Tuesday, February 25, 2014

No Waiver of Judicial Review of Fee Arbitration

In a recent decision out of the US Court of Appeals for the Ninth Circuit, a panel ruled that parties cannot contractually eliminate judicial review of arbitral awards under the Federal Arbitration Act (FAA). The underlying dispute concerned attorneys' fees in connection with the settlement of a class action lawsuit. Counsel could not agree on how to divide the legal fees and submitted the dispute to arbitration. Following the issuance of an award that allocated the fees among them, the lawyer that received the most money petitioned a federal district court to confirm the award under the FAA. An attorney who received the second highest amount moved to vacate the award. After the district court granted the petition to confirm and denied the motion to vacate, the decision was appealed. The appellee argued that the appellate court lacked jurisdiction due to an arbitration clause that provided made it both binding and non-appealable. The Ninth Circuit rejected that argument and held that federal court review of arbitration cannot be waived or eliminated by contract. The court found the arbitration language was ambiguous, as it could be understood to preclude review of the merits or interpreted to divest courts of any right to review awards. The court noted that permitting parties to opt out of judicial review of arbitral awards under the FAA would frustrate a minimum level of due process for parties ensured by Congress. See article here- http://bit.ly/Mrw3pv and decision here-- http://cdn.ca9.uscourts.gov/datastore/opinions/2013/12/17/11-17718.pdf