An attorney for a property owner where Mattel once operated a factory in Beaverton, Ore., argued that the courts should step in and correct mistaken decisions by arbitrators.
Arbitration is often regarded by the business community as a cost-saving, timesaving substitute for lawsuits. But the risk is that the losing side cannot seek relief in the courts except in limited circumstances.
In the fight between Hall Street Associates L.L.C. v. Mattel, the two sides agreed in advance that a federal court could review an arbitrator's decision for possible errors of law. A federal judge overturned the arbitrator's decision, making the property owner the winner in the Mattel case.
Chief Justice John Roberts suggested expanded judicial review is appropriate in this instance, pointing to the fact that the two sides negotiated a contract with court review as one of its provisions.
Justices David Souter, Ruth Bader Ginsburg and Antonin Scalia suggested Mattel might be seeking more latitude than the law allows for parties to negotiate expanded judicial review in arbitration cases.
The American Arbitration Association says a cornerstone principle of federal law is that arbitrators' awards are final and binding.
If parties to a dispute are allowed to engage in expanded judicial review, arbitration will become a prelude to lawsuits instead of a substitute, the association said in court papers.
Many industries have an interest in the case, including the wireless communications industry which has filed papers in support of an expanded role for the courts.
The wireless industry says that in the absence of court review, parties may decide they are unwilling to "bet the company" on arbitration. The result would be a decline in the number of disputes sent to arbitration and an added workload for already-overburdened courts.
In the case before the justices, Hall Street Associates wants Mattel to pay for cleanup at a contaminated factory site that Mattel leased from Hall Street.
The toy company and the property owner agreed to submit the case to arbitration, signing an agreement allowing either side to seek court review of the decision.
The property that Mattel leased from Hall Street Associates contains high levels of the industrial solvent TCE used to degrease metal parts.
Mattel did not contaminate the grounds with the hazardous chemical and an arbitrator initially ruled the toy manufacturer did not have to pay for the cleanup.
The case then began a six-year odyssey through the federal court system.
A judge said the arbitrator's decision "defies logic." The arbitrator responded by reversing himself and awarding Hall Street $584,000.
This prompted another trip to the courts and ultimately an order by the 9th U.S. Circuit Court of Appeals in San Francisco to reinstate the original arbitration award in favor of Mattel.