR. PHILLIPS: When you say "it's meant to
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be controlling," I don't --
JUSTICE SOUTER: Section 9.
MR. PHILLIPS: Section 9. I'm sorry.
JUSTICE SOUTER: Number one, the plain
language of the statute.
Number two, an argument that that plain
language, as a matter of historical fact, was
deliberately chosen when Congress made a choice between
two different, basic arbitration schemes.
And they chose the arbitration scheme that,
in effect, does not allow the -- the kind of variation
that you're talking about. So they say the language is
plain; the intent behind the language is plain. It is
restrictive, and you can't do that. What is your
response, in effect, to the plain language construed in
terms of the historical argument?
MR. PHILLIPS: Yes. Well, the answer -- the
plain language doesn't -- doesn't say what happens if
the parties reach a different agreement. The first --
JUSTICE SOUTER: Well, it may not -- it may
not say it for the simple reason that it says
unequivocally what should happen, and you are asking for
a variation on what it unequivocally provides. That may
be the reason it does not go into contingencies.
MR. PHILLIPS: Well, I think -- well, first
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of all, it would seem to me less likely that that's
true, given the common law history that comes out of
Justice Story's opinion, which said restrictive
arbitrations are common.
JUSTICE SOUTER: All right. But you're --
you're ignoring -- when you say that, you're ignoring
the development of arbitration in the period after
Justice Story; and you are ignoring the argument that
the other side makes that a deliberate choice was made
between two generally understood arbitration, statutory
arbitration, schemes, and they choose -- they chose the
one that is inconsistent with your position.
MR. PHILLIPS: Justice Souter, there are two
-- there are two questions there, so let me try to
answer both of your questions.
The first one is: What does the plain
meaning of the statute say? The plain meaning of the
statute, which is at 1a of the appendix to the petition,
is the parties in their agreement agreed that a judgment
of the court shall be entered upon the award. We never
agreed to that, so the plain language of Section 9
simply doesn't get you there.
Section 9 envisions that this is a -- that
this is an understanding.
JUSTICE SOUTER: Then how can you get any
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award enforced, even subject to your terms?
MR. PHILLIPS: Because under Section 2 the
parties have -- have provided a mechanism for that by
saying that the district court will correct an award if
it's erroneous as a matter of law.
JUSTICE SOUTER: Then you have to grapple
with the question whether in fact under Section 2 you
can provide for confirmation in a manner consistent with
the provision for confirmation under Section 9.
MR. PHILLIPS: Right. But all I'm saying is
that Section 9 doesn't apply in this particular context,
and, therefore, it makes all the sense in the world to
JUSTICE SOUTER: You simply -- I -- I don't
-- maybe I'm missing something, but you seem to stand
there and just say baldly: Section 9 doesn't apply. It
doesn't apply, you've repeated that several times. And
I at least don't know why it doesn't apply.
MR. PHILLIPS: Well, hopefully I can
persuade you by rereading the portion of the statute,
that the first sentence of Section 9, which is at
Appendix 1: "If the parties" --
JUSTICE STEVENS: Where is it? Where is it?
MR. PHILLIPS: 1a of the appendix to the
petition. Section 9: "If the parties in their
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agreement have agreed that a judgment of the court shall
be entered upon the award" --
JUSTICE STEVENS: Uh-huh.
MR. PHILLIPS: These parties didn't agree
that a judgment would be entered on the award. They
agreed that a judgment would be entered on the basis of
whether there was a non-erroneous declaration of law by
the arbitrator.
JUSTICE SOUTER: Okay. And what you are
arguing is: At this point, even though we didn't agree
within the meaning of the preamble to the first sentence
MR. PHILLIPS: Correct.
JUSTICE SOUTER: -- we still have a right to
have the award confirmed and enforced --
MR. PHILLIPS: Correct.
JUSTICE SOUTER: -- because we agreed to it
under Section 2.
MR. PHILLIPS: Both parties agreed to it
under Section 2.
JUSTICE SOUTER: And the question, I think,
is when you argue in that fashion: Do you have a right
under Section 2 to provide for confirmation and
enforcement under terms which are inconsistent with the
provision in Section 9.
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And I think that's the -- that's the
question you've got to answer.
MR. PHILLIPS: Well, if you -- if you want
to make a judgment call and you think there's really a
judgment you have to make as between Section 2 and
Section 9, then it seems to me that all of the Court's
decisions have recognized that the single most important
objective of the Federal Arbitration Act is embodied in
Section 2, which is -- which is to enforce the intent of
the parties --
JUSTICE SOUTER: The -- the cases --
MR. PHILLIPS: -- is you way you should come
out.
JUSTICE SOUTER: The intent of the parties
that's being enforced in those myriad cases is the
intent of the parties to arbitrate. I don't believe any
of those cases respond to the -- to the issue that we've
got before us.
And the issue we've got before us as you are
now framing it is this: If you do not have a provision
within the meaning of the first sentence of Section 9 --
MR. PHILLIPS: Yes.
JUSTICE SOUTER: -- for consummation and
enforcement --
MR. PHILLIPS: What do you do?
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JUSTICE SOUTER: -- but you have a different
contractual provision and its terms are different from
the enforcement terms under Section 9 --
MR. PHILLIPS: Right.
JUSTICE SOUTER: -- can that contract be
recognized? Do you have a right, in effect, to modify
the statute?
MR. PHILLIPS: But, Justice Souter --
JUSTICE SOUTER: And that's what you've got
to come to grips with. And --
MR. PHILLIPS: Well, I think I have come to
grips with it.
JUSTICE SOUTER: No, but it does not answer
that question simply to say there are lots of cases
saying that the intent of the parties to arbitrate
should be enforced. This is a more specific question.
MR. PHILLIPS: No, it's not the intent of
the parties to arbitrate. It is every facet of the
agreement is to be enforced consistent with the intent
of the parties.
JUSTICE SOUTER: Where do you -- do you have
a case that says every facet of the agreement, no matter
how inconsistent arguably with other sections of the
statute?
(Laughter.)
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JUSTICE SOUTER: No, you don't.
MR. PHILLIPS: Well, of course not, Justice
Souter.
JUSTICE SOUTER: That's why we've got this
case here.
MR. PHILLIPS: Well, to be sure. But the
bottom line here -- and -- and I do want to answer the
Illinois v. New York part of this, because I think
that's a complete red herring in this case.
But it still seems to me that if you think
that there is an ambiguity with respect to Section 9,
first you should resolve that ambiguity by construing it
to implement the parties' intent, because that is the
overriding objection to the FAA. And second --
JUSTICE SOUTER: Okay, but --
MR. PHILLIPS: -- if you go to Section 10 --
JUSTICE SOUTER: If we do that, we've got to
dispose of the red herring. So you're going to come
back to that?
MR. PHILLIPS: Okay. All right, let me
answer the red herring. Then -- then I'll tell you what
I think about Section 10. On the red herring, all --
all the -- first of all, there's nothing in the
legislative history that suggests that Congress made
some kind of conscious choice between New York and
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Illinois.
They talk about the New York model. There
is not a word in the legislative history about Illinois.
So I don't think that's what the decision was.
But even if that were the choice they made,
that still doesn't go to the question of what do you do
if the parties reach a different agreement.
JUSTICE SCALIA: That is, indeed, the issue.
What we're arguing about here is whether 9 and 10 are
simply default rules that apply where the parties have
not otherwise specified. That's -- and that's,
arguably, what the New York law and the Illinois -- I --
I don't know that any of those cases cited by the other
side involved cases where the Illinois rule or the New
York rule was applied in the teeth of an arbitration
agreement that said something differently.
MR. PHILLIPS: No. None of -- None of those
cases fall in that category.
JUSTICE SCALIA: In other words, I think
both the Illinois rule and the New York rule were
default rules.
MR. PHILLIPS: That's exactly right.
JUSTICE SCALIA: And you're arguing that
this is the default rule?
MR. PHILLIPS: Correct.
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JUSTICE GINSBURG: It doesn't read like one.
10 and 11 don't read like default --
MR. PHILLIPS: Well, I think the important
part about Section 10 to keep in mind is -- is their
argument also is predicated on the assumption that
Section 10 exhaustively lists all of the grounds for
modifying an -- vacating an arbitration award. And it
is absolutely clear from this Court's decisions both in
Wilko and in W.R. Grace that the list in Section 10 is
not an exclusive list.
JUSTICE GINSBURG: What else is there
besides the manifest whatever? The --
MR. PHILLIPS: The manifest disregard of the
law and the -- and public policy. W.R. Grace says you
can't enforce any contract that violates public policy.
JUSTICE STEVENS: Mr. Phillips, on the
question of whether it's just a default rule or a
self-executing definition of what's permissible,
supposing the agreement between the parties provided
that the judgment by the court must be entered in 6
months rather than a year, and it would be vitiated if
it were entered after that. Would that trump the
statute?
MR. PHILLIPS: I -- I think, yes, I think it
probably would, because --
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JUSTICE STEVENS: I think under your theory
you'd have to --
MR. PHILLIPS: I don't think Congress meant
for it to be -- I don't think Congress intended for this
to be not subject to change.
JUSTICE STEVENS: Yeah.
MR. PHILLIPS: I mean, you know, there are
-- the question in all of these provisions is are there
some components of the FAA that are meant to be
mandatory, and there are others that are all subject to
change. And I think that one strikes me at least as
most likely subject to change, Justice Stevens.
If there are no further questions, I'll
reserve the balance of my time for rebuttal. Thank you,
Your Honor.
CHIEF JUSTICE ROBERTS: Thank you,
Mr. Phillips.
Ms. Brinkmann.
ORAL ARGUMENT OF BETH S. BRINKMANN
ON BEHALF OF RESPONDENT
MS. BRINKMANN: Mr. Chief Justice, and may
it please the Court:
Sections 9, 10 and 11 of the Federal
Arbitration Act provide the exclusive grounds on which a
court can vacate, modify, correct an arbitration award
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under the FAA. Those grounds do not include legal
error.
What Petitioner wants is to graft on an
additional ground to that statute, and say, oh,
10(A)(5), on any other ground that the parties agree to.
JUSTICE SCALIA: What do you do about the
fact that our opinions have said that there is another
ground under 10, which is manifest miscarriage of
justice? That's not listed there.
MS. BRINKMANN: Your Honor, manifest
disregard is Section 10 (A)(4), exceeding the power. It
is not mere legal error, and it's manifest disregard of
the agreement. Section 10 goes to structural errors,
structural problems: Corruption, fraud, exceeding the
power. And manifest disregard is in the statute, and
it's not mere legal error.
JUSTICE SCALIA: Why -- why did we go -- go
to the trouble of expressing it differently?
MS. BRINKMANN: Because --
JUSTICE SCALIA: Why not just say Section 4?
MS. BRINKMANN: It was required in Wilko,
because there were two different questions there. There
was a provision under the Securities Act that said
customers couldn't waive certain right.
And the court said there: Well, we all know
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that the Securities Act generally would apply to
arbitration. Of course, if an arbitrator didn't apply
the Securities Act, that would be manifest disregard,
exceeding their power. That they could not do.
But what the Wilko Court held was: The
customer, if they went to arbitration, was also waiving
judicial review of the arbitrator's interpretation of
the law. And that was the distinction in Wilko, and
that's why manifest disregard is in the statute. It's
10(A)(4), and it's that type of error. It is not beyond
the statute, and that's what Congress meant to do.
JUSTICE GINSBURG: What about public policy?
That was the other one Mr. Phillips brought up.
MS. BRINKMANN: Yes. Public policy would
often be covered under Section 2. Section 2 allows any
arbitration contract to be voided under any generally
applicable State contract law, so that clearly would
apply. A lot of that would capture off as public
policy. But "public policy" is used in different ways.
The Grace case he cites is a labor case.
And there have been different developments of
arbitration under the labor statute. But what public
policy has come to mean in that line of cases is where
there is another Federal statute that is violated by the
arbitration.
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And there you have another source of law.
If there is a later enacted Federal statute that was a
congressional intent to trim the Arbitration Act, that's
another matter.
JUSTICE SCALIA: What would happen in
situations like this? Suppose we agree with you; and we
say, oh, yes, both of the parties agreed as part of this
contract: I don't want to let these arbitrators decide
the law. If they get the law wrong, we want -- we want
the courts to decide the law. That's the deal. And
then you're going to say, oh, that portion of the
contract is no good.
MS. BRINKMANN: You can't in that situation
JUSTICE SCALIA: Is there no such thing as
-- as failure of the contract for a misunderstanding of
the law?
MS. BRINKMANN: That would be a common law
action that the Chief Justice was referring to, to
simply enforce an award. But Section 9 created a
streamlined approach for enforcement of arbitration
awards. When Congress in 1925 said --
JUSTICE SCALIA: You think -- you think the
State can enforce an arbitration award that would not be
enforceable under the FAA?
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MR. PHILLIPS: Under Section 9. I hate to
use the words "broadly FAA," because here's the
situation: You can have arbitration awards that are
clearly covered under Section 2, but they are not
covered under Section 9. Section 9 is a streamlined
procedure for enforcement of arbitration where it's
under the FAA.
When Congress enacted the statute, they
said, you know, we are going to give a streamlined
approach. If you want to go quickly from award to
judgment, you can go right into court and hear Section
9. That -- and you could agree to this. You have to
agree to use Section 9. You have to agree to this
confirmation.
You come in, and that court must enforce
that award, confirm that award, unless Sections 10 and
11 are met. And that's exactly what Congress did.
CHIEF JUSTICE ROBERTS: What happens
outside -- that happens all the time. They are called
consent decrees. The party agrees, and agrees to
particular provisions, and they submit it to the judge
and say: We want you to write two words, "so ordered,"
at the bottom of this; and then it becomes a judgment.
You don't have to worry about the
Arbitration Act. It's a contract.
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that recognized the exclusivity of Sections 9, 10 and
11; and that would end the litigation. That's certainly
of very great interest to our client.
JUSTICE SOUTER: What do you say to
Mr. Phillips' argument that, within the meaning of the
first sentence of Section 9, you don't have any
agreement at all; and, therefore, you have no right to
enforce anything?
I take it that's not the position you took
below, and that's not the position you're taking here,
but how do you answer him?
MS. BRINKMANN: That's really a repackaging
of Petitioner's severability argument from below. There
was an agreement to confirm. It's just whether or not
if the -- it becomes legally impossible for the other
condition to occur, the legal review can't occur because
it's contrary to the statute.
What happened -- and the court of appeals
here addressed that issue, applied Oregon law, and
rejected it. Petitioner filed a rehearing en banc
petition on that and did not bring it to this Court on
cert.
JUSTICE SCALIA: Assume we agree with you
that this is a quick and dirty way to get arbitration
agreements enforced if you want to bring it within 9 and
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10, and if you don't, you're free not to; you can go to
the State courts. Why can't he still go to the State
courts?
You say this is going to terminate the
litigation. Is this going to be res judicata on
anything? All it's going to say is the Federal courts
have no jurisdiction over this. It's not under 9 and
10. You're going to run off to State court. You're
going to protract the litigation rather than bring it to
a quick end.
MS. BRINKMANN: Your Honor, this is under
Section 9. The only way it would not be under Section 9
is if they had won on the severability argument.
JUSTICE SCALIA: I don't understand that.
MS. BRINKMANN: We thought --
JUSTICE GINSBURG: Miss Brinkmann, can we
back up a bit, because this agreement had an usual
genesis. This was a big case, and the judge kept right
in the court a piece of it. And then he and the parties
agreed that another piece of it would best be resolved
in arbitration. So the judge was in equal participation
in that effort. All three parties wanted to get a
particular issue resolved through an arbitrator rather
than the court, itself.
And I doubt very much whether the judge
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would have been at all interested in that scheme if he
thought he were doing an idle thing. That the parties,
having agreed to just what the judge thought was a nice
way to resolve this issue, would then find themselves
out of Federal court and have to bring some kind of suit
in State court. It doesn't seem to fit this scenario.
MS. BRINKMANN: Two responses, at least to
that, Your Honor: Then the parties should have asked
the court to appoint a special master. That maintains
under the authority of the district court judge. That's
not what happened here. And that's important.
What is before the Court here is the Section
9 action to confirm the judgment. And that's what comes
to the Court on --
CHIEF JUSTICE ROBERTS: You don't have to go
back to State court. You have diversity. You are in
Federal court, no matter what; right?
MS. BRINKMANN: Yes, Your Honor, that's
right.
JUSTICE BREYER: That's why just what you
said is actually what's worrying me about the case.
Because what Justice Ginsburg said makes me think that
there could be situations, a lot of situations, where
Federal judges do want to peel the case off. And you
say send it to a master. Maybe some would lend
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themselves to a master; maybe some wouldn't. I have no
idea.
And are we going to have to hold in this
case whether a judge or when a judge, a Federal judge,
does or does not have authority to do such a thing?
That's why I say -- I was actually thinking
the case of the century, because it's going to take a
hundred years to finish.
But the fact is there are those issues there
once we say Section 9 doesn't apply. Then you're going
to have to say -- suppose we were to say it's just State
law. Well, suppose the State doesn't allow enforcement
of this kind of contract? Then we have the question of
the authority -- of the inherent authority, not
statutory, of a Federal district judge to peel off bits
of cases and decide them in different ways.
I don't know the answer to those questions,
but I think they are quite important. So what do I do?
MS. BRINKMANN: Well, first of all, Your
Honor, if it comes to a question about the particular
facts in this case involving the scenario that Justice
Ginsburg put forth of the very unusual situation of a
Federal district court being there, we would, of course,
dismiss the writ as improperly granted. That has no
broader implication, I think --
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JUSTICE BREYER: Oh, no, because there is a
holding in the whole Ninth Circuit, which accounts for a
large percent of the country, that the district judge
can't do this. And that's quite a significant holding
in that circuit, and we ought to review that.
MS. BRINKMANN: That would be the question,
Your Honor, if when faced with something that a judge
wants to peel off, you have to look at what tools a
Federal judge has been given. Magistrate judges widely
used for all types of picking juries, discovery, special
masters, those are the tools that have been given to
Federal judges. When arbitration --
JUSTICE GINSBURG: Why not use -- why not
use Rule 16, pretrial procedure, and the parties and the
judge can work out what they think is the most efficient
way to resolve this controversy? So they decide at the
pretrial conference that they are going to build into
this arrangement one issue that they are going to peel
off to go to an arbitrator, but the judge is going to
retain control through the legal error.
MS. BRINKMANN: The arbitrator is what
introduces these different elements, because that's a
private judge chosen by the parties, paid by the
parties. He doesn't have life tenure. It's a very
different animal. And what Congress did in the Federal
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Arbitration Act --
JUSTICE GINSBURG: That's a strange argument
in this respect. You are arguing that this non-Article
III person has more control rather than less control;
that if the judge controlled this arbitrator, somehow
that would violate Article III.
But if the judge has no control and is
essentially little more than a rubber stamp on what the
non-Article III person does, then that's all right. And
the sense of that doesn't come across to me.
MS. BRINKMANN: It's because it's a matter
of contract law, Justice Ginsburg. The parties agreed
to an arbitration here on a contract and the
arbitrator's award speaks for the parties. It is their
agreement. That's what an arbitration award is, and
that's why this streamlined process under Section 9 to
transfer that award, that contractual agreement --
JUSTICE KENNEDY: But -- but the question is
whether or not that streamlined process is the only
process. It seems to me that if the purpose of the
Arbitration Act is to promote confidence in the
arbitration process, that if parties agree to have the
double assurance that the arbitrator hasn't made some
strange ruling of law, that that's quite consistent with
the whole purposes of arbitration.
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MS. BRINKMANN: Well, Your Honor, we are not
suggesting that it's the only means to get an award
enforced, but if you are doing the Section 9 route, the
grounds in the statute are the only grounds on which
that can be done, and the policy about whether or not
those transaction costs, when parties want further
review on an arbitration, is shifted to the courts.
It's one Congress made --
JUSTICE KENNEDY: But you're -- you're
asking us to interpret the statute; and let us assume
that it's a plausible interpretation and interpret the
statute as the Petitioner would. You know, under
Section 8, the parties can use the authority of the
court to libel a ship. The court is extending its
authority to -- to use very intrusive means, and to say
that the parties can't ensure, if they choose, to have
review for correct errors of law -- to correct errors of
law when the ship has been seized, it seems to me to
promote the whole purposes of the act.
MS. BRINKMANN: But, Your Honor, I think
that's where we get to -- between when we are talking
about Section 2 and the purpose is that the parties
control how the arbitration progresses. Then we come to
the entry of the judgment by a court, and that's what
Congress controls; and the grounds in 10 and 11 cannot
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be perceived as default rules. There are many places in
the Federal Arbitration Act where --
JUSTICE KENNEDY: Well, we're arguing about
that textually. I'm saying that there's nothing
inconsistent with the Petitioner's position and the
basic policies of the act. You talk about finality,
streamline, and so forth; but if the parties have more
confidence in the arbitration process by ensuring this
added level of review, it seems to me quite consistent
with the purposes of the act.
MS. BRINKMANN: Well, two things, Your
Honor. If they want to do that, then they don't choose
Section 9, and they don't include an agreement for
Section 9, and then they have what Chief Justice Roberts
was talking about, a -- a state contract action --
JUSTICE STEVENS: Can I interrupt on that
for just a minute? You're assuming and the Chief
Justice's line of questioning was assuming there's an
adequate state remedy available for enforcing this
contract, but the whole premise of the statute at the
time it was enacted was that there was not a state
remedy, because there was a bias against arbitration.
And this was thought to be the sole remedy for
arbitration at the time the statute was enacted.
MS. BRINKMANN: Your Honor, that actually
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brings me to a red herring. I'd like to address the
history, because I think that what happens in
Petitioner's reply brief, there's some confusion between
common-law causes of action to enforce an arbitration
award as a contract, and actions under statutes. Some
of the commentators confuse that also.
There was an opportunity to have judicial
review of the law through a contract enforcement case,
although there was a clear statement requirement. So
there are going to be cases that talk about, that are
not under the statue. Then when you look at cases under
the statute, you have to differentiate between the cases
under the New York model statutes, where you will not
find that, and cases under the Illinois statute, where
you will, because they allow judicial review.
JUSTICE GINSBURG: Are there any --
MS. BRINKMANN: Now, when Justice Scalia --
JUSTICE GINSBURG: Are there any -- are
there any such States left today that are using the
Illinois model?
MS. BRINKMANN: I believe not, Your Honor.
We explain in one of our footnotes that that came into
disfavor.
But I want to address Justice Scalia's point
about the legislative history. There is no case that we
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have found that says, notwithstanding those statutory
grounds, you can contract beyond them, but we do have
not only the New York cases, but also in footnote 8, I
believe, on page 30, several other statutes have
statutory grounds, and repeatedly they say these are the
statutory grounds. That is separate from the common-law
action where you could have a full jury trial.
JUSTICE SCALIA: But -- but the old Illinois
and the old New York rules, you don't have any cases
which say -- which establish that those rules were not
just default rules, but you -- but you were not allowed
to depart from them.
MS. BRINKMANN: We think the language in
those cases will speak -- -
JUSTICE SCALIA: You don't -- you don't have
any case that holds that?
MS. BRINKMANN: The cases say things like on
the statutory grounds, where they do say it. Do they go
the next step and say by the way, we are not going to do
anything else that's -- -
JUSTICE SCALIA: You don't have any case
that holds that.
MS. BRINKMANN: No. No. There's none on
the other side, either.
JUSTICE GINSBURG: Is there a possibility
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that the reason the language in the statute is as it
is -- when was the Federal Arbitration Act; what year
was it?
MS. BRINKMANN: 1925.
JUSTICE GINSBURG: And there was still
abroad in the land considerable distrust of arbitrators.
Judges said arbitrators are stepping on our turf, and so
they would be naturally resistant to let the arbitrator
go ahead and have the most minimal review in court.
Maybe the act was written the way it was to say, if the
parties want to go to arbitration, courts, you stay out
of it.
MS. BRINKMANN: If you choose that -- yes,
Your Honor. And even one more step. But we will tell
the court to stay out of it only if you agree that
you're going to come under for confirmation. It's still
let the parties have the review through common law if
they want it.
That's absolutely correct, Your Honor. And
I think it's that additional step, though, that puts the
whole picture together. And I do want to emphasize,
there is appellate arbitration that takes care all of
the policy concerns about whether or not --
JUSTICE KENNEDY: Would you -- would you
agree that what we hold in this case applies to suits in
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admiralty, where you don't go to State court under
Section 8?
MS. BRINKMANN: That's a difficult question,
Your Honor. I have looked at many of the old -- some of
the arbitration cases did come up from admiralty, and I
think the answer is, if it is an action under Section 9
to confirm, it must be confirmed unless there is
vacatur, modification, or correction under 10 or 11.
Those are exclusive grounds.
JUSTICE KENNEDY: Well, at this point you
don't have a State court fallback for your argument.
MS. BRINKMANN: Well --
JUSTICE KENNEDY: And I -- I can't say why
it isn't -- I just repeat my earlier point -- quite
consistent with encouraging confidence in admiralty
arbitration to allow district courts to review rulings
on a matter of law if the parties so choose.
MS. BRINKMANN: I think that question,
though, perhaps goes to more or not whether the Section
9 is the exclusive means for enforcing an award, and it
isn't. So perhaps there is some other means that is
beyond my expertise.
JUSTICE BREYER: Oh, if there is, then let's
think -- suppose that in the middle of a trial, the
parties say, judge, this is so complicated factually, we
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have a way that we can get an agreed statement of facts.
They walk out the door; they have a friend who has a
sign called arbitrator; and they come away from that
friend with an agreed statement of facts, which they
agree to submit to the judge to apply the law. Now,
there is nothing wrong with that, I imagine.
MS. BRINKMANN: Well, that sign would have
to be changed. It would have to say --
JUSTICE BREYER: We know -- I'm sorry. I'm
not even going to tell the judge how I find this. I go
to a crystal ball; I go to any way I want. I will come
in with an agreed statement of facts, and is there
anything, if we have that agreed statement of facts,
that would will stop the judge from saying I take this
agreed statement of facts; there's a difference about
how the law applies to it; I will resolve this case?
MS. BRINKMANN: There are a couple of
things. That's not an arbitration award.
JUSTICE BREYER: Well, no -- I just say --
well, I'll ask you the next question. I take the answer
to the first question is there's nothing wrong with
that.
MS. BRINKMANN: I have to say --
CHIEF JUSTICE ROBERTS: Isn't there --
MS. BRINKMANN: -- the court would not be
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buy an injunction. You cannot stipulate to the
erroneous law. The Article III judge maintained that
authority.
JUSTICE BREYER: All right. I'm trying to
get to my question; I'm not asking it very well.
What they agreed to is an agreed statement
of facts, subject to Section 9 standards, Section 9 and
10.
MS. BRINKMANN: That's difficult, because
it's an award --
JUSTICE BREYER: What I'm driving at,
whether I've asked it well or not --
MS. BRINKMANN: Yes, right.
JUSTICE BREYER: -- is is how is it any
different from coming in with an agreed statement of
facts?
MS. BRINKMANN: Because this is an
arbitration award. It is a contractual agreement where
the award gives -- imposes a legal obligation on someone
else, and that award is going to be entered as a
judgment of the court, against the parties.
JUSTICE STEVENS: May I ask this sort of
basic question? Forgetting the text for a minute, what
policy reason -- can you think of why would Congress
want to prohibit this particular form of agreement?
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MS. BRINKMANN: Congress wanted to give
parties an option for a quick, simple, cost-effective
and final way --
JUSTICE STEVENS: Why would they want to
prohibit an option that takes a little bit longer?
MS. BRINKMANN: Because that would be a
different action where you have to look to State
contract law, contract law defenses, whether there are
State arbitration laws -- it's a different animal. They
were looking at the animal of an arbitration agreement
and a streamlined method to have that enforced and
that's what Sections 9, 10, and 11 do.
CHIEF JUSTICE ROBERTS: I thought your
answer would be part the point Justice Stevens brought
up earlier. There was this State hostility to enforcing
arbitration agreements at all --
MS. BRINKMANN: Uh-huh.
CHIEF JUSTICE ROBERTS: And so what the
Federal Arbitration Act says is, all right, in the
narrow circumstances where the parties agreed, subject
to this narrow standard, you have to enforce it. But
that doesn't mean we are going to override the State law
across the board.
MS. BRINKMANN: That's right. It gives the
parties the option for choosing that, and if you choose
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that, you have to do what Congress says.
JUSTICE STEVENS: Why do they want to
prevent the parties from choosing the option they chose
in this case? I don't think that answer says why they'd
want to do that.
MS. BRINKMANN: They can choose another
option, but they may have a full-blown trial about
contract law in the award, and that's what Section 9
would --
JUSTICE STEVENS: But then there'd be no
arbitration at all. That's right.
MS. BRINKMANN: I also have --
JUSTICE STEVENS: But I just don't
understand why it makes any sense at all to say this
type of arbitration agreement is invalid.
JUSTICE KENNEDY: And I would add --
MS. BRINKMANN: Well, Your Honor, we're not
saying it's invalid.
JUSTICE KENNEDY: I would add that in
admiralty you don't have the back-up of State law.
MS. BRINKMANN: We're not saying it's
invalid, Your Honor. We're saying that there's
entitlement to confirmation of the award unless the
grounds of 10 and 11 are there. And Petitioner wants to
graft on the thing that says "or on any ground the
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parties agree on." There's no limit to that, Your
Honor. There's nothing for harmless error --
JUSTICE SOUTER: No, but the question is
still here: Why should there be a limit if the parties
themselves agree? Because if they didn't come in under
arbitration and they simply came in under contract or
whatever the causes of action might be in a diversity
case, the court would have to be dealing with these
issues anyway.
MS. BRINKMANN: It would be under a
different cause of action, Justice Souter.
JUSTICE SOUTER: Pardon me?
MS. BRINKMANN: You'd be under State
contract law. Here you'd have to develop a Federal
common law of when you took a Section 9 and you started
reviewing it for error. Are we really going to allow de
novo review and vacatur when it's harmless? There's a
whole body of Federal law that has developed about
harmless error to address those kinds of issues. This
would be a Federal --
JUSTICE SOUTER: That's true in any
diversity case.
MS. BRINKMANN: But, Your Honor, this would
be under the Federal Arbitration Act. Without any
guidance from Congress, contrary to the grounds they put
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forward. And they have no limit.
JUSTICE SOUTER: Okay, why didn't Congress
give any guidance? One suggestion that the Chief
Justice made, and it played through my mind, is maybe
the -- what seemed to be the plain language limits in
Section 9 represent not necessarily a kind of policy
choice in a perfect world, but a political policy
choice. Maybe that was the term as you -- as you read
Section 9, maybe that was the term upon which the act
could be passed.
MS. BRINKMANN: It was --
JUSTICE SOUTER: We will, in effect -- we
will say: Look, you got to enforce these contracts,
arbitration contracts, but you don't have to go one step
further. Maybe that was the political deal. Is there
any indication that that was the case and that's the
explanation for this limit?
MS. BRINKMANN: With all respect, I think
not. I think that the Section 2 and 3, the enforcement
of the arbitration agreement, is about the private
parties determining the process. But when you get to
the entry of a judgment by a court on the award, what
Congress did said: We're going to give you an option to
have an efficient, streamlined way for that also, and
here it is: 9, 10 and 11. Now, you still have
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something else and you have to agree to this in your
agreement, but if you agree to it, this is what you
have.
And I have to say Petitioner's argument is
so broad, as Justice Ginsburg pointed out, there were
questions of fact in this. We were -- we were
litigating under this agreement also in the district
court, and we brought a question of fact to the district
court. When the district court first sent this back to
the arbitrator, it went through and basically told the
arbitrator: You know, you haven't looked at these
facts; you haven't looked at these fact; you haven't
looked at these facts. I believe it's Pet. App. 57a.
And it sent it back to show the arbitrator's work. I
mean that is what --
JUSTICE GINSBURG: Is that what --
MS. BRINKMANN: -- courts would get mired in
under a common law development standard of review,
according to what --
JUSTICE BREYER: Has that been a nightmare
-- has it been the nightmare you suggest in labor
arbitration? Because I think labor arbitration falls
outside the act, doesn't it?
MS. BRINKMANN: It does.
JUSTICE BREYER: And has that turned into
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some kind of terrible nightmare where there are dozens
of rules and they have a long complicated labor set of
regulations on it? I don't think so, but has it?
MS. BRINKMANN: Well, Your Honor, I'm not as
familiar with that perhaps as I should be, but I know --
JUSTICE BREYER: Well, if we run that pretty
well, why wouldn't you run this pretty well --
MS. BRINKMANN: I think the --
JUSTICE BREYER: -- given a back-up, looking
at it as a default?
MS. BRINKMANN: I think they're very
different policies and different statutory frameworks
that apply.
JUSTICE GINSBURG: Well, let's take this
statute and let's take the circuits that have the rule,
the opposite rule. In fact, the Ninth Circuit had the
opposite rule until rather recently. What has been the
experience -- I think the Fifth Circuit is on the other
side?
MS. BRINKMANN: Yes.
JUSTICE GINSBURG: What has been the
experience there?
MS. BRINKMANN: There has not been
widespread use of this provision. I think that our
amici briefs really speak to this, Your Honor, because
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the difference would be a statement by the U.S. Supreme
Court that says parties can now create whatever other
grounds they want and go in through Section 9 in a
streamlined process and are going to impose on Federal
courts, not appellate arbitrators, on Federal courts,
whatever grounds they want -- de novo review of fact, no
harmless error, perhaps create different appellate
standards when it goes up.
And I think that the amici really point out
that that is so contrary to the finality and
efficiencies that the animal of arbitration --
JUSTICE GINSBURG: I think a lot of those
horribles, Mr. Phillips would agree with you because he
hesitated even on de novo, and I think he thought that
trying to control an appeal from the district court,
that would be out of the ballpark.
MS. BRINKMANN: I think it would create a
hybrid animal that is not what the Arbitration Act is
about.
JUSTICE SCALIA: Why couldn't you limit it
reasonably by saying the parties can agree to anything?
We would only have to say at least, the parties can at
least agree to anything that the court would be able to
do if this had been brought as an action in the court,
rather than initially as an arbitration.
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MS. BRINKMANN: With all due respect --
JUSTICE SCALIA: Which means the court would
decide the questions of law.
MS. BRINKMANN: With all due respect, Your
Honor, that would be for Congress to do, not this Court.
This is a statutory framework, a statutory cause of
action that Congress wrote.
JUSTICE SCALIA: I understand, but that
would be a limit. You say it's limitless. It doesn't
have to be limitless.
MS. BRINKMANN: No, but you're putting --
you are, I think, as this Court itself has said, you're
breeding litigation from a statute whose whole point was
to minimize and limit litigation. You're creating a new
body of Federal common law that's really antithetical to
the core purpose of the Arbitration Act. And I think
that the -- that overriding principle of Federal
Arbitration Act should really motivate the Court to
realize what Congress did and the exclusive grounds that
they set forth.
JUSTICE GINSBURG: But one problem that I
have with your position is you say that the -- you
should continue to prevail, although that would be in
violation of the parties' agreement. Under the Ninth
Circuit decision, you win, what the arbitrator says
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goes, and there isn't the review that the parties
bargained for.
MS. BRINKMANN: That's the severability
point that they lost on, Your Honor. They had
petitioned for cert on severability and tried to say
because the judicial review became legally impossible
the rest should have followed. We'd be arguing a
different case. They petitioned for rehearing en banc
review on that and did not petition for cert on that.
But that is answered by the severability ruling below.
JUSTICE KENNEDY: Could the parties have an
arbitration agreement in which they said, if there are
contested issues of law, either party may seek
declaratory judgment?
MS. BRINKMANN: In court?
JUSTICE KENNEDY: In a Federal court, under
the Declaratory Judgment Act.
MS. BRINKMANN: I don't know if that would
be an arbitration agreement. I'm not sure what the --
JUSTICE KENNEDY: My hypothetical is it's in
the arbitration agreement. If the arbitrator gets stuck
on a difficult question of law, either party can seek
declaratory relief, and the arbitration proceedings are
held in abeyance pending that declaration.
MS. BRINKMANN: I hesitate because it sounds
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like that may just be an advisory opinion, and there
might be an Article III problem with that.
JUSTICE KENNEDY: No. There's the advisory
-- we've been through this. This is a real controversy,
not an advisory opinion.
MS. BRINKMANN: Then they can go and have --
JUSTICE KENNEDY: I think the reason you
hesitated to answer yes might be inconsistent with your
position.
(Laughter.)
MS. BRINKMANN: No, I don't think so, Your
Honor. I think that if they have a declaratory
judgment, then they'll have a judgment. I don't know
why they would ever go back to the arbitrator. That's
what I'm not --
JUSTICE KENNEDY: There are lots of other
things for the arbitrator to do. He's got some specific
issues of law that are contested.
MS. BRINKMANN: I don't see how that is
inconsistent with a party independently going for a
declaratory judgment action. I don't think that's
contrary to our position, Your Honor.
Thank you.
CHIEF JUSTICE ROBERTS: Thank you, Ms.
Brinkmann.
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Mr. Phillips, you have you 5 minutes
remaining.
REBUTTAL ARGUMENT OF CARTER G. PHILLIPS
ON BEHALF OF THE PETITIONER
MR. PHILLIPS: Thank you, Mr. Chief Justice.
I'll try to give you back some of that time before I'm
done.
In my experience in evaluating cases like
this, it seems to me that in some ways where you end up
depends in large measure on where you start. And the
parties fundamentally disagree about whether or not this
is an agreement that should be -- you know, who's got
the burden? Do we have to show that this agreement is
authorized by something or are we entitled to have this
agreement and it's their burden to demonstrate clearly
that Congress meant not to allow this to be enforced?
And it seems to me clear that the answer to that is that
it's their burden to find something specific in the
Federal Arbitration Act or otherwise that precludes
this.
Section 9 doesn't get them there because
Section 9 is predicated always on an agreement of the
parties in the first instance, and so that's not a basis
for doing that, but even if you thought Section --
JUSTICE SOUTER: What do you say about her
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argument that we are limited in considering your
argument by the severability ruling that you didn't
appeal?
MR. PHILLIPS: I don't see how the
severability ruling has any relevance to this particular
problem, because what we're saying is we are entitled to
enforce the -- the agreement of the parties with respect
to exactly what the district court has the authority to
do. The fact that it -- whether it's severable or not
severable doesn't mean that we're not entitled to the
enforcement of the agreement as written by the parties.
Severability doesn't eliminate our right to have that
part of the agreement --
JUSTICE SOUTER: No, but it does -- it does
preclude -- I mean, her answer is an answer to the
argument that you were making in response to a question
of mine earlier, that in fact you don't have an
agreement within the meaning of the preamble portion of
Section 9. She says you do because you have one after
severance and you didn't appeal severability.
MR. PHILLIPS: Right, but all I'm saying is
that I think that puts the cart before the horse.
Remember, severability only comes up after the court of
appeals had decided that this provision in the contract
was unenforceable. And then the question is, is there
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any part -- you know, is the entire arbitration set
aside.
And what I'm saying is that initial decision
is wrong. And, therefore, you don't have to worry about
severability. And the reason why it's wrong is because
it's their burden to show something in the Federal
Arbitration Act that's, that precludes enforcement of
this provision. Section 9 doesn't get you there.
Section 10 wouldn't get you there because it's not --
JUSTICE SCALIA: Remind me why Section 9
doesn't get you there -- because of the "if" clause.
MR. PHILLIPS: Right. Because of the "if"
clause.
JUSTICE SCALIA: If the parties in their
agreement have agreed that a judgment of a court shall
be entered upon the award made pursuant to -- but they
have agreed to that, haven't they?
MR. PHILLIPS: Well no --
JUSTICE SCALIA: The question is simply --
MR. PHILLIPS: Subject to the condition that
the district court would make a determination that there
was no error in law. And that -- I mean, that's -- you
know, they had -- I mean --
JUSTICE SCALIA: Why is, why is that
condition excluded from the "if" clause, but all of the
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other conditions that are set forth in 10 are not
excluded from the "if" clause? I mean, it seems to me
the "if" clause must embrace any conditions.
MR. PHILLIPS: Right. But the point is if,
if all you do is agree to an arbitration, then Section 9
and Section 10 apply directly. But if you agree to an
arbitration that is subject to legal error or review,
okay, then the "if" clause doesn't prevent you from
being allowed to have that portion enforced, Your Honor.
JUSTICE ALITO: Well, if you agree on
condition and the conditions are satisfied, are you
saying that the district court must enforce under
Section 9, or are you saying that enforcement would be
under some other authority?
MR. PHILLIPS: I think the enforcement would
be under the existing authority that the district court
had in this particular case, because this was a case
that was pending before the district court under
diversity jurisdiction seeking to enforce the lease
agreement. And we have a final decision from the
arbitrator. The judge has now made a decision that that
is wrong as a matter of law and has enforced the lease
in a particular way.
And so the question is, is that judgment of
the district court subject to challenge? And our answer
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to that is no. There is nothing in the Federal
Arbitration Act that prevents the district judge from
doing precisely what it did.
JUSTICE KENNEDY: I'm not sure why you have
to give the answer you just gave to Justice Alito, if
what you told Justice Scalia is correct, that the "if"
clause includes the condition that the court reviewed
for issues -- for errors of law.
MR. PHILLIPS: I'm not sure there is any
inconsistency between those two things, between those
two things -- statements.
JUSTICE KENNEDY: Well -- but you're arguing
to Justice Scalia that Section 9 works because you could
interpret the "if" clause that way.
MR. PHILLIPS: Right.
JUSTICE KENNEDY: Now you're telling Justice
Scalia, oh, well, it's a different action. We have got
the action here anyway.
MR. PHILLIPS: Right. Well, all I'm saying
is that we can win on either theory.
My whole point here has been Section 9
doesn't prevent us from being able to do this. Section
10 is not an exhaustive list and, therefore, we are
allowed to add to Section 10. And at the end of the
day, regardless, you ought to interpret this under
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Section 2, consistent with the intent of the parties to
ensure that we get what we want.
The one point I did want to make about how
all of this operates is, you know, in the relationship
between the courts and arbitrators, it seems to there is
probably no more important issue than who decides
whether something is arbitratable. And yet, this Court
held quite clearly in First Options that even though the
statute says it's the arbitrator -- I mean, that it's
the court, it can be made the arbitrator by the parties.
Thank you, Your Honor.
CHIEF JUSTICE ROBERTS: Thank you,
Mr. Phillips. The case is submitted.
(Whereupon, at 11:06 a.m., the case in the
above-entitled matter was submitted.)
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