[*PG943]“THROUGH FAULT OF THEIR OWN”— APPLYING BONNER MALL’S EXTRAORDINARY CIRCUMSTANCES TEST TO HEIGHTENED STANDARD
OF REVIEW CLAUSES
Abstract: Since 2001, the federal circuit courts of appeals have remained split on the propriety of enforcing heightened standard of review clauses contained in arbitration agreements governed by the Federal Arbitration Act (the “FAA”). After reviewing the history of arbitral awards and the text, structure, and legislative history of the FAA as well as the U.S. Supreme Court’s interpretation of the FAA, this Note proposes a resolution to the heightened-review circuit split, which is consistent with the FAA’s pro-arbitration policy and U.S. Supreme Court precedent. This Note’s proposed resolution would require courts to reject heightened-review clauses through application of the extraordinary circumstances test that the U.S. Supreme Court developed in U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership. This Note argues that the adoption of Bonner Mall’s extraordinary circumstances test will protect judicial integrity and preserve arbitration as a viable litigation alternative for the entire legal community.
In 1986, the Kyocera Corporation, citing payment and shipping disputes, desired to restructure a multi-million dollar disk drive production contract with Prudential-Bache Trade Services, Inc.1 Thereafter, the parties decided to continue their relationship and to settle any future disputes through final and binding arbitration.2 Under the [*PG944]Federal Arbitration Act (the “FAA”), a federal district court can vacate or nullify arbitration awards only for severe procedural irregularities, such as fraud or lack of a fair hearing in the arbitral proceeding.3 Because vacatur review under the FAA is an extremely narrow inquiry, the parties agreed to include a heightened standard of review clause in their agreement.4 The clause directed a federal district court to conduct an extensive factual and legal review of an arbitral award upon either party’s motion for vacatur.5 Following a subsequent arbitration in which it was ordered to pay more than $200 million in damages, Kyocera invoked the heightened-review clause.6
After sixteen years of protracted litigation, in 2003, in Kyocera Corp. v. Prudential-Bache Trade Services, Inc., the Ninth Circuit Court of Appeals, sitting en banc, held unanimously that enforcing the heightened-review clause was unconstitutional because doing so would subvert Congress’s plenary power to establish the procedures of the federal courts.7 This was the latest and most definitive salvo in a circuit split on the enforceability of heightened-review clauses that has persisted since 2001.8
Beginning in the late twentieth century, arbitration became an increasingly prevalent form of alternative dispute resolution in the [*PG945]commercial, employment, and consumer contexts.9 Parties were attracted to arbitration because they could obtain a final and binding judgment without incurring the costs, delays, and publicity inherent in litigation.10 These benefits were counterbalanced, however, by the FAA and the precedents interpreting it, which virtually assured that courts would treat arbitral awards as final judgments.11 Courts had long recognized that finality was the crux of the arbitral bargain because if awards were precatory, then arbitration would be a mere prelude to, and not a substitute for, litigation.12 Although careful post hoc judicial scrutiny might render the correct result in a particular dispute, this unitary benefit was substantially outweighed by the encouragement of vexatious litigation, which would tend to discourage parties’ future utilization of arbitration.13
Accordingly, vacatur under the FAA was rare.14 In response to the unwillingness of courts to overturn the results of their preferred method of dispute resolution, parties like Kyocera and Prudential sought to derive arbitral benefits and guard against the possibility of hugely disproportionate or legally erroneous awards with height[*PG946]ened-review clauses.15 Such devices blended arbitration’s informal and inexpensive adjudicatory system with the federal courts’ circumspect legal and factual analysis as a security against legally and/or factually erroneous awards.16
Prior to 2003, several “pro-heightened-review” circuit courts of appeals enforced heightened-review clauses because the U.S. Supreme Court’s FAA precedents declared a pro-arbitration policy, which required enforcing arbitration agreements according to their terms.17 Conversely, “anti-heightened-review” courts reasoned that the FAA was intended to preserve arbitration as a litigation alternative.18 Therefore, because heightened-review clauses encouraged litigation, anti-heightened-review courts held that the clauses were incompatible with the FAA’s pro-arbitration policy and unenforceable.19 In contrast to both of these approaches, the Kyocera court moved the heightened-review debate away from its preoccupation with the contours of pro-arbitration policy.20 Focusing on judicial integrity, the Ninth Circuit held that the federal courts simply could not conform their procedures to contractually mandated processes that contravened both the U.S. Constitution and the FAA’s text.21 Thus, heightened-review vacatur requests are currently subject to review under three variant analytical frameworks.22
As a result of the heightened-review circuit split, prospective arbitrants engaged in interstate commerce in pro-heightened-review circuits are required to bargain around the heightened-review issue, whereas similarly situated actors in anti-heightened-review circuits are not.23 In contrast, a standardized framework for analyzing height[*PG947]ened-review requests would lead to predictable results, which would increase both bargaining and judicial efficiency.24 Moreover, judicial integrity is enhanced when courts apply uniform analytical frameworks consistently.25
This Note argues that the extraordinary circumstances test, which applies when parties seek to vacate judicial final judgments equitably, should furnish the proper rubric for reviewing the validity of heightened-review clauses.26 In 1994, in U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, the U.S. Supreme Court applied the extraordinary circumstances test to defeat an attempt to vacate an appellate judgment pursuant to a private settlement agreement.27 Part I of this Note reviews the history of arbitral awards and the text, structure, and legislative history of the FAA and the precedents interpreting the Act.28 A review of these materials indicates that the FAA requires courts to enforce arbitral awards as final judgments to maintain the viability of arbitration as a mode of alternative dispute resolution.29 Part II presents the federal circuit courts of appeals’ heightened-review jurisprudence and the Second Circuit Court of Appeals’ decision in 2003, in Hoeft v. MVL Group, Inc., which applied Bonner Mall’s rationale to strike down a decreased standard of review clause.30 This Part also presents two scholarly proposals for a uniform heightened-review jurisprudence.31 Because the Hoeft court left open the question of whether Bonner Mall’s extraordinary circumstances test should apply to heightened standard of review clauses, Part III carefully considers the U.S. Supreme Court’s holding in Bonner Mall.32 In addition, this Part reviews the Seventh Circuit Court of Appeals’ decision in 1983, in Merit Insurance Co. v. Leatherby Insurance Co., in which the court applied a test similar to Bonner Mall’s extraordinary circumstances test to defeat a request to vacate an arbitral award pursuant to a contractual procedure.33
[*PG948] Finally, Part IV critically analyzes the pro-heightened-review position and rejects it in favor of the extraordinary circumstances test.34 After reviewing the history of arbitral awards and the text, structure, and legislative history of the FAA, as well as the U.S. Supreme Court’s interpretation of the FAA, Part IV.A concludes that the FAA’s protection of arbitral finality is as valuable to the legal community as the final judgments at issue in Bonner Mall.35 Part IV.B then explains the analogy between heightened-review clauses and the contractual vacatur request at issue in Bonner Mall.36 Part IV.C critiques and rejects two prior scholarly attempts to standardize a framework for reviewing the propriety of heightened-review clauses.37 Unlike these prior attempts, the extraordinary circumstances test is both consistent with U.S. Supreme Court precedent and the FAA’s pro-arbitration policy because it protects finality—the primary institutional advantage of arbitration—and concomitantly permits parties to structure their arbitral proceedings as they see fit.38 Finally, Part IV.D summarizes the foregoing analysis.39
To determine which analytical framework should apply to heightened-review vacatur requests, it is essential to develop an understanding of arbitral awards and the FAA.40 Modern commercial arbitration is an outgrowth of informal, medieval mercantile adjudications.41 Then, as now, the practice was designed as a litigation avoidance mechanism.42 Parties choose to arbitrate to avoid the costs and delays inherent in litigation and often to maintain a modicum of privacy over sensitive matters.43 Like traditional litigation, arbitration ul[*PG949]timately results in a decision that is final and binding on both arbitrants; however, the entire arbitral proceeding is a “creature of contract.”44 Arbitrants choose the arbitrator and determine which procedural rules will circumscribe the arbitrator’s decision making.45 Thus, although arbitration is speedier and more cost efficient than litigation, arbitrants sacrifice statutory and common-law procedural, evidentiary, and appellate rights that have developed to ensure fair and just litigation.46
Ostensibly, arbitrants seek to eliminate any unnecessary judicial interference in their disputes.47 Until the FAA was passed in 1925, however, the federal courts were loath to relinquish their jurisdiction to arbitrators.48 As more commercial actors opted for arbitration in the nineteenth century, federal courts crafted the ouster doctrine, which forbade courts from granting specific performance to executory arbitration agreements.49 The ouster doctrine presumed that it would be inequitable to enforce a contract that ousted judicial jurisdiction in favor of a tribunal that was unbound by legal norms.50 Because courts applying the ouster doctrine did not attempt a systematic effort to justify the doctrine, authorities are split on whether it was a defensive reaction to arbitration’s increasing prominence or an effort to prevent inequitable adhesion contracts.51
[*PG950] Despite its anti-arbitration tendencies, the ouster doctrine did not infect the federal judiciary’s entire analysis of arbitration agreements.52 Indeed, by 1924, the federal courts’ treatment of arbitration agreements largely depended on the procedural posture of an arbitration.53 If an arbitral proceeding was concluded and a final award rendered, courts would enforce the award.54 Thus, although the ouster doctrine obstructed arbitral practice, the courts also recognized the inherent unfairness and inefficiency in overturning the results of a voluntary arbitration that the parties intended as final and binding.55 The U.S. Supreme Court adopted this rationale in 1854, in Burchell v. Marsh, when it held that arbitral awards could not be overturned for legal or factual errors.56 Burchell concerned a dispute between two interstate retail firms that agreed to settle all contractual disputes in arbitration.57 The Court reasoned that awards were final judgments:
Arbitrators are judges chosen by the parties to decide the matters submitted to them, finally and without appeal. As a mode of settling disputes, [arbitration] should receive every encouragement from courts of equity. If the award is within the submission, and contains the honest decision of the arbitrators, after a full and fair hearing of the parties, a court of equity will not set it aside for error, either in law or fact. A contrary course would be a substitution of the judgment of the chancellor in place of the judges chosen by the parties, and would make an award the commencement, not the end, of litigation.58
[*PG951]Thus, as early as 1854, it was well settled that searching judicial review of arbitral awards was incompatible with arbitration because it undermined finality.59
Contrary to its clear pro-award stance, however, the Burchell Court made clear that arbitral awards were not always final.60 Indeed, the Court reasoned an award could be vacated for gross procedural irregularities such as bias or lack of due process.61 Similarly, post-1854 courts did not always defer to arbitral awards; awards could be vacated for fraud, corruption, or arbitrator misconduct.62 Nevertheless, as in Burchell, courts refused to analyze the legal or factual bases of awards.63 Accordingly, early, modern vacatur review was decidedly limited: courts only sought to ensure that arbitral awards were derived from the fair, neutral proceeding contemplated in arbitration agreements.64
Although the U.S. Supreme Court’s decision in Burchell seemed to foreclose searching judicial review of final arbitral awards, in 1925, Congress enacted express, limited vacatur grounds in sections 9 and 10 of the FAA.65 Section 9 of the FAA ensures private compliance with final arbitration awards through judicial coercion.66 It allows an arbitrant to petition a federal district court for a judgment confirming the award within one year after it is entered.67 If the award is confirmed, the court adopts the judgment of the arbitrator, and the award becomes fully enforceable at law.68 Section 9’s mandate is unambiguous: “[T]he court must grant such an order unless the award is vacated . . . as prescribed in section[] 10 . . . of this title.”69 Section 10 renders section 9’s otherwise clear mandate uncertain; it states that a court “may” vacate an award because of procedural irregularities in the arbitral proceeding.70 Under section 10, an award may be vacated for arbitral fraud, misconduct, undue means, bias, lack of a fair and impartial hearing, or if arbitrators exceed their powers as set forth in the arbitration agreement.71
[*PG953] In addition to vacating an award under section 10, the U.S. Supreme Court and all the courts of appeals, except the Fourth Circuit, have developed non-statutory standards of review to vacate awards that were rendered in manifest disregard for the law, violated an expressed public policy, or otherwise were arbitrary and capricious.72 Although such action would appear to be non-statutory, these common-law rules may actually represent courts setting aside awards when arbitrators exceed their powers in violation of section 10(a)(4).73 Even under a non-textual interpretation, it is well settled that these grounds are construed narrowly.74 Accordingly, an award’s failure to survive a court’s circumspect legal or factual review would be a wholly insufficient ground for non-statutory vacatur.75
In contrast to the ambiguous text of sections 9 and 10 of the FAA, the Act’s structure reveals an unequivocal decision to distinguish [*PG954]sharply between the institutional roles of arbitrators and courts.76 Sections 2 through 5 of the FAA set forth a pro-arbitration policy and expressly require courts to compel arbitration in accordance with terms set forth in parties’ agreements.77 Conversely, when parties seek judicial review of an arbitration award, sections 9 and 10 of the FAA instruct federal courts to conduct their review in accordance with statutory procedures.78 In 1995, in Mastrobuono v. Shearson Lehman Hutton, Inc. and First Options of Chicago, Inc. v. Kaplan, the U.S. Supreme Court reasoned that the FAA’s demarcation between the arbitral and judicial roles reflects the consensual nature of arbitration.79 In these cases, the Court held that under the FAA, federal courts are required to compel arbitration and enforce arbitral awards in accordance with arbitral agreements.80 Thus, if parties agree to arbitrate an issue and an arbitrator decides the issue pursuant to contractual rules, a court must confirm the arbitration’s results absent egregious procedural irregularities.81
The clear demarcation of arbitral and judicial authority set forth in the FAA’s text and structure corresponds with Congress’s primary purpose in passing the FAA—overruling the ouster doctrine to secure specific enforcement of pre-dispute arbitration agreements.82 Beyond this purpose, however, congressional intent is unclear; indeed, there is no explicit legislative history concerning sections 9 and 10 of the FAA.83 The FAA’s status as “rubber stamped” legislation explains its lack of legislative history; Congress did not draft the FAA—instead it [*PG955]adopted a draft statute prepared by the American Bar Association (the “ABA”).84 To derive legislative intent from this “statute of adhesion,” Professor MacNeil, author of the leading treatise on the FAA, suggests analyzing both Congress’s stated understanding of the ABA draft and the intent of the ABA.85
The express legislative history reflects that in addition to desiring specific enforcement of arbitral agreements, Congress believed that the FAA would allow parties to avoid expensive litigation and would concomitantly increase judicial economy.86 There was little debate over the FAA; in particular, there was no discussion regarding judicial review of arbitration awards.87 Given the legal framework in which Congress was operating, this seeming consensus is not surprising; by 1925, it was well settled that arbitration awards could be vacated only for procedural irregularities.88
In contrast to the ambiguity surrounding the express congressional understanding of sections 9 and 10 of the FAA, the ABA took definitive steps to confine judicial review of arbitral awards.89 The ABA sought to avoid any unnecessary judicial interference with arbitration by crafting a modern arbitration statute—one that required the enforcement of pre-dispute arbitration agreements and that also provided explicit procedures for confirming and vacating awards.90 Significantly, the ABA modeled its draft on the New York Arbitration Law of 1920; this choice had important implications for the FAA’s vacatur provisions.91
The New York statute assumed the application of the New York Code of Civil Procedure, which mandated the limited standards of judicial review that are set forth in section 10 of the FAA.92 Although the ABA’s initial draft neglected to mandate this limited vacatur procedure [*PG956]specifically, the draft that Congress codified expressly adopted the New York Code’s limited vacatur standards.93 Limited vacatur review was sharply distinguishable from the vacatur framework mandated under the two other modern arbitration statutes then in existence.94 The 1917 Illinois arbitration statute and the English Arbitration Act of 1889 allowed either arbitrant to obtain a definitive judicial ruling on a legal issue that arose during an arbitration; in addition, under the Illinois statute, after an arbitrator rendered a final award, either arbitrant could compel the arbitrator to submit factual conclusions to a court for a definitive legal ruling.95
Professor MacNeil, among others, suggests that the rejection of the Illinois and English models was a deliberate reaction against a mechanism that conflicted with the well settled understanding that arbitrators could finally decide legal and factual questions.96 The shift of final decision making from arbitrators to courts was an anathema to the proponents of the FAA and thus, the adoption of the New York code’s limited procedural irregularity vacatur grounds was a conscious decision to insulate awards from judicial second-guessing.97
The history of arbitration and the text, structure, and legislative history of the FAA have greatly informed the U.S. Supreme Court’s FAA jurisprudence.98 The Court has interpreted the FAA as setting forth a pro-arbitration policy, which requires judicial respect for parties’ arbitral procedures.99 Nevertheless, the Court also has reasoned that the FAA’s pro-arbitration policy does not mandate augmenting judicial [*PG957]procedures willy-nilly to reach pro-arbitration results.100 The Court has not yet decided a case concerning heightened-review clauses.101
In 1989, in Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, the U.S. Supreme Court held that the FAA does not require that arbitrants utilize particular arbitral procedures.102 In Volt, the petitioner sought an order compelling arbitration while state court litigation relating to the arbitral dispute was pending.103 Based on the conclusion that the parties had agreed to conduct their arbitration under California’s arbitration law, which stayed arbitration during any pending litigation, the California courts refused to compel arbitration pursuant to section 4 of the FAA.104 The petitioner argued that denial of the order was improper because California’s arbitration law directly conflicted with the FAA, which required an automatic stay of litigation and compelled arbitration.105
The Volt Court held that the FAA’s pro-arbitration policy did not mandate the use of particular arbitral procedures and thus, the parties could agree to arbitrate pursuant to California law.106 Therefore, because the parties’ agreement adopted a procedure that required an arbitral stay, the lower court’s refusal to compel arbitration was consistent with section 4 of the FAA, which requires courts to compel arbitration pursuant to the terms of arbitral agreements.107 In addition, the Court noted that there was no conflict between federal pro-arbitration policy and the California law because the arbitral stay rule encouraged arbitration by minimizing the potential for contradictory arbitral and judicial judgments.108 The Court reasoned that the FAA was not intended to coerce parties into arbitrating; rather, the principal purpose of the Act was to overcome judicial reluctance to enforce arbitration agreements according to their terms.109 Thus, any efficiency concerns were offset because Congress intended that parties determine arbitration’s scope and procedure.110 Therefore, the Court affirmed the lower [*PG958]court’s decision because it gave effect to the terms of the parties’ agreement within the framework of the FAA’s pro-arbitration policy.111
In 1995, in Mastrobuono, the U.S. Supreme Court reaffirmed Volt’s rationale.112 In Mastrobuono, the arbitration agreement contained a New York choice of law clause.113 Although New York precedent precluded arbitrators from granting punitive damages, the petitioner obtained a punitive damages award and sought enforcement.114 The Court found that the parties intended New York substantive law, not decisional law, to govern their arbitral proceeding.115 Therefore, the Court concluded that, under Volt’s interpretation of the FAA, the punitive damages award was enforceable.116 Although Mastrobuono extended Volt’s rationale to the confirmation stage, the Court implicitly stressed Volt’s limitations in dicta.117 The Court stated that its decision in Volt was predicated upon its finding that California’s arbitral stay rule patently encouraged arbitration and thus, fostered the FAA’s pro-arbitration policy.118
Shortly after Mastrobuono was handed down, in Kaplan, the U.S. Supreme Court considered whether federal courts or arbitrators should determine whether a particular dispute was within the scope of an arbitration agreement.119 The Court reasoned that if an agreement authorized an arbitrator to decide questions of arbitrability then the parties effectively had relinquished their right to have a federal court determine the merits of such disputes.120 Any subsequent judicial review was of little practical value because judicial confirmation of an arbitrator’s decision was all but certain.121 To exemplify the “unusual circumstances,” in which a court might vacate an arbitrator’s award, the Court cited the limited procedural irregularity grounds for vacatur in section 10 of the FAA and the manifest disregard for the law vacatur standard.122 The Court then concluded that the arbitrability issue should be decided in accordance with the parties’ agree[*PG959]ment.123 The Court opined that this finding was functionally sensible because arbitration is simply a mechanism for deciding only those disputes that the parties voluntarily agree to submit to an arbitrator.124
The Kaplan Court also examined the issue of whether an appellate court should apply a more lenient standard of review to a decision confirming an arbitration award.125 Relying on Eleventh Circuit Court of Appeals precedent, the petitioner contended that the FAA’s pro-arbitration policy required the use of an abuse of discretion standard rather than the more stringent clearly erroneous and de novo review normally conducted by the federal circuit courts of appeals.126 The Court rejected this argument.127 First, the Court concluded that constructing varying standards of review merely to encourage arbitration rendered the law unnecessarily complex.128 Second, the Court held that standards of review are predicated upon institutional advantages, not their tendency to produce particular results.129 To illustrate this point, the Court stated that the decisions of administrative agencies are reviewed for abuse of discretion and implied that this standard was applied because of agency expertise and statutory authority to make law.130 Accordingly, the deferential standard of review applied to administrative decisions was not developed to reach a particular result, but to ensure that judicial policy determinations would not de[*PG960]feat congressional intent.131 The Court stated that courts’ deference to arbitral decisions was predicated upon a similar rationale.132
The U.S. Supreme Court’s FAA jurisprudence adheres to the arbitral/judicial distinction set forth in the FAA.133 Thus, on the one hand, the Kaplan Court was unwilling to craft judicial procedures merely to encourage arbitration.134 On the other hand, under Volt and Mastrobuono, arbitral procedures are creatures of contract and must be enforced under the FAA specifically.135 The heightened-review circuit split is an outgrowth of this nuanced approach.136 The federal circuit courts of appeals have either upheld heightened-review clauses under Volt’s “hands-off” approach to pro-arbitration policy or implicitly followed Kaplan and refused to adopt standards of review that are incompatible with the institutional advantages of arbitration.137
Since 1994, when the Second Circuit Court of Appeals enforced a contractual standard of review clause, the courts of appeals have adopted three modes of analysis to determine whether heightened standard of review clauses are enforceable under the FAA.138 The Third, [*PG961]Fourth, and Fifth Circuit Courts of Appeals have held that the FAA’s pro-arbitration policy requires enforcement.139 Like these courts, the Tenth Circuit Court of Appeals has reasoned that pro-arbitration policy furnishes the analytical framework applicable to heightened-review clauses, however, it refused enforcement because heightened-review clauses are detrimental to the continued viability of arbitration.140 Although the Eighth Circuit Court of Appeals found the Tenth Circuit’s reasoning persuasive and has expressed serious doubt about the propriety of heightened-review clauses, it has nonetheless declined to address the issue until it is presented with an explicit intent to contract for heightened review.141 In contrast, the Ninth Circuit Court of Appeals reasoned that pro-arbitration policy requires preserving arbitral finality, but concluded that heightened-review clauses are foreclosed under the FAA’s text and Article III of the U.S. Constitution.142 Finally, in a recent development, the Second Circuit Court of Appeals’ reasoning in 2003, Hoeft v. MVL Group, Inc., suggests that the extraordinary circumstances test set forth by the U.S. Supreme Court in 1994, in U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, could furnish the standard for analyzing the enforceability of heightened standard of review clauses.143
In 1995, in Gateway Technologies, Inc. v. MCI Telecommunications Corp., the Fifth Circuit enforced a heightened-review clause that required a district court to conduct legal error review.144 The Fifth Circuit held that heightened review was proper in this instance because the parties had contracted explicitly for a more searching judicial inquiry.145 The court reasoned that the U.S. Supreme Court’s holdings in 1989 and 1995, in Volt Information Systems v. Board of Trustees of Leland Stanford Junior University and Mastrobuono v. Shearson Lehman Hutton, Inc., respectively, supported its conclusion.146 In these cases, the Court held that the FAA’s provisions did not preempt procedural rules that parties incorporated in arbitration agreements.147 Thus, by analogy, the Fifth Circuit held that contractual intent required enforcement.148
In 2001, in Hughes Training Co. v. Cook, the Fifth Circuit reaffirmed the validity of Gateway and clarified the contours of its heightened-review jurisprudence.149 The arbitration agreement in Cook required a federal court to review an award de novo.150 The court concluded that parties could expand judicial review of an arbitration award because vacatur review was an arbitral procedure, which pursuant to the U.S. Supreme Court’s interpretation of the FAA’s pro-arbitration policy, could be structured to meet parties’ needs.151
In 2004, in Action Industries, Inc. v. United States Fidelity & Guaranty Co., the Fifth Circuit again clarified the underpinnings of its pro-heightened-review jurisprudence.152 The agreement at issue contained a Tennessee choice of law clause, which provided for a circumspect legal review.153 The court held the clause was invalid because it did not express a clear intent to opt out of the FAA’s default vacatur [*PG963]rules.154 In a footnote, however, the Fifth Circuit also summarily reasoned that Mastrobuono overruled the primacy of the FAA’s vacatur standards.155 In analyzing Mastrobuono, the court stated that the agreement at issue in that case concerned arbitral procedures; however, it read Mastrobuono to stand for the proposition that FAA rules apply to judicial proceedings absent the parties’ clear intent to augment them.156
The Third Circuit Court of Appeals adopted a similar analysis, in 2001, in Roadway Package System, Inc. v. Kayser.157 Roadway centered on the interpretation of a generic choice of law clause, which required a court to apply Pennsylvania’s vacatur rules to an award.158 The Third Circuit held that parties could opt out of the FAA’s default vacatur standards.159 Like the Fifth Circuit, the Roadway court relied on Volt and Mastrobuono’s interpretation of the FAA’s pro-arbitration policy and concluded that vacatur review was an arbitral procedure that parties could alter contractually.160
Nevertheless, because private alteration of a statutory standard of review was essentially unprecedented, considerations of fairness compelled the Third Circuit to require express intent before finding that parties opted out of the FAA’s default regime.161 The court considered an express intent rule salutary because of its easy applicability and minimal transaction costs.162 Sophisticated actors who agreed to heightened review could easily draft an agreement clearly evidencing such intent, which the courts could then enforce without employing a detailed statutory and contractual analysis.163 Accordingly, the court reasoned that its default rule would increase judicial and bargaining efficiency.164
In 1998, in UHC Management Co., Inc. v. Computer Sciences Corp., the Eighth Circuit Court of Appeals refused to apply a heightened-review clause because the parties did not clearly express an intent to opt out of the FAA.165 The agreement stated that the decision of the arbitrator was final and binding and the court interpreted this statement to foreclose subsequent substantive judicial review.166 In dicta, the Eighth Circuit took issue with the Fifth Circuit’s interpretation of Volt and Mastrobuono.167 The court opined that it was curious for three reasons to undertake a searching judicial inquiry when arbitration was contemplated.168 First, the text of the FAA explicitly required confirmation, unless an award was vacated under section 10.169 Second, because the parties voluntarily agreed to arbitrate under the FAA, they essentially assumed the risk of forgoing a more searching judicial review.170 Finally, the parties could have contracted for an arbitral appellate panel and thus, obtained heightened review without resorting to litigation.171
The Eighth Circuit’s skeptical heightened-review jurisprudence was extended in 2003, in Schoch v. Infousa, Inc.172 At issue in Schoch was a clause requiring that an arbitral award accord with applicable law.173 The court found persuasive, but declined to adopt, the view that heightened-review clauses were unenforceable because they trenched on the institutional integrity of the federal courts and threatened the viability of arbitration.174 Effectively, the court reasoned, the parties to a heightened-review agreement privately altered the FAA and transformed the nature of arbitration and judicial review.175 Such results seemed inconsistent with the FAA because arbitration is a private sys[*PG965]tem of justice designed to eliminate the cost and delay of litigation.176 The court suggested that the benefits of arbitration could only be maintained through a restrictive standard of review because otherwise, arbitration would become a mere preliminary step toward litigation.177
Despite the grave skepticism of the Eighth Circuit Court of Appeals, the heightened-review circuit split first manifested in 2001, when the Tenth Circuit Court of Appeals decided Bowen v. Amoco Pipeline Co.178 In Bowen, the parties agreed that a court could vacate an award if it lacked evidentiary support.179 The Tenth Circuit acknowledged both that the FAA’s pro-arbitration policy was well settled and that there was no clear authority allowing heightened review.180 Accordingly, the court held that the enforceability of heightened-review clauses turned on whether such practice encouraged the final and binding arbitration protected under the FAA.181 The court then concluded that pro-arbitration policy was only coextensive with private ordering of arbitral proceedings, which the FAA defined in opposition to judicial procedures.182 Indeed, the court reasoned that the efficacy of arbitration required a strict separation of arbitration and adjudication.183
The court offered four reasons supporting this view.184 First, in contradiction to the FAA’s purpose, heightened-review clauses tend to erode judicial respect for arbitration.185 The judiciary should defer to the arbitral procedure, but that process was complete when parties resorted to the federal courts; allowing judicial intermeddling at that [*PG966]late point would eviscerate the utility of litigation avoidance.186 Second, the structure of the statutory text codified the distinction between arbitral and judicial procedures.187 For example, under section 4, federal courts are required to compel arbitration in accordance with the parties’ agreement, but under sections 9 and 10 an award must be confirmed or vacated under a statutory procedure.188 Third, the court reasoned that the federal courts were ill equipped to judge the propriety of arbitrations, which are often conducted by industry experts acting pursuant to a myriad of rules that do not conform to legal norms.189 Finally, this was a fair result because arbitrants could contract for an arbitral appellate panel.190
In 2003, in Kyocera Corp. v. Prudential-Bache Trade Services Co., the Ninth Circuit Court of Appeals, sitting en banc, adopted the Tenth Circuit’s policy rationales, but held that enforcement of heightened-review clauses was unconstitutional.191 At issue in Kyocera was an arbitration agreement mandating substantial evidence and de novo review.192 Because the U.S. Constitution grants Congress plenary power to determine federal judicial procedures, the Ninth Circuit held that heightened-review clauses were invalid.193 Unlike the Bowen court, the Ninth Circuit’s holding relied solely on Congress’s jurisdictional authority; because the FAA’s narrow vacatur review was clear and explicit, enforcement of heightened-review clauses was an unconstitutional usurpation of Congress’s constitutional prerogative.194
Like the Tenth Circuit, however, the Kyocera court reasoned that other policy considerations militated strongly against enforcing [*PG967]heightened-review clauses.195 The Kyocera court interpreted the FAA as allowing parties to trade the costs associated with the federal courts’ circumspect legal decisions for an arbitral determination.196 Thus, because expanded judicial review would require increased delay and formality, the propagation of heightened-review clauses would tend to erode the benefits of arbitration.197 If parties desired this result, they could contract for an arbitral appellate panel.198 Finally, the court reasoned that even if the FAA’s vacatur standard was ambiguous, it was well settled that only courts may interpret statutory text to develop appropriate standards of review.199
In 2003, in Hoeft, the Second Circuit Court of Appeals held that arbitrants could not contract for decreased judicial review of an award.200 The agreement at issue in Hoeft provided that arbitral awards were final and binding and not subject to judicial review.201 The Second Circuit reasoned that the FAA’s vacatur standards represent a safety net that undergirds the Act’s pro-arbitration policy.202 Courts are required to defer to arbitral agreements because they retain a limited vacatur authority, which prevents courts from sanctioning unjust arbitral proceedings.203 In response to the appellant’s claim that non-statutory vacatur standards could be contractually precluded because, as a common-law rule, they were entitled to less protection than the FAA’s vacatur grounds, the court cited Bowen for the proposition that arbitrants may not interfere with judicial processes by contract.204
In addition, the court supported its conclusion with U.S. Supreme Court precedent.205 Relying on the Court’s decision in 1994, in Bonner Mall, the Second Circuit held that standards of review, like judicial precedents, are not the property of private litigants.206 Thus, [*PG968]even though the manifest disregard of the law standard was created judicially, it could not be preempted by contract.207 Rather, arbitrants take arbitration law as they find it, complete with the FAA and common-law vacatur standards.208 Although arbitrants may customize their private proceedings, they may not override statutory or judicial authority.209 This is because courts, unlike arbitrators, are authorized to review arbitral awards pursuant to statute, not contract.210 Therefore, the court implied that contractually mandated decreased review compromises courts’ institutional integrity.211
The variant approaches—contractual, intentionalist, and textualist—that courts have applied to determine the validity of heightened-review clauses prompted two attempts to develop a uniform analytical framework.212 To resolve the circuit split, the “managerial litigation model” and the “arbitral appellate model” attempt to enforce heightened-review clauses under a consistent rubric to ensure the preservation of judicial integrity.213
Under the managerial litigation model, a court would only acquiesce to parties’ heightened-review requests provided that the parties’ agreement did not require courts to make arbitrary and capricious decisions.214 Accordingly, the model suggests a two-prong test requiring enforcement if there is both (1) a sufficient arbitral record, and (2) a contractual standard of review, such as legal error review, [*PG969]that would not compromise the court’s integrity.215 Adherents to this view argue that it encourages party autonomy and more efficacious dispute resolution without sacrificing judicial integrity.216 Proponents also point out that the vacatur-by-settlement procedure at issue in the U.S. Supreme Court’s 1994 decision, in Bonner Mall, is similar to heightened-review clauses because both requests implicate judicial integrity concerns.217 Nevertheless, these scholars reason that Bonner Mall’s analysis is likely inapposite to the current debate because enforcing heightened-review clauses does not implicate the Court’s concerns with collateral attacks and the devaluation of precedent.218
The arbitral appellate model presumes that constitutional and textual concerns are not implicated in a heightened-review request because section 10 of the FAA codifies vacatur standards.219 Vacatur review is an extremely narrow inquiry, which assumes that parties have agreed to arbitrate their dispute in one final instance.220 In the heightened-review context, however, the parties disclaim arbitral finality and voluntarily contract for a more accurate, albeit less efficient, result.221 Thus, once courts are freed from conflating vacatur review with the appellate review requested under a heightened-review clause, enforcement is purely a policy decision.222 Therefore, because the FAA’s pro-arbitration policy requires the promotion of party autonomy through specific enforcement of arbitration agreements, the FAA requires enforcement of heightened-review clauses.223
These previous attempts to formulate a uniform standard of review illustrate the importance of balancing pro-arbitration policy with judicial integrity.224 Indeed, the U.S. Supreme Court also recognized, in Bonner Mall, that alternative dispute resolution methods mandating perfunctory judicial enforcement pose a threat to judicial integrity.225 The Court’s approach to this dilemma is the extraordinary circum[*PG970]stances test.226 In contrast to the managerial litigation model, the Second Circuit Court of Appeals has not limited Bonner Mall to its facts.227 Instead, in Hoeft, the court employed Bonner Mall’s reasoning to defeat a decreased standard of review clause.228 Given the importance of a proper interpretation of U.S. Supreme Court precedent to the heightened-review dilemma, the question arises whether the Second Circuit’s interpretation was correct.229
In 1994, in U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, the U.S. Supreme Court held that a settlement agreement, standing alone, could not justify vacating precedent.230 While the case was pending before the Court, the parties in Bonner Mall agreed to settle and stipulated that the settlement mooted the case.231 In the interim, the Ninth Circuit Court of Appeals had affirmed a “new value excep[*PG971]tion” to the Bankruptcy Code’s absolute priority rule.232 Because the settlement agreement foreclosed the Court’s review of the exception, the petitioner argued that the Ninth Circuit’s judgment should be vacated.233 A unanimous Court decided to apply the “extraordinary circumstances test” to contractual vacatur requests.234 The test was crafted in accordance with the exceptional remedy of vacatur, which not only allows for future relitigation, but also abrogates precedent.235 The standard required courts to balance (1) the parties’ relative fault in causing the case to become moot, and (2) the public interest in judicial integrity.236
Turning to the first prong of the test, the Court held that when a party voluntarily enters a settlement agreement with the foreknowledge that the agreement will render a judgment unreviewable, such party is at fault for causing mootness.237 Although this complicity placed a heavy burden on the petitioner, it could be overcome if vacatur was in the public interest.238 The Court reasoned that vacatur by settlement implicated the public’s interest in maintaining judicial integrity.239 Because the entire legal community relies on precedent and orderly judicial procedure in structuring its affairs, the Court was unwilling to grant private litigants a property right in precedent.240 The Court implied that it would be implausible to uphold vacatur by contract on fairness grounds because the parties to a settlement agreement could have forgone settlement and obtained thorough judicial review.241 Finally, the Court extended its holding to settlement agree[*PG972]ments that expressly required vacatur.242 Because this factual distinction would not change the voluntary character of the settlement or vacatur’s affect on judicial integrity, it would not qualify as an extraordinary circumstance.243
Although Bonner Mall’s “extraordinary circumstances test” applies explicitly to vacating precedent, at least two federal circuit courts of appeals have employed a similar analysis when considering motions to vacate confirmed arbitral awards.244 In 1983, in Merit Insurance Co. v. Leatherby Insurance Co., the Seventh Circuit Court of Appeals held that equitable vacatur of a confirmed award required not only a showing that an arbitrator had breached ethical guidelines, which were incorporated by reference in the arbitration agreement, but that this breach created the substantial danger that a court would confirm an unjust result.245 The parties in Merit agreed to arbitrate pursuant to the rules of the American Arbitration Association (the “AAA”).246 Accordingly, the prospective arbitrators were required to disclose any relationships that might affect their impartiality.247 One month after the arbitration award was confirmed and eighteen months after it was rendered, the appellee uncovered evidence that an arbitrator had a prior professional relationship with appellant’s president.248 Based on these facts, the district court vacated its decision confirming the award under Rule 60(b)(6) of the Federal Rules of Civil Procedure, which allows a final judgment to be vacated “for any reason justifying relief from the judgment.”249 On review, the Seventh Circuit considered (1) the relative fault of the parties, (2) the purposes of the FAA, and (3) the public interest in protecting the finality of arbitration.250
[*PG973] First, the court emphasized that the decision to arbitrate was voluntary.251 The appellant’s uncoerced choice to authorize a panel of industry experts to decide the merits of its claim was coextensive with a commitment to forgo judicial resolution.252 The court noted that the parties chose to arbitrate before experts because they were familiar with industry norms; however, because experts are also more likely to be biased than a federal judge, this choice entailed a tradeoff between impartiality and expertise.253 Therefore, because the appellant freely accepted the arbitral bargain, it assumed the risk of arbitral bias.254
The Merit court next considered whether the arbitrator’s violation of the contract’s ethical guidelines required vacatur under section 10 of the FAA.255 The court concluded that, standing alone, these rules did not require the federal courts to do anything because they did not have the force of law.256 Indeed, the purposes of the rules and FAA vacatur standards were diametrically opposed.257 The AAA adopted ethical standards to attract customers with a particular form of alternative dispute resolution.258 Conversely, the court reasoned that Congress intended the FAA’s vacatur standards to make arbitration effective not attractive.259 The FAA accomplished this purpose through the federal court’s coercive confirmation authority, which gives arbitration awards the force of law.260 Parties are encouraged to arbitrate because judicial intervention under the FAA ensures the basic fairness of the arbitral process without excessive judicial meddling.261 Nevertheless, encouraging arbitration was not coextensive with lowering the threshold for judicial review of awards in accordance with parties’ arbitral procedures; thus, a party could obtain vacatur of an award only if it could bring itself within the FAA or some other federal rule.262
Finally, the Seventh Circuit held that the district court had abused its discretion in equitably vacating the award pursuant to Fed[*PG974]eral Rule of Civil Procedure 60(b)(6).263 Focusing on the lapse of eighteen months since the arbitral award was rendered, the court noted that equitable vacatur was an extraordinary remedy because it undermined society’s interest in finality.264 Even if the arbitrator violated the AAA’s ethical standards, the court reversed the vacatur because confirmation was not substantially unjust.265 The court concluded that the appellant implicitly agreed to accept the decision of the arbitrator because it made no inquiries concerning impartiality before arbitrating a $10 million dispute.266 Thus, the court reasoned that the vacatur motion was merely a tactical response to a poor arbitral outcome.267 To affirm vacatur in these circumstances would only serve to undermine the finality of arbitration because it would encourage all disappointed arbitrants to engage in expensive collateral attacks.268 This, in turn, would undermine the FAA’s purpose of making arbitration an effective alternative to judicial dispute resolution.269 Finally, the court found the appellant’s request wholly inequitable because it would permit parties to require courts, which could have resolved their dispute in the first instance, to undo the results of a voluntary decision to opt out of litigation.270
The federal circuit courts of appeals continue to struggle over whether to enforce heightened standard of review clauses in arbitral agreements.271 Prior judicial attempts to articulate a coherent, uniform analytical framework applicable to heightened-review clauses are unlikely to foster a consensus either because they are based upon a close reading of ambiguous statutory text or an interpretation of an [*PG975]amorphous pro-arbitration policy.272 As several courts and commentators have noted, any successful uniform analytical framework must maintain an adequate balance between the FAA’s preference for private ordering and judicial integrity.273 Accordingly, because the U.S. Supreme Court, in 1994, in U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, established an analytical framework for evaluating parties’ contractual requests for judicial action, this Part proposes that federal courts apply Bonner Mall’s extraordinary circumstances test when determining whether to enforce heightened-review clauses.274 The Seventh Circuit Court of Appeals anticipated this Part’s proposal and applied a test similar to the extraordinary circumstances test in 1983, in Merit Insurance Co. v. Leatherby Insurance Co., to reject a vacatur request predicated upon an arbitrator’s violation of an arbitration agreement’s procedural rules.275
To establish Bonner Mall’s applicability to the heightened-review circuit split, Part IV.A analyzes the pro- and anti-heightened-review conceptions of arbitral finality and contends that the pro-heightened-review position is incompatible with the history of arbitral awards, the FAA’s text, structure, legislative history, and the precedents interpreting the FAA, because enforcing heightened-review clauses weakens the viability of arbitration as a mode of alternative dispute resolution available to the entire legal community.276 Building upon Part IV.A’s statutory and case law analysis, Part IV.B argues that Bonner Mall’s extraordinary circumstances test should apply to heightened-review litigants’ vacatur requests because such requests are functionally analogous to the attempt to vacate unfavorable precedent pursuant to a settlement agreement.277 Next, Part IV.C anticipates the contention that applying Bonner Mall’s extraordinary circumstances test to heightened-review vacatur requests is incompatible with pro-arbitration pol[*PG976]icy because it contravenes the express terms of arbitration agreements.278 In response, this Part concludes that the extraordinary circumstances test conforms to the U.S. Supreme Court’s holding in 1995, in First Options of Chicago, Inc. v. Kaplan because it protects arbitration’s primary institutional advantage—finality—and because arbitration’s inherent flexibility necessitates the conclusion than any inequity under Bonner Mall’s analytical rubric is attributable solely to the fault of the contracting parties.279 Finally, Part IV.D summarizes the foregoing analysis.280
The Second Circuit Court of Appeals’ suggestion in 2003, in Hoeft v. MVL Group, Inc., that Bonner Mall’s extraordinary circumstances might be inapplicable to heightened-review clauses is flawed.281 Without further analysis, the court explained that there was a qualitative difference between arbitration agreements that narrowed judicial review and those that expanded judicial review.282 Notably, just five days before Hoeft was decided, the Ninth Circuit Court of Appeals, in Kyocera Corp. v. Prudential-Bache Trade Services Co., registered implicit disagreement with the Second Circuit’s distinction.283 The Kyocera court explained that if the FAA was silent on parties’ ability to obtain contractual review, it might be less pernicious for courts to enforce a decreased-review clause.284
The Second and Ninth Circuit’s positions highlight the importance of finality in the heightened-review debate.285 The Second Circuit seems unwilling to foreclose the validity of heightened-review clauses because courts could employ the clauses to render a particular equitable result, without abdicating their duty to review arbitral awards.286 This is precisely the position of pro-heightened-review jurisprudence, which holds that it is inequitable to preclude heightened review if the parties have grafted it onto their arbitral process to en[*PG977]sure a legally or factually accurate result.287 Indeed, in 2001, in Roadway Package System, Inc. v. Kayser, the Third Circuit Court of Appeals enforced a heightened-review clause to ensure that it would not frustrate the parties’ mutual request for a more circumspect legal analysis.288 In contrast, the Ninth Circuit, like other anti-heightened-review courts, was unconcerned with doing justice to particular arbitrants, and it reasoned that any benefit gained from particular equitable results would be vastly outweighed by diminished judicial integrity and the evisceration of arbitral finality.289 Similarly, in 2001, in Bowen v. Amoco Pipeline Co., the Tenth Circuit Court of Appeals refused to enforce a heightened-review clause because expanded judicial review threatened to undermine the finality of arbitral awards and, concomitantly, the viability of arbitration.290 Like the Kyocera and Bowen courts, in Merit, the Seventh Circuit held that the FAA granted courts the authority to make arbitration an effective litigation alternative through award enforcement, but that the Act’s pro-arbitration policy was not coextensive with an assurance that parties could contractually conscript courts to void a poor arbitral result.291 Because the FAA’s history, text, structure, legislative history, and precedent strongly support anti-heightened-review courts’ preference for arbitral viability as opposed to pro-heightened-review courts’ protection of party autonomy, the Second Circuit’s suggestion that Bonner Mall’s extraordinary circumstances is inapplicable to heightened-review clauses is of no moment.292
The FAA’s text, structure, legislative history, and the precedents interpreting the FAA, illustrate that the anti-heightened-review courts’ finality analysis was correct.293 After the U.S. Supreme Court decided [*PG978]Burchell v. Marsh in 1854, it was well settled that courts would best encourage arbitration if they considered awards as final judgments and reviewed final awards narrowly for egregious procedural irregularities.294 Like the Seventh, Ninth, and Tenth Circuits, the Burchell Court was not concerned with doing justice to particular arbitrants; indeed, the Court refused to review an award for legal error because it believed that the practice could lead only to increased litigation, which would discourage future parties from resorting to arbitration.295
As the U.S. Supreme Court has suggested, the text and structure of the FAA ensure the viability of arbitration by limiting judicial intermeddling in the arbitral process.296 Sections 2 through 5 of the FAA assure parties that the courts will enforce their arbitral procedures.297 Once those procedures have rendered a final award, however, sections 9 and 10 mandate that the award will be set aside only because of egregious procedural defects in the arbitral process.298 Accordingly, the FAA’s text ensures that parties get what they bargain for, namely, the decision of an arbitrator after a full and fair hearing.299 Because courts have recognized that strict adherence to the text of sections 9 and 10 of the FAA allows for some particularly egregious results, they have also crafted extremely narrow non-statutory vacatur standards.300 Like their statutory counterparts, however, these non-[*PG979]statutory standards of review ensure that the finality of the arbitral bargain is not jettisoned because of an arbitrator’s legal or factual errors.301 Thus, because neither statutory nor non-statutory standards of review permit a substantive review of the factual or legal dispositions of the arbitrator, these strictly limited standards of review prevent judicial interference with arbitral finality in all but extreme circumstances.302
Limited judicial review under the FAA’s enforcement scheme is not accidental.303 Congress decided to codify the vacatur provisions of the ABA’s Arbitration Statute, which rejected the English and Illinois arbitration statutes’ overlapping division of labor between courts and arbitrators.304 Under the English and Illinois statutes, an arbitrator’s legal conclusions were never final because a court, upon motion of either arbitrant, could overrule them.305 The FAA’s framers found such excessive judicial interference inimical to the promotion of arbitration and thus, explicitly codified the ABA statute’s narrow vacatur grounds.306 The preference for narrow vacatur standards reflects a desire to distinguish clearly between arbitrators and courts.307 Congress enacted an enforcement scheme under which arbitrators were primary decisionmakers and courts were granted coercive authority to implement final results of the arbitral bargain and to prevent egregious procedural errors.308
Finally, even the U.S. Supreme Court’s decisions in 1989 and 1995, in Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University and Mastrobuono v. Shearson Lehman Hutton, Inc., which pro-heightened-review courts rely heavily upon, implicitly support the anti-heightened-review courts’ finality approach.309 The Volt Court upheld the enforcement of arbitral procedures under section 4 of the FAA, which contravened the FAA’s pro-arbitration policy by [*PG980]spawning increased litigation, but these procedures were derived from a state arbitration law that was patently designed to encourage arbitration.310 Mastrobuono merely affirms the validity of Volt in the context of confirming arbitral awards; it holds that when parties’ arbitral procedures yield a final award, courts will enforce the results of the arbitral process.311 Moreover, in re-affirming Volt, the Mastrobuono Court emphasized the Volt Court’s finding that the arbitral procedures it upheld were manifestly designed to encourage parties’ resort to arbitration.312 Thus, far from confirming the Fifth Circuit’s conclusion in 2004, in Action Industries, Inc. v. United States Fidelity & Guaranty Co., that Mastrobuono implied that parties could contractually alter a federal court’s vacatur analysis under the FAA, a close reading of Mastrobuono confirms that its holding was limited to enforcing the results of an arbitral process that did not contravene the FAA’s pro-arbitration policy.313 Indeed, as the Tenth Circuit reasoned in Bowen, Volt did not even imply the thoroughly novel proposition that the FAA supports contracting for judicial review.314 Therefore, because the Mastrobuono Court’s analysis relied on the fact that the agreement at issue accorded with Volt because its arbitral procedure did not contravene the FAA’s pro-arbitration policy, it seems unlikely the Court would read Volt to give effect to heightened-review clauses, which seek to mandate judicial procedures and undermine arbitration’s viability through increased litigation.315 Absent an empirical study, it is impossible to determine whether enforcing heightened-review clauses would lead to increased litigation costs and judicial inefficiency.316 The facts in Kyocera and Merit, however, suggest that allowing heightened-review litigants to attack final arbitral awards collaterally would lead many dis[*PG981]appointed arbitrants to attempt to void poor arbitral results through lengthy litigation.317
Neither the FAA’s history, text, intent, structure, nor its precedent, support pro-heightened-review courts’ conclusion that arbitral finality under the FAA is a creature of contract.318 Indeed, the assumption that arbitral awards are final and binding informs the division of arbitral and judicial labor under the FAA.319 Furthermore, the concept of finality thoroughly pervades the Act and is an integral part of its pro-arbitration policy.320 Finality undergirds the FAA’s promotion of arbitration in lieu of litigation because without the assurance of finality, few prospective arbitrants would be willing to waste any resources on an arbitration that was merely a prelude to litigation.321 Given these considerations, the Second Circuit’s reasoning that heightened-review clauses might be acceptable under the FAA is untenable.322 Although the FAA’s liberal encouragement of varying arbitral procedures is party centered, its strict assurance of finality implies its intent to preserve arbitration as a viable litigation alternative for the entire legal community.323 Accordingly, the Second Circuit’s purported distinction between narrow- and heightened-review clauses should not prevent courts from adopting Bonner Mall’s extraordinary circumstances test.324
The similarity between the factual scenarios present in cases comprising the heightened-review circuit split and the facts at issue in [*PG982]Bonner Mall further suggests the applicability of the extraordinary circumstances test to heightened-review clauses.325 The parties in Bonner Mall decided to forgo litigation and settled their dispute privately.326 After the settlement was final, the petitioner was displeased with the results of settlement—the continued viability of unfavorable lower court precedents—and sought to enlist the Court to vacate the unfavorable precedents and thus, to perfect its contractual expectations.327 Similarly, heightened-review litigants choose to forgo litigation, obtain a result—an unfavorable arbitration award—that they are unhappy with, and claim that contractual fairness requires a federal court to conform its processes to those set forth in a private arbitral agreement.328
Factually, the scenario in Bonner Mall is distinguishable from the heightened-review cases because heightened-review litigants ask a court to apply a standard of review, not to overturn precedent.329 Nevertheless, this distinction is inconsequential, because as the Second Circuit reasoned in Hoeft, the standards of review that apply to an arbitration award are as valuable to the legal community as any precedent.330 Indeed, ensuring the ability of parties to opt for final arbitration under the FAA’s limited review scheme is like ensuring that they can rely on precedent when they choose to litigate, because the preservation of limited review and precedent facilitates expeditious resolution of disputes.331 Therefore, courts should extend Bonner Mall’s extraordinary circumstances test to the heightened-review context; Bonner Mall teaches that courts should conform their processes to contractual requests only after balancing the relative fault of the parties with the public interest in maintaining judicial integrity.332
Relative fault is high in the heightened-review context.333 Like all FAA litigants, heightened-review litigants knowingly forgo the circumspect legal and factual analyses of the federal courts, and their atten[*PG983]dant protective processes, in favor of efficient arbitral resolution.334 Under Bonner Mall, the uncoerced choice to opt into arbitration and its concomitant statutory scheme means that parties are at fault for failing to comprehend the foreseeable result of their decision—limited vacatur review of arbitral awards.335 Quite simply, parties’ decisions to include heightened-review clauses in their arbitration agreements do not present the exceptional vagaries of circumstance that justify the augmentation of judicial procedures that uniformly apply to all citizens.336
The enforcement of heightened-review clauses also fails to accord with the public’s interest in protecting judicial integrity and encouraging arbitration.337 Under Bonner Mall, the interest in promoting settlement, presumably even arbitral settlement, can never justify the abdication of well settled judicial processes.338 The public expects the judiciary to act as a principled decisionmaker; when it does not, the independence of the judiciary and the value of precedent is called into question.339 Furthermore, as the Kyocera, Bowen, and Merit courts noted, the public is entitled to expect that courts, pursuant to congressional command, will protect the finality of awards under the FAA.340 Failure to do so undermines arbitral finality and hinders parties’ ability to effectively opt out of litigation.341 Accordingly, both the public interest in judicial integrity and in promoting arbitration as a means of extra-judicial settlement militate strongly in favor of using Bonner Mall’s extraordinary circumstances test to invalidate heightened-review clauses.342
The managerial litigation and arbitral appellate models each reject the extraordinary circumstances test in favor of approaches that purportedly blend pro-arbitration policy with judicial integrity.343 Both models assume that the FAA’s pro-arbitration policy requires courts to [*PG984]acquiesce to heightened-review clauses.344 The managerial litigation model, however, attempts to preserve judicial integrity by requiring heightened-review litigants to provide courts with a sufficient arbitral record and by refusing to enforce heightened-review clauses that do not mandate a commonly applied standard of review.345 Conversely, the arbitral appellate model does not require a record or a particular standard of review because heightened-review litigants’ consent to courts’ review of “arbitral appeals” is sufficient to enforce heightened-review clauses under the FAA’s broad pro-arbitration policy.346 Ultimately these approaches are flawed for two reasons: (1) they ignore the U.S. Supreme Court’s FAA precedent, which establishes that standards of review should be crafted in accordance with the institutional advantages of the primary decisionmakers, and (2) they contravene pro-arbitration policy by encouraging litigation.347
In 1995, in Kaplan, the U.S. Supreme Court struck down an Eleventh Circuit Court of Appeals rule, under which an appellate court would review a decision confirming an arbitral award for abuse of discretion and a vacatur decision de novo.348 Like the managerial litigation and arbitral appellate models, the Eleventh Circuit reasoned that standards of review for arbitral awards should be predicated upon the FAA’s pro-arbitration policy.349 Kaplan teaches, however, that pro-arbitration policy is not an adequate basis upon which to base a standard of review; the proper inquiry is not whether a standard of review is likely to produce a pro-arbitration result, but whether it is compatible with the institutional advantages of the primary decisionmaker.350
There are many advantages to arbitration—speed, flexibility, and privacy—but none of these would be possible without the assurance that arbitral decisions are final.351 Indeed, the Kaplan Court noted that the very purpose of arbitration was final dispute resolution.352 [*PG985]The FAA’s history, text, structure, legislative history, and the precedents interpreting the FAA bolster the Court’s reasoning: each establishes that the FAA protects finality because there would be little incentive to opt for arbitration if a final award—the crux of the arbitral bargain—were open to a lengthy and expensive collateral attack in the federal courts.353
In addition, the contractual nature of arbitration illustrates that its primary institutional advantage is finality.354 When parties select an arbitrator, they express their confidence in the arbitrator’s ability to render a final and binding decision in those disputes submitted for decision.355 As the Seventh Circuit noted in 1983, in Merit, when the parties have voluntarily selected the arbitrator and the complexity of the matter at issue, they have assumed the risk of finality.356 Just as the U.S. Supreme Court reasoned in Kaplan that administrative agencies’ legal interpretations are to be accorded deferential review because Congress has empowered them to make public law, so too should courts maintain the FAA’s deference to arbitral awards to ensure that parties can reliably call upon arbitrators to make private law.357 Therefore, because the extraordinary circumstances test accords with finality—the primary institutional advantage of arbitration—it should apply to heightened-review vacatur requests.358
Despite the inability of the courts of appeals to articulate a consistent standard of review applicable to heightened-review clauses, there is widespread agreement that disappointed heightened-review litigants are not without recourse.359 Even the Ninth Circuit’s stringent textualist analysis would allow parties to contract for any number of intermediate arbitral appellate panels.360 Although the FAA’s pro[*PG986]tection of arbitral finality is manifest, as Volt and Mastrobuono illustrate, the Act does not require that arbitration be conducted according to any one set of procedural rules.361 Thus, if parties have sufficient reason to fear an egregious arbitral award, they can require that the arbitrator be well versed in the applicable law, or that a retired judge or lawyer hear appeals from arbitrators’ decisions—that there are any number of possibilities for heightened review open to prospective arbitrants suggests that the heightened-review project is unnecessary and ill conceived.362 Moreover, as the Kyocera court noted, any claim that heightened-review clauses further the FAA’s pro-arbitration policy is belied by the clauses’ tendency to produce vexatious litigation, which ultimately discourages parties from resorting to arbitration.363
As the Eighth Circuit Court of Appeals stated in 2003, in Schoch v. Infousa, heightened-review clauses seek extravagant results—alteration of the FAA and the role of courts and arbitrators—without even the slightest hint of a congressional mandate and, at best, cryptic precedential support.364 These requests pose a severe threat to the viability of arbitration and judicial integrity, which should be avoided through the application of Bonner Mall’s extraordinary circumstances test for four reasons.365 First, the FAA protects arbitral finality, which is as valuable to the legal community as precedent.366 Were courts to enforce heightened-review clauses, sophisticated actors would inevitably include them in arbitral agreements.367 If this were allowed, disappointed arbitrants, like the Kyocera Corporation, predictably would engage in protracted litigation, which would only undermine the vi[*PG987]ability of arbitration and increase litigation costs for all commercial actors.368 Thus, arbitration’s importance to the entire legal community implies that finality, its central tenet, should be protected under a stringent standard of review.369
The primary importance of finality leads to the second reason supporting the use of the extraordinary circumstances test—the functional similarity between vacatur by contract at issue in Bonner Mall and contractually mandated judicial review.370 Both represent attempts to avoid the foreseeable outcome of a voluntary litigation avoidance strategy.371 Moreover, parties’ relative fault in forgoing litigation is compounded by asking the federal judiciary to disregard traditional jurisprudential norms merely to perfect contractual expectations, thereby severely undermining judicial integrity.372 Indeed, a third consideration is that no pro-heightened-review proposals for a uniform standard of review accord with the U.S. Supreme Court’s decision in Kaplan, which mandates an institutional advantage approach to crafting standards of review and rejects standards primarily crafted to coincide with the amorphous commands of pro-arbitration policy.373 Because finality is the primary institutional advantage of arbitration, any standard of review tending to eviscerate finality contravenes the Court’s holding in Kaplan.374
Finally, the extraordinary circumstances test poses no affront to fundamental fairness.375 As the Second and Ninth Circuits held, in Hoeft and Kyocera, although arbitrants may craft arbitral procedures to suit their needs, they must take the FAA and the precedents interpreting it as they find them.376 Under Volt, it is clear that despite the delays inherent in an intricate arbitral appellate process, the courts would [*PG988]enforce such an agreement according to its terms under sections 3 and 4 of the FAA.377 There is no similar authority requiring the enforcement of contractual standards of judicial review; indeed, the great weight of authority militates strongly against extending this advantage to arbitrants.378 Thus, courts need not step in to ensure an equitable review for which the parties could have contracted.379
The persistent circuit split over the enforceability of heightened standard of review clauses in arbitration agreements should be resolved through the application of the extraordinary circumstances test. The Second Circuit implicitly applied U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership’s extraordinary circumstances test in 2003, in Hoeft v. MVL Group, Inc., to strike down a decreased standard of review clause. In 1994, in Bonner Mall, the U.S. Supreme Court employed this test to defeat a request to vacate lower court judgments pursuant to a settlement agreement. In addition, the Seventh Circuit Court of Appeals applied a similar test to defeat a request to vacate a confirmed arbitral award in accordance with the terms of an arbitration agreement. The Seventh, Ninth, and Tenth Circuit Courts of Appeals have held that allowing parties to attack an arbitration award pursuant to contract undermines arbitral finality and judicial integrity. The history of arbitral awards, and the FAA’s text, structure, and legislative history, as well as the precedents interpreting the FAA, support the conclusion of these anti-heightened-review courts. Therefore, because the FAA’s limited vacatur review is as important to the legal community as precedent, and because arbitrants can contract for arbitral appellate review, the courts should adopt Bonner Mall’s extraordinary circumstances test to establish a consistent analytical framework for rejecting heightened-review clauses. Adopting such a consistent course would alleviate confusion, increase bargaining efficiency, and preserve judicial integrity.