Marc J. Goldstein Arbitrator & Mediator NYC
February 24, 2011

Parties May Not Bypass District Court for Judicial Review of Award, Ninth Circuit Holds

In a variation on the theme of Hall Street Associates v. Mattel, Inc., the US Ninth Circuit Court of Appeals held in a recent case that the Federal Arbitration Act forbids an agreement of the parties to bypass initial judicial review of the award by a federal district court in favor of first instance review in the Court of Appeals.  (Johnson v. Wells Fargo Home Mortgage, Inc., 2011 U.S. App. LEXIS 2908 (9th Cir. Feb. 15, 2011).

The parties in Johnson made their agreement to arbitrate in the later stages of a prolonged federal lawsuit alleging unfair credit practices by the Wells Fargo Bank. The agreement, so-ordered as a stipulation by the district court in which the case was pending, provided for “binding arbitration with appeal rights” to which the Federal Arbitration Act would apply.  When Plaintiff asked the district court to confirm the award, and Wells Fargo cross-moved to vacate the award, the district court interpreted the agreement of the parties to require “rubber stamp” confirmation of the award. While the district court as a formal matter did confirm the award and deny the motion to vacate (so that the matter was properly before the Court of Appeals from a jurisdiction perspective), the district court entered judgment without having considered the merits of the motion to vacate, and thus as a practical matter initial judicial review of the award was lodged in to the Ninth Circuit by the district court’s interpretation of the parties’ agreement.

The Ninth Circuit panel disagreed with the district court’s interpretation of the agreement – as did Wells Fargo, which had asked the district court to hear the merits of its motion to vacate. But the Ninth Circuit did not rest its decision on the premise that the district court misinterpreted the agreement, but rather on the ground that the structure of judicial review of arbitration awards prescribed by the Federal Arbitration Act may not be overridden by private agreement. The FAA in Section 9 provides, the Court observed, that the district court shall confirm an award unless it is vacated on a ground provided in Section 10 of the Act, and this implies not only that confirmation must be sought initially in the district court but also that the district court must decide on the merits any motion to vacate that is interposed in response to the prevailing party’s motion to confirm the award.     

The Court did also refer to the possibility – which had been mentioned by the Supreme Court in Hall Street – that the parties might agree to some form of arbitration in a federal district court case management order that provides for entry of judgment by the district court in accordance with the arbitrator’s decision. But the Court found that this was not the sort of court-annexed arbitration the parties had selected; instead they had expressly subjected their arbitration to the FAA and had not opted for a form of quasi-arbitration more akin to proceedings before a court-appointed special master. 


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