Petition for Writ of Certiorari — Hall Street Associates, LLC v. Mattel, Inc.
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No. 06-955 .25 2° 20n7
a oe
IN THE
Supreme Court of the United States
HALl. STREET ASSOCIATES. LLC.
Petitioner.
MATTEL. ING...
Respondent.
On Petition for a Writ of Certiorari to the
United States Court of Appeals
for the Ninth Circuit
PETITION FOR A WRIT OF CERTIORARI
7% ounse! of Record
HUNT PT. GARONNE *
NEHER AL COHEN
SCHUMW ABEL. WHEE EASON
& WY vr. PLC.
Io) 1 SW Fitth Ave. Suites 1600-1900
Portland. OR 97204-5798
(S03) 222-998]
, , ry
CcatePIned Foam Polite dh
QUESTION PRESENTED
1. Did the Ninth Circuit Court of Appeals err when it
held, in conflict with several other federal Courts of Appeals,
that the Federal Arbitration Act (“FAA”) precludes a federal
court from enforcing the parties’ clearly expressed agreement
providing for more expansive judicial review of an arbitration
award than the narrow standard of revicw otherwise provided
for in the FAA?
(1)
il
RULE 14.1(b) STATEMENT
The following were parties to the proceedings in the United
States Court of Appeals for the Ninth Circuit:
1. Hall Street Associates, L.L.C., Plaintiff-Appellee,
Petitioner on Review.
2. Mattel, Inc., Defendant-Appellant, Respondent on
Review.
RULE 29.6 CORPORATE DISCLOSURE STATEMENT
There is no parent corporation or publicly held corporation
owning 10% or more of the stock of Petitioner Hall Street
Associates, L.L.C.
TABLE OF CONTENTS
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RULE 29.6 CORPORATE DISCLOSURE
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STATUTORY PROVISIONS INVOLVED .................
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STATUTORY FRAMEWORK ....000000. ccc ceceeeceeeeeeeeeeeee
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REASONS FOR GRANTING THE PETITION...........
There is a Wide, [rreconcilable and Deepening
Split Between the Courts of Appeals Over
Whether Partics May Agree to Non-statutory
Grounds for Vacating an Arbitration Award, a
Split which this Court Should Resolve by
NE IT siscrsisiicsisrenesisetsincrenioersetentiadcssins
A.
The Ninth Circuit’s Decision Directly
Conflicts with the Decisions of Five Other
SESE Ae ee se Re ny Mee eee
. The Tenth Circuit, Along with the Ninth
Circuit, Has Held that Expanded Judicial
Review Undermines Public Policy Under
Se I thsicvinecsionititceiiscnicnncshidilonaioneeicbaitinisieaieini
Other Circuits Have Discussed the Issue of
Expanded Judicial Review Without Defini-
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(111)
—
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—- WN NY NY NY — <
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13
16
iV
TABLE OF CONTENTS—Continued
D. The Conflict Between The Circuits Will
Continue to Decpen Without this Court's
Resolution of the Issue .......................00e0.00+.
II]. The Ninth Circuit’s Decision Is Fundamentally
in Conflict with this Court’s Cases Interpreting
TET sctiipiciiatiigsndctesieslnieninnenetnindinnsannbiatuniiinpnanionee
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APPENDIX A - Statutory Provisions Involved............
APPENDIX B —- Stipulation and Order Regarding
IE Be Fe ei ertceintctenerssneseusiscmsanevenaens
APPENDIX C - Arbitrator’s Findings of Fact and
EET AE RT TO
APPENDIX D ~ District Court Opinion and Order ......
APPENDIX E— Amended Arbitrator’s Findings of
Fact and Conclusions of Law on Remand.................
APPENDIX F - District Court Opinion and Ordcet.......
APPENDIX G -~ District Court Judgment.....................
APPENDIX H- Memorandum Opinion, Ninth Cir-
APPENDIX I — District Court Opinion and Ordet........
APPENDIX J — District Court Judgment ......................
APPENDIX K — Memorandum Opinion, Ninth Cir-
APPENDIX L - Judgment, Ninth Circuit...
APPENDIX M - Order Denying Petition for Rehear-
Fe BE, Fee I aces secccssccncesnsnvnsscconngiionnness
Page
18
Vv
TABLE OF AUTHORITIES
CASES Page
Bowen v. Amoco Pipeline, Inc., 254 F.3d 925
1 REET eae eee sire a 9 16, 26
Cable Connection, Inc. v. DIRECTV, Inc., 143
Cal. App. 4th 207 (2006) ..0...... eee ecceeeeeeeeeeeee 19
Cable Connection, Inc. v. DIRECTV, Inc., 2006
Cal. LEXIS 15057 (Cal. Dec. 20, 2006)............ 19
Chicago Typographical Union No. 16 v. Chicago
Sun-Times, Inc., 935 F.2d 1501 (7th Cir. 1991) 16, 17
Cortez Byrd Chips v. Bill Harbert Constr. Co.,
Be ey: ee ITE as cniicistiecnissendicannceniisiinaimddaasaiane 12
Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213
PITTA: icsisisinenisnlnbuiiihenediieiibaslapabtppaieeiiiahialaatabitetets nia 23, 24
Employer's Ins. of Wausau v. National Union
Fire Ins. Co. of Pittsburgh, 933 F.2d 1481 (9th
Rs. FPP arcsncesepenpvunpesonenmsdavesosuiiisbenieimbditideinaitis 9
First Options of Chicago, Inc. v. Kaplan, 514
SP PP EOE co cccteiesesininnstentnaiiataliaiimsinanin 22, 24
Gateway Technologies, Inc. v. MC] Telecommu-
nications Corp., 64 F.3d 993 (Sth Cir. 1995)..... 13-15
Hamilton-Brown Shoe Co., v. Wolf Bros. & Co.,
Oe OF Fe CTP sicicesstcinishasindinidintinhamiigaaninns 13
Harris v. Parker College of Chiropractic, 286
ND 14
Hoeft v. MVL Group, Inc., 343 F.3d 57 (2d Cir.
FIED vinscitinntnininemnenmnnniianiiemdanaiaine 18
Howsam v. Dean Witter Revnolds, 537 U.S. 79
GIT icsicnsniincnscesccsecisanvaietanciiieisiipiisindiiildiila citadel 22
Hughes Training, Inc. v. Cook, 254 F.3d 588 (5th
Cir. 2001), cert. denied. 534 U.S. 1172 (2002). 14
Jacada, Ltd. v. Int'l Mktg. Strategies, 401 F.3d
701 (6th Cir.), cert denied, 126 S. Ct. 735
Eien eh cnsvevuissiaptnevduiminidédaiiesebniiabiedsdaiaeanaineniiaal Ps)
vi
TABLE OF AUTHORITIES —Continued
Page
Kyocera v. Prudential-Bache Trade Services,
Inc., 341 F.3d 987 (9th Cir. 2003), cert dis-
missed, 540 U.S. 1098 (2004)..........cccccccccceeeeeees passim
LaPine Tech. Corp. v. Kyocera Corp., 130 F.3d
I TT i deiarieni duns tenimendenenensensneneniens passim
Major League Baseball Ass'n v. Garvey, 532
a 13
Mastrobuono v. Shearson Lehman Hutton, Inc.,
a asi ca certersnancens 3, 14, 21
Mercer v. Theriot, 377 U.S. 152 (1964) ...........004. 13
Moses H. Cone Memorial Hospital v. Mercury
Constr. Corp., 460 U.S. 1 (1983) .......ccceeee. 3, 17,24
Photopaint Technologies, LLC vy. Smartlens
Corp., 335 F.3d 152 (2d Cir. 2003) .............024.. 25
Puerto Rico Telephone Co., Inc. v. U.S. Phone
Mfg. Corp., 427 F.3d 21 (1st Cir. 2005), cert
denied, 126 S. Ct. 1785 (2006)..............:cccceeeees 15-19
Roadway Package System, Inc. v. Kayser, 257
F.3d 287 (3d Cir.), cert denied, 534 U.S. 1020
Tn crit ieahassidiehidipininaananpnncineananentnesane 14,15
Sac and Fox Indians of Miss. in lowa v. Sac and
Fox Indians of Miss. in Okl., 220 U.S. 481
ACESS 25
Schoch v. InfoUSA, Inc., 341 F.3d 785 (8th Cir.
DE GREE ERA 17
Southland Corp. v. Keating, 465 U.S. | (1984)..... 12
Svncor Int'l Corp. v. McLeland, 1997 U.S. App.
LEXIS 21248 (4th Cir., August 11, 1997), cert
denied, §22 U.S. 1110 (1998)... ee 14
Tanox, Inc. v. Akin, Gump, Strauss, Hauer &
Feld, L.L.P., 10S S.W. 3d 244 (Tex. Ct. App.
ETE ee 19
Vil
TABLE OF AUTHORITIES-——Continued
Page
Theis Research Inc. v. Brown & Bain, 386 F.3d
1180 (9th Cir. 2004), amended on denial of
rehearing, 400 F.3d 659 (9th Cir. 2005) ........... i)
UHC Met. Co. v. Computer Sciences Corp., 148
Po 17
United States v. Mezzanatto, 513 U.S. 196 (1995)..... 24, 25
United States v. Wilson, 26 F.3d 142 (D.C. Cir.
ie iccitinnredioemncienpeniniensactmeninnesnseiuieimmmunseninn 25
Volt Information Sciences, Inc. v. Board of Trus-
tees, 489 U.S. 468 (1989) .........ccccecccceseeeeseseeeees passim
STATUTES
es OF cxceccecsepetenssesnssseeevecinemnisenntnienniannniones ]
es Ae cenenteniemateientenanions ieeninsiacininisiitintiahaiiasiiian 3
nites OF ccessicnctdecsntcdupiiteshatinninnianninentebaseiinidiitiiins 21,22
i tit 1 cnsinanitenitinainteieniipiabcceachiadianiigiepidenlanpiiteniedaaiaiaial 21, 22
IIIT. TIEN sccsecicniscchiguabiitaiieciceeidaaniniiienticeainiiatpenasaneite 3, 25
TET Tr Ua icctcciecesscsihinienieiiceetiomeiteiidensadantanienimabadannanin 3, 9, 10
rs OO nencietenetnnecesesaicncasinsenneeniinainesnnnmoannisiiia 3,9, 10
ice te Pe icenssesescasiesessendnsisinimmmaniaetineneia 2
en TID cciteniansiiiniennenmndiicitiniaiainiatacaiianiin 1]
Sy IIE I TTI -ocnccinsinniinittintnicsianenintinindiniatodinedinanias 4
Ss TIENT ceietuccenccinaiecionsapdniuiiietnesiaiiensaineionnes 12
a Te TUE scersccsiseianeriinisiesinininaitiiininadsideiibiiassineianinieiat 17
TTD aicicsintsisisseciiniisiceittactnbintiniandatinienbemiotadeiee 4
MISCELLANEOUS
eS en 14
Fric van Ginkel, Reframing the Dilemma of Con-
tractually Expanded Judicial Review: Arbitral
Appeal vs. Vacatur, 3 Pepp. Disp. Resol. L.
BR, ae Ca iinviscnsincsinsnenctninitibiiticiaiiniivinpbinananncans 19
Vill
TABLE OF AUTHORITIES— Continued
Page
Lee Goldman, Contractually Expanded Review
of Arbitration Awards, 8 Harv. Negotiation L.
eh I cnsiaccinsichietiiiabelisttiainiiehiemmaisitiiaminuiiaiacies 19
Milana Koptsiovsky, A Right to Contract for a
Judicial Review of an Arbitration Award:
Does Freedom of Contract Apply to Arbitra-
tion Agreements? , 36 Conn. L. Rev. 609........... 19, 23
IN THE
Supreme Court of the Anited States
No. P
HALL STREET ASSOCIATES, L.L.C.,
Petitioner,
Vv.
MATTEL, INC.,
Respondent.
On Petition for a Writ of Certiorari to the
United States Court of Appeals
for the Ninth Circuit
PETITION FOR A WRIT OF CERTIORARI
Hall Strect Associates, L.L.C. (“Petitioner” or “Hall Street”)
respectfully petitions for a writ of certiorari to review the
judgment of the United States Court of Appeals for the Ninth
Circuit in this case.
OPINIONS BELOW
The opinion of the district court in which the court vacated
the arbitrator’s initial arbitration award because of legal error
is unreported. (App., infra, 39a-S8a). The original opinion
of the Ninth Circuit Court of Appeals in which the court
reversed the district court’s enforcement of the parties’
“expanded judicial review” agreement and remanded so that
the district court could apply the standard of review set forth
in the Federal Arbitration Act (“FAA”), 9 ULS.C. § 1 et seq...
2
is unreported. (App., infra, 114a-116a). The district court’s
opinion on remand in which the district court vacated the
arbitration award based on the FAA standard of review is
unreported. (App., infra, 117a-128a). The Ninth Circuit’s
most recent opinion reversing the district court is also
unreported. (App., infra, 129a-134a).
JURISDICTION |
The Ninth Circuit’s most recent opinion was entered on
August 1, 2006. The Ninth Circuit denied a timcly petition
for rehearing en banc on October !7, 2006. The jurisdiction
of the United States Supreme Court is invoked in a timely
manner under 28 U.S.C. § 1254(1).
STATUTORY PROVISIONS INVOLVED
The relevant provisions of the FAA are set forth at App.,
infra, \a-3a.
STATEMENT OF THE CASE
This case involves the Ninth Circuit’s refusal to enforce the
clear and unambiguous terms of the parties’ arbitration agree-
ment, an agreement that was entered into with district court
approval after the commencement of this litigation. The
arbitration agreement expressly states that the district court
shall vacate, modify or correct the arbitration award “where
the arbitrator’s conclusions of law are crroneous.” (App.,
infra, 16a). Because of the Ninth Circuit's refusal to enforce
the parties” agreement as written, Petitioner is saddled with an
arbitration decision that dissenting Judge Susan Graber held
was “completely irrational” (App., infra, 134a) and which
the majority on the Ninth Circuit panel recognized contained
“possible errors of law.” (App.. infra, 132a).
STATUTORY FRAMEWORK
Congress enacted the FAA for the “central purpose” of
“ensur[ing] that private agreements to arbitrate are entorced
3
according to their terms.” Mastrobuono v. Shearson Lehman
Hutton, Inc., 514 U.S. 52, 53-54 (1995) (internal quotations
and citations omitted). Section 2 of the FAA states that a
“written provision * * * to settle by arbitration” a controversy
arising out of “any contract evidencing a transaction involv-
ing commerce” shall be “valid, irrevocable and enforceable,
save upon any grounds that exist at law, or in equity for the
revocation of any contract.” 9 U.S.C. § 2. “The effect of
this section is to create a body of federal substantive law of
arbitrability, applicable to any arbitration agreement within
the coverage of the Act.” Moses H. Cone Memorial Hospital
v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The FAA
as a whole “creates a body of federal substantive law
establishing and regulating the duty to honor an agreement to
arbitrate * * *.” /d. at 26. .
The FAA further provides that “[i]f the partics in their
agreement have agreed that a judgment of the court shall be
entered upon the award made pursuant to the arbitration,” the
court, upon application by a party to confirm the award,
“must grant such an order unless the award is vacated, modi-
fied or corrected as prescribed in sections 10 and 11.”
9US.C. § 9. Section 10 sets forth several very narrow
grounds upon which the court “may make an order vacating
the award,” while section 11 scts forth limited grounds upon
which the court “may make an order modifying or correcting
the award.” 9 U.S.C. §§ 10, 11. The arbitration agreement in
this case provides for judicial review beyond the review
provided for under sections 10 and J}.
FACTUAL BACKGROUND
This case arose from a property lease between Petitioner
Hall Street, the landlord, and Respondent Mattel, Inc.
(“Mattel”), the tenant. The lease did not contain an agree-
ment to arbitrate disputes and both parties therefore had the
absolute right to have all claims arising under the lease
resolved in court. The property that was subject to the lease
4
had been used for many years by both Mattel and its
predecessors as a toy manufacturing facility. (App., infra,
18a).' It is undisputed that the well water on the property,
which employees had used for many years for drinking and
bathing, was contaminated by trichloroethylene (“TCE”) in
concentrations well in excess of federal limits. (App., infra,
26a-27a). It is also undisputed that Mattel and its prede-
cessors failed to test the well water on the property for
contaminates as they were required to do under the Oregon
Drinking Water Quality Act (“ODWQA”), ORS 448.114 ef
seq. (App., infra, 26a, 52a, 81a).
On February 11, 2000, Hall Street filed suit in Oregon state
court seeking injunctive relief, declaratory relicf and dam-
ages. (2005 ER 004). Included amongst Its claims was a
claim that Mattel was required to indemnify it from all ac-
tions by any parties relating to the condition of the property.
(2005 ER 016). Mattcl removed the case to the United States
District Court for the District of Oregon, which possessed
diversity jurisdiction under 28 U.S.C. § 1332. (2005 ER 002).
The parties proceeded to a court trial of one of the issues in
the case, regarding Mattel’s termination of the lease. After
the district court decided that issue and after a subscquent
unsuccessful attempt to settle the entire case through media-
tion, the partics informed the district court that they would
seek the court’s approval of an agreement to arbitrate the
remaining issues, an agreement that allowed for de novo
judicial review of the arbitrator’s legal rulings. (2003 SER
148-49). This agreement for cxpanded judicial review was
central to the parties’ agreement to arbitrate their dispute, a
dispute which was not subject to a preexisting agreement to
' Mattel’s Excerpt of Record in the earlier 2003 appeal to the Ninth
Circuit is cited as “2003 ER.” Hall Street's Supplemental Excerpt of
Record in the 2003 appeal is cited herein as “2003 SER.” Mattel’s Excerpt
of Record in the 2005 appeal to the Ninth Circuit is cited as “2005 FR.”
Otherwise, all citations are to the Appendix.
5
arbitrate and which could have been properly litigated in
federal court in the first instance. (2003 SER 153).? The
agreement to arbitrate executed by the parties stated that the
district court retained authority to review the arbitrator’s fac-
tual findings for substantial evidence and to review the arbi-
trator’s lega! conclusions for legal error. (App., infra, 16a).
Relying on the Ninth Circuit’s decision in LaPine Tech.
Corp. v. Kyocera Corp., 130 F.3d 884 (9th Cir. 1997), which
upheld expanded judicial review of arbitration awards, the
district court approved the parties’ agreement to arbitrate with
de novo review of legal issues in the district court.’ (App.,
infra, 8a, 46a). The case proceeded to arbitration under this
judicially approved arbitration agreement.
In early January of 2002, the arbitrator issued his Findings
of Fact and Conclusions of Law. (App., infra, 17a to 38a).
The arbitrator’s initial decision was based on his legal con-
clusion that, despite the fact that Mattel had violated the
ODWQA by failing over many years to test the water supply
on the property for contaminants, it had not violated any
“applicable” environmental laws. (App., infra, 35a). The
arbitrator recognized (1) that the lease was negotiated in the
context that Mattel’s predecessor, View-Master, was “the
only party with intimate knowledge of the property” and
(2) that the lease therefore contained a broad indemnification
* Hall Street's attorney, Jim Finn, executed an affidavit that was filed
in the trial court stating as follows: “One of the primary factors of
this arbitration agreement was that, unlike ordinary binding arbitration,
the arbitrator's decision would be reviewable by Judge Jones, and then
entered as a judgment of the Federal District Court, which would then be
reviewed by the 9th Cirewt Court of Appeals.” (2003 SER 153)
(emphasis added).
“Nearly two years after the district court approved the parties” ex-
panded judicial review agreement in reliance on existing law, the Ninth
Circuit reversed LaPine in Avocera vo Prudential-Bache Trade Services,
Inc, 341 F.3d 987 (9th Cir, 2003), cert dismissed, 540 US. 1098 (2004)
6
clause that required Mattel to “indemnify Hall Street for all
activities with respect to the premises whether or not they
occurred before the date of the original lease.” (App., infra,
19a). The arbitrator further conciuded that Mattel agreed to
assume all liability for the presence of hazardous waste on the
property under this “comprehensive” indemnification clause,
irrespective of when the presence or use of the hazardous
waste occurred. (App., infra, 35a). The arbitrator also recog-
nized that the “only exception” to the indemnity obligation
was if Mattel was in compliance with applicable environ-
mental laws and did not directly or indirectly contribute to the
presence or use of hazardous waste. (/d.).
Despite these findings, the arbitrator concluded that Mattel’s
admitted failure to test the well water on the property over the
course of many years was not a violation of an “applicable”
environmental law because the ODWQA was designed to
protect human health and was “not designed to protect land-
owners from having their property protected from environ-
mental contamination.” (App., infra, 35a-36a). The arbitra-
tor recognized that Mattel and its predecessors did not test the
well water for a period of approximately 18 years but found
that this failure “may constitute a violation of other laws, but
does not constitute a violation of ‘applicable environmental
laws’ regarding TCE.” (/d.). Based on this conclusion, the
arbitrator decided that Mattel was entitled to the contractual
exception to the broad indemnification requirements of the
lease.
Petitioner moved to vacate the arbitrator’s award, secking
de novo review of the arbitrator’s 'egal conclusion that
Mattel’s admitted violation of the ODWQA was not a viola-
tion of an “applicable environmental law” within the meaning
of the lease. On April 29, 2002, the district court granted
Hall Street’s motion to vacate and remanded to the arbitrator
for further consideration. (App.. infra, 39a to 58a). The
district court held, in agreement with the arbitrator's findings,
7
that Mattel and its predecessors had failed to test for TCE
contamination on the property and that this failure constituted
a violation of the ODWQA. (App., infra, 42a-43a, 53a-54a).
The district judge also agreed with the arbitrator’s legal con-
clusion that the lease was “written to impose broad liability
on the tenant for any environmental damage on the property”
and that the exceptions to this broad liability contained in the
lease “freed the tenant from liability only if it was in com-
pliance with all ‘applicable environmental laws.*” (App.,
infra, 53a).
However, the district court ruled that the arbitrator’s con-
clusion that the ODWQA was not an applicable environ-
mental law was erroneous. (App., infra, 53a). The district
court stated:
The arbitrator’s contrary reasoning — that Oregon’s Drink-
ing Water Quality Act (“ODWQA”) does not constitute
“applicable environmental laws” because “these health
provisions are designed to protect a specific type of
injury, i.e., health injury to people from drinking the
water, and are not designed to protect landowners from
having their property protected from environmental
contamination” — is an overly restrictive construction of
“applicable environmental laws that is not warranted by
the language of the lease.” (App., infra, 53a-54a).
The court disagreed with the arbitrator’s conclusion that a law
must protect property to be deemed an “environmental law”
and stated that: “No environmental statute advances such a
purpose; the purpose of such statutes is to protect the environ-
ment and human health.” (App., infra, 54a-55a) (emphasis in
original). The court further stated that the contention that the
ODWQA was not an applicable environmental statute “defies
logic.” (App., infra, 55a).
On remand, the arbitrator entered an amended decision
based upon the legally correct ruling that the ODWQA was
an applicable environmental law which Mattel had violated.
8
(App., infra, 81a). Therefore, the exceptions contained in the
lease to Mattel’s broad indemnification responsibility did not
apply. (/d.). Based on this conclusion, the arbitrator rendered
a decision in favor of Hall Street in the amount of $583,971.60
and also awarded declaratory relief against Mattel for all
future costs that Hall Street might be required to pay rclating
to the environmental cleanup of the property. (App., infra,
85a). The arbitrator then rendered a supplemental decision
awarding attorney fees and costs. (2005 ER 138-141).
Both sides sought review of the arbitrator’s amended deci-
sion by the district court. (App., infra, 87a). Other than with
regard to Mattel’s assertion that the arbitrator made a mistake
in computing prejudgment interest, the district court upheld
the arbitrator’s amended award. (App. infra, 95a, 110a). On
May 15, 2003, a district court judgment was entered incor-
porating both the trial court’s initial decision regarding the
lease termination issue (which had been tried before the
court) and the arbitrator’s amended award in favor of Hal]
Street. (App. infra, 11la-113a). The money judgment in
Hall Street’s favor was for $810,107.49 with six percent (6%)
postjudgment interest. (App., infra, 112a to 113a).
Both sides appealed from certain aspects of that judgment.
Mattel challenged the district court’s enforcement of the
partics’ agreement that the arbitrator’s conclusions of law
could be reviewed de novo, arguing that the Ninth Circuit's
intervening en banc decision in Kyocera Corp. had reversed
LaPine and that the FAA did not permit judicial review of an
arbitrator's decision beyond the standards of review allowed
under the FAA. (Mattel’s Opening Brief on Appeal, Ninth
Circuit Case Nos. 03-35525 and 03-35526, pp. 12-13). Hall
Street contended that Kvocera was distinguishable because, in
that case, the parties’ underlying contract contained an arbi-
tration clause allowing for expanded judicial review while, in
this case, the parties did not have an arbitration agreement
when the lawsuit was instituted and agreed to the expanded
9
judicial review provision with district court approval after
the case had been partially tried. (Hall Street’s Combined
Opening Brief and Answering Brief, Case Nos. 03-35525 and
03-35526, pp. 31 & n 5). Hall Street further argued that the
de novo review provision was so inextricably intertwined
with the agreement to arbitrate that it could not be severed
and still give effect to the parties’ intentions regarding arbi-
tration. (/d. at 33 n 7).
On November 16, 2004, the Ninth Circuit reversed the
district court’s vacation of the arbitrator’s initial crroncous
award holding, without substantial comment, that “Kyocera
compels us to vacate the district court’s judgment based on
the arbitration agreement and remand to the district court.”
(App., infra, 115a). The court further stated that, under
Kyocera, “the terms of an arbitration agreement controlling
the mode of judicial review are unenforceable and severable.”
(/d.). The Ninth Circuit remanded to the district court with
instructions for the district court to confirm the arbitrator’s
initial award in favor of Mattel, “unless the district court
determines that the award should be vacated on the grounds
allowable under 9 U.S.C. § 10, or modified or corrected under
the grounds allowable under 9 U.S.C. § 11.” (App., infra,
1 16a).
On remand, the district court held that grounds for vacating
the arbitrator’s award cxisted under 9 U.S.C. § 10. (App.,
infra, 117a-128a). The district court held, in express reliance
on the Ninth Circuit’s decisions in Theis Research Inc. v.
Brown & Bain, 386 F.3d 1180 (9th Cir. 2004), amended on
denial of rehearing, 400 F.3d 659 (9th Cir. 2005), and
Employer's Ins. of Wausau v. Nat'l Union Fire Ins. Co. of
Pittsburgh, 933 F.2d 1481 (9th Cir. 1991), that an arbitrator
exceeds his or her powers within the meaning of 9 U.S.C.
§ 10 when the award is based on an “implausible interpreta-
tion of a contract.” (App., infra, 124a). The district court,
noting that neither party scriously disputed that the ODWQA
10
was an environmental law or that Mattel had violated it,
reversed the arbitrator’s initial conclusion that Mattel was
in compliance with applicable environmental laws on the
grounds that this conclusion was implausible. (App., infra,
12S5a-127a). The district court stated that nothing in the lease
supported the arbitrator’s conclusion that the phrase “applica-
ble environmental laws” meant “anything other than its plain
meaning, i.e., the body of environmental law that gencrally
applies to Mattel and with which Mattel’s non-compliance
could expose Mattel or Hall Street to civil or criminal penal-
ties.” (App., infra,126a). The trial court again vacated the
arbitration award, granted Hall Street additional attorney fees
and costs and again entered judgment for Hall Street. (App.,
infra, 127a-128a).
Mattel again appealed to the Ninth Circuit. On August |,
2006, a panel of the Ninth Circuit reversed and held that
“{ijmplausibility is not a valid ground for voiding an arbitra-
tion award under either 9 U.S.C. §§ 10 or 11.” (App., infra,
132a). The panel majority stated: “Although the arbitrator’s
assessment of the merits in this case contains possible errors
of law, those errors are not a sufficient basis for a federal
court to overrule an arbitration award.” (/d.). Despite its
finding regarding the presence of possible errors of law, the
panel majority held that the arbitrator’s decision was not
“completely irrational,” which it recognized as a valid (albeit
unstated) basis for vacating an arbitration award under the
FAA. (App. infra, 133a). The panel majority therefore
remanded the case to the district with instructions to review
the original award and declare Mattel the prevailing party.
(/d.).
Judge Susan Graber dissented on the grounds that the arbi-
trator’s award was “complctely irrational.” (/d.). She stated
that “the only rational reading” of the term “applicable
environmental laws” was “all federal, state, and local envi-
ronmental Jaws and regulations” which Mattel was required
11
to comply with in its use of the premises. (/d.). Because it
was undisputed that the ODWQA was an environmental law
that Mattel violated, Judge Graber would have either upheld
the district court under the “completely irrational” standard or
remanded the case to the district court for reconsideration
under that standard. (App., infra, 134a).
Petitioner sought en banc review of the Ninth Circuit’s
opinion. En banc review was denied by order of the Ninth
Circuit on October 17, 2006. (App., infra, 138a). At all
relevant times, the Ninth Circuit had jurisdiction over this
case under 28 U.S.C. § 1291.
REASONS FOR GRANTING THE PETITION
I. There is a ‘Vide, Irreconcilable and Deepening
Split Between the Courts of Appeals Over Whether
Parties May Agree to Non-statutory Grounds for
Vacating an Arbitration Award, a Split which this
Court Should Resolve by Granting Certiorari.
In this case, the Ninth Circuit has ruled, in strict reliance on
its en banc decision in Kyocera, that parties to an arbitration
agreement cannot agree to judicial review on grounds that
expand on those provided for in sections 10 and 11 of the
FAA. In Kyocera, the Ninth Circuit, reversing its earlier
decision in LaPine, invalidated as contrary to the FAA
the parties’ agreement that an arbitration award should be
vacated, modified, or corrected if legally erroneous or not
supported by substantial evidence. The Kyocera court
recognized that other circuits had enforced such “expanded
judicial review” agreements based on this Court’s decisions,
including Volt Information Sciences, Inc. v. Board of Trustees,
489 U.S. 468 (1989), which emphasized that the primary
purpose of the FAA is to enforce the agreement of the parties
according to its terms. Kyocera, 341 F.3d at 999. However,
the Ninth Circuit reversed its prior decision in LaPine be-
cause of its policy judgment that “[b]road judicial review of
arbitration decisions could well jeopardize the very benefits
12
of arbitration, rendering informal arbitration merely a prelude
to a more cumbersome and time-consuming judicial review
process.” /d. at 998.
The Ninth Circuit’s decision in Kyocera, as followed by the
panel in this case, directly conflicts with the decisions of the
First, Third, Fourth, Fifth and Sixth Circuits and is inconsistent
with this Court’s rulings that the primary purpose of the FAA
is to give full effect to the parties’ agreement to arbitrate as
written. The FAA was intended to create a uniform federal
substantive law of arbitration that preempts inconsistent state
law. Southland Corp. v. Keating, 465 U.S. | (1984); Moses H.
Cone, 460 U.S. at 24. As such, the FAA should not create
conflicting outcomes with regards to the enforcement of arbi-
tration agreements in different parts of the country. With the
current and deepening split between the circuits on the validity
of expanded judicial review under the FAA, many companies
that do business on a nationwide basis are faced with such
conflicting outcomes based simply on the circuit where the
action to confirm or vacate an arbitration award is filed.* The
widespread disagreement between the federal courts of appeals
on an issue of such fundamental importance under a federal
statute which has as its goal the creation of a uniform law of
arbitration warrants review by this Court.*
* Under the FAA, the proper venue for an action to confirm or vacate
an arbitration award is the district agreed to by the parties in the arbitra-
tion agreement or, if there is none, where the award was made. 9 U.S.C.
§ 9. Ho vever, this Court has held that this venue provision ts permissive,
not mandatory, and that any venue allowable under the general venue
statute for diversity actions, 28 U.S.C. § 1391, is proper. Cortez Byrd
Chips v. Bill Harbert Constr. Co., 529 U.S. 193 (2000). This raises the
specter of forum shopping by parties who will seek to further their chances
of either confirming or vacating an arbitration award based on whether the
district court sits in a circuit that permuts or prohibits expanded judicial
review.
* A party petitioning for a writ of certiorari ts entitled to seek review of
all interlocutory decisions preceding the entry of judgment. including
13
A. The Ninth Circuit’s Decision Directly Conflicts
with the Decisions of Five Other Circuits.
The Ninth Circuit’s decision in reliance on Kyocera di-
rectly conflicts with decisions from the First, Third, Fourth,
Fifth and Sixth Circuits.
In LaPine, the Ninth Circuit initially upheld the validity of
expanded judicial review under the FAA and followed the
decision of the Fifth Circuit in Gateway Technologies, Inc. v.
MCI Telecommunications Corp., 64 F.3d 993 (Sth Cir. 1995).
LaPine, 130 F.3d at 889.° In Gateway, the parties’ arbitration
agreement stated that errors of law were subject to judicial
review. /d. at 996. Recognizing that this provision expanded
the extremely narrow standard of judicial review normally
applicable under section 10 of the FAA, the Fifth Circuit held
that “[s]uch a contractual modification ts acceptable because,
as the Supreme Court has emphasized, arbitration is a
creature of contract * * *.” Jd The court in Gateway held
that the FAA’s standard of review provision was the “default
standard of review” which would apply under a silent arbitra-
tion agreement but that “the FAA does not prohibit parties
who voluntarily agree to arbitration from providing contractu-
ally for more expansive judicial review of the award.” /d. at
997 n.3. The court, quoting Volt, 489 U.S. at 469, held that
“the federal policy is simply to ensure the enforceability,
according to their terms, of private agreements to arbitrate.”
Id. The court reasoned that a refusal to enforce the parties’
contractual expansion of the FAA’s default standard of re-
view “would be quite inimical to the FAA’s purpose of
rulings made in an earlier appeal. See, e.¢.. Major League Baseball Ass'n
v. Garvey, 532 U.S. S04. S08 n.1 (2001); Mercer v. Theriot, 377 U.S. 152,
153 (1964); Hamilton-Brown Shoe Co., v. Wolf Bros. & Co., 241 U.S.
251, 257-58 (1916).
* The Ninth Circuit in LaPine also based its holding on | o/t and other
decisions of this Court, which permitted parties to arbitrate under rules
other than those established by the FAA. LaPine, 130 F 3d at 888.
14
ensuring that private agreements to arbitrate are enforced
according to their terms.” /d. at 996 (quoting Mastrobuono,
514 U.S. at 57, quoting in turn Volt, 489 U.S. at 479). The
holding of Gateway has been reaffirmed by the Fifth Circuit
in subsequent cases. See Harris v. Parker College of Chiro-
practic, 286 F.3d 790, 793 (Sth Cir. 2002); Hughes Training,
Inc. v. Cook, 254 F.3d 588, 592-93 (Sth Cir. 2001), cert.
denied, 534 U.S. 1172 (2002).
In Syncor Int'l Corp. v. McLeland, 1997 U.S. App. LEXIS
21248 (4th Cir., August 11, 1997), cert. denied, 522 US.
1110 (1998), the Fourth Circuit followed Gateway.’ In Syncor,
the arbitration agreement, as in this case, allowed for de novo
judicial review of legal issues. The court, applying Gateway’s
reasoning that nothing in the FAA prohibits the parties from
“providing contractually for an expanded judicial review of
the award,” engaged in de novo review of the arbitrator's
decision. Syncor, 1997 U.S. App. LEXIS 21248 at *17.
The next circuit to follow Gateway was the Third Circuit.
In Roadway Package System, Inc. v. Kayser, 257 F.3d 287
(3d Cir.), cert denied, 534 U.S. 1020 (2001), the court stated:
“We now join with the great weight of authority and hold that
parties may opt out of the FAA’s off-the-rack vacatur stan-
dards and fashion their own (including by referencing state
law standards).” /d at 293. The court ruled that, where the
parties have language in the arbitration agreement evidencing
their intent to opt out of the FAA’s standard of review,
“federal law requires that the court enforce the agreement.”
Id. at 292. While the court ultimately held that the arbitration
agreement before it did not evidence such an intent, the
’ Although the Syreor opinion is unpublished, the Fourth Circuit’s rules
provide that an unpublished opinion tssucd prior to January |, 2007, may
be cited if the case has “precedential value in relation to a material issue in
a case and that there 1s no published opimion that would serve as well.”
(4th Cir. Local R. 32.1). There ts no published opmmion from the Fourth
Circuit on the issue cited.
15
holding of the court on the overarching legal issue is clear:
An arbitration agreement which evidences a “clear intent to
displace the FAA’s default standards for judicial review” is
enforceable. /d. at 295.
The Sixth Circuit has also ruled that partics may contract
for expanded judicial review. In Jacada, Lid. v. Int'l Mktg.
Strategies, 401 F.3d 701 (6th Cir.), cert. denied, 126 S. Ct.
735 (2005), the court stated that “the central purpose of the
FAA is to ensure that private agreements to arbitrate are
enforced according to their terms” and proceeded to decide
whether the judicial review provision of the FAA applied as
opposed to the standard of review provision contained in the
arbitration agreement. /d. at 709-10. Although the court
ultimately held that the parties did not intend to displace the
federal standard for vacatur under the contractual language
used in their arbitration agreement, the court’s decision is
based upon the clear recognition that such displacement is not
prohibited by the FAA. /d. at 711-12.
The latest circuit to rule that the FAA permits expanded
judicial review is the First Circuit. In Puerto Rico Telephone
Co., Inc. v. U.S. Phone Mfg. Corp., 427 F.3d 21 (ist Cir.
2005), cert. denied, 126 S. Ct. 1785 (2006), the court was
faced with a similar issue as in Roadway and Jacada, whether
a generic choice-of-law provision was sufficient to establish
the parties” intent to supplant the FAA standard of review of
an arbitration award. The court stated that “[t]he issue
whether parties by contract can supplant the FAA standard of
review has generated substantial litigation.” /d. at 30. After
carefully analyzing Gateway and other cases supporting
expanded judicial review as well as Kvocera and other cases
opposing it, the court held: “We agree with the other circuits
that have concluded that parties can by contract displace the
FAA standard of review but that displacement can be
achieved only by clear contractual language.” /d at 31.
Where, as here, there is no question but that the parties used
such clear language in their arbitration agreement, the court in
16
Puerto Rico Telephone would have certainly enforced the
partics’ expansion of the FAA’s standard of review.
B. The Tenth Circuit, Along with the Ninth
Circuit, Has Held that Expanded Judicial
Review Undermines Public Policy Under the
FAA.
Joining the Ninth Circuit in opposition to the First, Third,
Fonrth, Fifth and Sixth Circuits is the Tenth Circuit in Bowen
v. Amoco Pipeline, Inc., 254 F.3d 925 (10th Cir. 2001). In
Bowen, the court held that the enforceability of the parties
contractually “expanded standard” of judicial review “pre-
sents a difficult question.” /d. at 933. Recognizing that its
decision not to enforce such a contractual agreement con-
flicted with the law in the Fourth and Fifth Circuits, as well as
the then-governing law in the Ninth Circuit as set forth in
LaPine, the court, as in Kyocera, cited policy reasons for its
holding. /d. at 933-35. While recognizing that arbitration
even with expanded judicial review “reduces the burden on
the courts,” the court nonetheless found, on public policy
grounds, that expanded judicial review “would threaten the
independence of arbitration and weaken the distinction be-
tween arbitration and adjudication.” /d. at 936 & n.6." As
stated earlier, Bowen and Kyocera directly conflict with the
decisions of five other circuits.
C. Other Circuits Have Discussed the Issue of
Expanded Judicial Review Without Definitive
Holdings.
Three other circuits, the Second, Seventh and Eighth, have
discussed the issue of expanded judicial review without de-
finitive holdings. For example, in Chicago Typographical
Union No. 16 v. Chicage Sun-Times, Inc., 935 F.2d 1501,
1504-05 (7th Cir. 1991), the Seventh Circuit, in a case involv-
“The Ninth Circuit cited Buwen approvingly and adopted its public
policy rationale in Avocera. Avocera, 341 F.3d at 999-1000.
17
ing an arbitration award under section 301 of the Labor-
Management Relations Act, 29 U.S.C. § 185, stated in dicta
that “[a]n agreement to submit a dispute over the interpreta-
tion of a labor or other contract to arbitration is a contractual
commitment to abide by the arbitrator’s interpretation,” and
the parties “cannot contract for a judicial review of that award
because federal jurisdiction cannot be created by contract.”
Id. at 1505.” This case did not directly involve the FAA and
is thus questionable precedent in cases involving that statute.
In Schoch v. InfoUSA, Inc., 341 F.3d 785 (8th Cir. 2003),
the court noted the split in the circuits “on whether parties to
an arbitration agreement can expand the scope of judicial
review of arbitration awards.” /d. at 788. Citing its prior
decision in UHC Mgt. Co. v. Computer Sciences Corp., 148
F.3d 992 (8th Cir. 1998), the court stated that the ability to
contract for a heightened standard of review is “not yet a
foregone conclusion” and expressed “grave skepticism” as
to whether parties could do so consistent with the policies
underlying the FAA. /d. at 789. However, the court chose
not to expressly adopt the Tenth Circuit’s holding in Bowen
and instead resolved the case on the narrow ground that the
arbitration agreement did not contain clear and unmistakable
language establishing the intent to impose a heightened
standard of judicial review. /d. at 789-90.
* The notion that expanded judicial review creates federal jurisdiction
“by contract” was also stated by the Ninth Circuit in Ayocera, which
quoted Chicago Typographical to this effect. Kyocera, 341 F.3d at 999.
However, as recognized by the First Cireuit in Pueri> Rico Telephone,
this coricern is “misplaced, as it 1s well settled that federal courts have
jurisdiction over suits to compel arbitration (or to vacate or enforce arbi-
tration awards) only if the parties are of diverse citizenship, or some
separate grant of jurisdiction applies.” Puerto Rico Telephone, 427 F.3d
at 30-31. See also Moses H. Cone, 460 U.S. at 26 (the FAA “creates
a body of federal substantive law establishing and regulating the duty to
honor an agreement to arbitrate, yet ut does not create any independent
federal-question jurisdiction*® * *")
18
The Second Circuit has similarly avoided the issue. In
Hoeft v. MVL Group, inc., 343 F.3d 57, 63 (2d Cir. 2003), the
arbitration agreement purported to “insulate the substance of
the arbitration award from judicial review,” even the very
narrow review available under the FAA. The court acknowl-
edged that, in those cases where courts “have enforced private
agreements to alter the judicial review to be applied to arbitral
awards, * * * the cases have involved attempts to raise the
level of judicial review otherwise available under the FAA.”
Id. at 64. “While taking no position on the enforceability of
agreements to raise the level of judicial review,” the court
noted “that there is a fundamental difference between an
agreement to increase the scrutiny that courts apply when
considering whether to confirm or vacate an arbitration award
and an agreement to prevent courts from reviewing the sub-
stance of an arbitration award at all.” Jd. The court declined
to allow private litigants to completely divest the courts of
authority to review both the substance of the arbitration
award and the arbitration process under section 10 of the
FAA. /d. at 66. However, the court expressly chose not to
address the issue of heightened judicial scrutiny.'”
D. The Conflict Between The Circuits Will
Continue to Deepen Without this Court’s
Resolution of the Issue.
The substantial divide between the circuits is based on a
fundamental, philosophical difference about the purposes of
the FAA and is bound to decpen without resolution of the
issue by this Court. As recognized by the First Circuit in
Puerto Rico Telephone, those courts which have upheld
expanded judicial review “have held that the Act’s ultimate
purpose is to enforce the terms of the agreement to arbitrate,
The court in Kyocera went the other route and stated that contracting
tor a narrower standard of review “may be less troublesome” than a
broader, more searching, standard of review. such as is present here.
Avocera, 341 F.3d at 999 1.16.
19
and that they are therefore bound by federal! law to enforce
the arbitration agreements as drafted.” Puerto Rico Tele-
phone, 427 F.3d at 31. Those courts which have construed
the FAA to preclude expanded judicial review have done so
based “‘on the theory that allowing private parties to contract
for more searching review standards would create federal
jurisdiction by contract” and “on a public policy concern”
that broad judicial review of arbitration decisions would
jeopardize the benefits of arbitration. /d. at 30-31.
The circuit courts are thus in a square and irreconcilable
conflict which is unlikely to resolve itself without guidance
by this Court. The issue has gained the attention of several
legal commentators, See, e.g., Milana Koptsiovsky, A Right to
Contract for a Judicial Review of an Arbitration Award:
Does Freedom of Contract Apply to Arbitration Agreements ?,
36 Conn. L. Rev. 609 (2004); Lee Goldman, Contractually
Expanded Review of Arbitration Awards, 8 Harv. Negotiation
L. Rev. 171 (2003); Eric van Ginkel, Reframing the Dilemma
of Contractually Expanded Judicial Review: Arbitral Appeal
vs. Vacatur, 3 Pepp. Disp. Resol. L. Rev. 47 (2003).'!
The issue can have important consequences in a particular
case. For example, in Kvocera the arbitration award at issue
was for approximately one quarter of a billion dollars.
Kyocera, 341 F.3d at 990. The case at bar involves claims
that exceed one million dollars. In very large cases, the
'’ State courts are also in conflict on this issuc. For instance, a Texas
appellate court followed the Fifth Circuit rule and interpreted the FAA to
permit the parties to expand the scope of judicial review. Tanox, Inc. v.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.. \OS S.W.3d 244, 250-51
(Tex. Ct. App. 2003). However, the Caiifornia Court of Appeals in Cable
Connection, Inc. v. DIRECTV, Inc., 143 Cal. App. 4th 207, 223 (2006),
following Avocera, held that the FAA did not permit expanded judicial
review. However, on December 20, 2006, the California Supreme Court
granted review and depublished this decision. Cahle Connection, Inc. v
DIRECTY, Inc., 2006 Cal. Lexis 18087 (Cal. Dee. 20, 2006)
20
parties may not want to take the risk that an arbitrator will
make a legal error, which is not correctable through judicial
review. While these parties may very well have good reason
to choose the flexibility, economy and speed which arbitra-
tion may offer with regards to the factual issues of the case,
they may not be willing to give up the right to meaningful and
searching judicial review on the controlling principles of law.
The narrow default standards of the FAA simply do not meet
their needs. '”
Petitioner contends that parties should be free to contract
for judicial review of an arbitration award beyond the limited
scope of review set forth in the FAA. Parties that bargain for
expanded judicial review do so with the expectations that the
arbitration award will not be permeated with legal crror.
These contractual expectations should not be frustrated. Cer-
tainly, the question of whether such an agreement is
enforceable should not depend solely on the circuit in which
the arbitration award is issued, a situation which prevails
because of the current split in the circuits.
il. The Ninth Circuit’s Decision Is Fundamentally in
Conflict with this Court’s Cases Interpreting the
FAA.
This Court has enforced in several cases contract terms that
have called for arbitration under rules other than those
established by the FAA itself. The Ninth Circuit’s decision in
this case is in direct conflict with these decisions.
For example, in Vo/t, the parties agreed that their arbitra-
tion agreement would be governed by California law. Volz,
489 US. at 470. California law permitted the trial court to
stay an arbitration pending the outcome of other litigation.
In tact. the court in Avocera stated that the issue of expanded judicial
review was “of exceptional importance to future contracting parties and
litigants within this cnreunt.” Avocera, 341 F.3d at 997 (emphasis added).
21
Id. at 471 n.3. Respondent argued that this provision con-
flicted with sections 3 and 4 of the FAA, which call for the
direction of arbitration and a stay of the court proceeding
pending arbitration, but which do not permit a stay of the
arbitration itself. Jd. at 476-77. See also 9 U.S.C. §§ 3, 4.
The Court rejected this argument in clear and forceful
terms:
In recognition of Congress’ principal purpose of ensur-
ing that private arbitration agreements are enforced
according to their terms, we have held that the FAA pre-
empts state laws which require a judicial forum for the
resolution of claims which the contracting parties agree
to resolve by arbitration. But it does not follow that the
FAA prevents the enforcement of agreements to arbitrate
under different rules than those set forth in the Act itself.
Indeed, such a result would be quite inimical to the
FAA’s primary purpose of ensuring that private agree-
ments to arbitrate are enforced according to their terms.
Arbitration under the Act is a matter of consent, not
coercion, and parties are generally free to structure their
arbitration agreements as they see fit. Just as they may
limit by contract the issues which they will arbitrate, so
too may they specify by contract the rules under which
that arbitration will be conducted.
Id. at 478-79 (citations and quotations omitted).
Similarly, in Mastrobueno, the parties’ arbitration agree-
ment contained a provision stating that New York law ap-
plied. Mastrobuono, 514 U.S. at 53. Because New York
courts had decided that the power to award punitive damages
was limited to judicial tribunals and could not be exercised by
arbitrators, the Court was faced with the issue of “whether a
contractual choice—of—law provision may preclude an arbitral
award of punitive damages that otherwise would be proper.”
Id. at $8. Although the Court ultimately held that the parties
did not intend to foreclose an arbitral award of punitive
damages, the decision clearly supports the parties’ freedom to
22
contract for such an exclusion if they so desired. In this
regard, the Court, citing Vo/t, made the familiar statement that
the “central purpose” of the FAA was to ensure that private
agrcements to arbitrate are enforced according to their terms.
Id. at 53. Holding that “the FAA’s pro-arbitration policy does
not operate without regard to the wishes of the contracting
parties,” the Court was prepared to enforce the parties’ agree-
ment whether it included or excluded punitive damages. /d.
at 57-58.
Similarly, in First Options of Chicago, Inc. v. Kaplan, 514
U.S. 938 (1995), the Court again gave free reign to the parties
to structure their arbitration agreement as they saw fit, cven if
the agreement altered the role of the reviewing court_as
prescribed by the FAA. In First Options, the Court permitted
the parties to an arbitration agreement to alter the role of
the reviewing court as prescribed in the FAA and to allow
the arbitrator to determine, in the first instance, whether the
dispute was arbitral. Under the FAA, the determination as to
whether a dispute is arbitrable is reserved for the court. For
example, section 3 of the FAA states that the court in any
proceeding brought upon any issue referable to arbitration
shall stay the action until such arbitration has been held in
accordance with the terms of the arbitration agreement if the
court “is satisfied that the issue in such suit or proceeding is
referable to arbitration.” 9 U.S.C. § 3. Section 4 states that,
in the event that a party to an arbitration agreement fails to
proceed to arbitration, the court shall make an order directing
the parties to proceed “in accordance with the terms of the
agreement.” 9 U.S.C. § 4. The normal rule is thus that
the court, not the arbitrator, decides arbitrability. See, e.g.,
Howsam v. Dean Witter Reynolds, 537 U.S. 79, 82 (2002).
However, in First Options, this Court permitted the parties
to alter the traditional role of the court by private agreement.
The Court held that the question of “who has the primary
power to decide arbitrability turns upon what the parties
23
agreed about that matter.” /d. at 943 (emphasis in original).
The Court’s conclusion that the partics could decide the issue
flowed “inexorably from the fact that arbitration is simply a
matter of contract between the parties * * *.” /d.
In this case, the Ninth Circuit held that Kyocera compelled
reversal because the trial court had engaged in de novo review
of the arbitrator’s decision (according to the express terms of
the parties’ agreement) and had gone beyond the FAA stan-
dard of review. However, the reasoning behind Kyocera’s
holding is contrary to this Court’s precedents.
For example, the Kyocera rule as applied by the Ninth
Circuit in this case gives short shrift to the oft-repeated hold-
ing of this Court that the “central purpose” of the FAA is to
give effect to the parties’ contractual agreement to arbitrate.'”
Rather, the court in Kyocera cited to modern views of arbitra-
tion, views which extol its supposed speed, economy and
informality. Kyocera, 341 F.3d at 998.
Elevating these claimed benefits of arbitration over the
central purpose of the FAA is contrary to this Court’s prece-
dents. As stated in Volt, while “Congress was no doubt aware
that the Act would encourage the expeditious resolution of
disputes, its passage ‘was motivated, first and foremost by a
congressional desire to enforce agreements to which parties
had entered.”” Volt, 489 U.S. at 477 (citing Byrd, 470 U.S. at
220). In Byrd, this Court expressly held that efficiency and
speedy resolution of claims is not the main concern of the
'* This Court’s holding that the central purpose of the FAA is to give
effect to the parties’ agreement is also supported by the FAA’s legislative
history. See, e.g., Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219-
20 (1985). Nowhere does the legislative history assert that an agreement
to arbitrate must be enforced only in accordance with the FAA or that a
court is precluded from enforcing a contract on its own terms 1f the
contract expands on the FAA’s terms. Koptsiovsky, 4 Right to Contract
for a Judicial Review of an Arbitration Award: Does Freedom of Contract
Apply to Arbitration Agreements”, 36 Conn. L. Rev. at 614-15.
24
FAA and that it would not overlook what it viewed to be the
principal objective of the FAA ~ specific enforcement of
arbitration agreements — in favor of a mere “efficient” dispute
resolution. /d. at 219-20.'* Similarly, in First Options, this
Court held that “the basic objective in this area is not to
resolve disputes in the quickest manner possible, no matter
what the parties’ wishes,” but rather to ensure that arbitration
agreements, like other contracts, are enforced according to
their terms. First Options, 514 U.S. at 947.
As stated earlier, the Ninth Circuit’s decision in Kyocera
was also based on its assumption that expanded judicial re-
view allowed the parties to define the jurisdiction of the
district court by contract and/or that the parties were attempt-
ing to dictate how the court functioned. Kyocera, 341 F.3d at
999. However, this concern is misplaced because the FAA
docs not create an independent ground for federal court juris-
diction. Moses H. Cone, 460 U.S. at 26. In this case, the
district court had independent jurisdictional grounds to decide
the case based on its diversity jurisdiction and had the power
to decide all factual and legal issues in the case until the
parties entered into an arbitration agreement after the case
was partially decided. The expanded judicial review provi-
sion was specifically approved by the district court, which
relied on the Ninth Circuit’s decision in LaPine, which had
held that such provisions were enforceable.
As to the Ninth Circuit’s concern that allowing expanded
judicial review permits the partics to dictate how the court
functions, this Court’s decisions support the rights 01 parties
to agree to waive statutory and other rights, even if such
waiver affects the conduct of the court’s proceedings. See,
e.g., United States v. Mezzanatto, 513 U.S. 196, 200-01
06 on . , fe ° she
The Court in Byrd held that the “preeminent concern of Congress in
passing the Act was to enforce private agreements to arbitrate***."” Byrd,
470 US. at 221.
25
(1995) (criminal defendant may waive evidentiary admissibil-
ity of plea negotiations); Sac and Fox Indians of Miss. in
lowa v. Sac and Fox Indians of Miss. in Okl., 220 U.S. 481,
488-89 (1911) (waiver of evidentiary rule barring hearsay). It
is thus clear that, “absent an affirmative indication of Con-
gress’ intent to preclude waiver, we have presumed that
statutory provisions are subject to waiver by voluntary agree-
ment of the parties.” Mezzanatto, 513 U.S. at 201.
In addition, courts have permitted parties to waive affirma-
tive defenses that would normally bar the court from deciding
the case on the merits. Thus, in Photopaint Technologies.,
LLC v. Smartlens Corp., 335 F.3d 152, 160 (2d Cir. 2003),
the court held that the parties could agree to waive the statute
of limitations for confirming an arbitration award under
Section 9 of the FAA. Absent the parties’ stipulation, the
court would have been directed by Congress pursuant to the
terms of the FAA not to hear the dispute. See also United
States v. Wilson, 26 F.3d 142, 154-56 (D.C. Cir. 1994)
(discussing various cases which uphold agreements to waive
statutes of limitations).
The Ninth Circuit’s rule, enforced in this case, that parties
cannot waive what would otherwise be their right to have an
arbitration award judged under an extremely deferential stan-
dard of review is without support in this Court’s cases. The
rule reflects a judicial approach which applies subjective and
varying public policy views over precedent and which affords
greater weight to the supposed speed and efficiency of
arbitration than to the rights of the parties to contract for the
type of arbitration process which best suits their needs. See
Mezzanotto, 513 U.S. at 207 (the Court criticized the Ninth
Circuit for its reliance upon “public policy “ to “override the
presumption of waivability”).
While the Ninth Circuit accepts that the FAA creates only a
default standard which the parties can “contract around” for
all purposes prior to the final arbitration award, its policy
26
views cause it to abandon that premise with regards to judi-
cial review, despite the fact that there is nothing cither in the
text of the FAA or its legislative history to indicate that this
was Congress’ intent. Kyocera, 341 F.3d at 1000. In the face
of clear and long-standing authority from this Court that the
central purpose of the FAA is to give effect to the parties’
agreement to arbitrate, the Ninth Circuit’s avoidance of that
purpose when it comes to judicial review (and that of the
Tenth Circuit as set forth in Bowen) is without support and is
based solely on the court’s views of the public policy benefits
of arbitration.
In this case, the parties had the right to have their dispute
decided by the district court, which clearly possessed jurisdic-
tion over the case. They sought to conserve their own
resources, and that of the district court, by agrecing to try the
remaining issues in the case before an arbitrator. However,
the central premise of their agreement to arbitrate was that the
district court would retain the authority to correct errors of
law. Neither side bargained for an arbitration award which
contained such errors. Their agreement to arbitrate with
expanded judicial review was expressly approved by the
district court in reliance on the Ninth Circuit’s prior holding
in LaPine, which approved expanded judicial review under
the FAA. The arbitrator’s initial decision contained a fun-
damental error of law, which was corrected by the district
court in accordance with the parties’ agreement and resulted
in a final award in favor of Hall Street.
The Ninth Circuit’s reliance on Kyocera in this case has the
practical effect of reinstating an arbitral ruling on an issue of
law which Judge Graber of the Ninth Circuit held was “com-
pletely irrational” and which the pancl majority recognized
might very well be erroncous. The parties’ reasonable expec-
tations as set forth in their agreement to arbitrate are thus
being directly frustrated, to Hall Street's great disadvantage.
However, if the arbitration award had been issued in Boston,
27
Philadelphia, New Orleans or a myriad of other locations
throughout the First, Third, Fourth, Fifth and/or Sixth Cir-
cuits, Hall Street would be the prevailing party, not Mattel.
The central purpose of the FAA is to enforce agreements to
arbitrate according to their express terms. The holdings of
the Ninth and Tenth Circuits undermine this purpose while
the holdings of the First, Third, Fourth, Fifth and Sixth
Circuits follow this Court’s precedents and give controlling
weight to this principal purpose of the FAA.
The FAA was also intended to create a uniform federal
substantive law of arbitration. The current deep split in the
circuits concerning the important issue of expanded judicial
review under the FAA frustrates this important statutory
purpose as well. This Court should accept review to resolve
this important issue of statutory construction under the FAA.
CONCLUSION
For the above reasons, the petition for writ of certiorari
should be granted.
Respectfully submitted,
MICHAEL T. GARONE *
MICHAEL A. COHEN
SCHWABE, WILLIAMSON
& WYATT, P.C.
1211 SW Fifth Ave., Suites 1600-1900
Portland, OR 97204-3795
(503) 222-998]
* Counsel of Record Counsel for Petitioner
APPENDIX
la
APPENDIX A
9 USCS § 2
§ 2. Validity, irrevocability, and enforcement of agree-
ments to arbitrate
A written provision in any maritime transaction or a contract
evidencing a transaction involving commerce to settle by
arbitration a controversy thereafter arising out of such
contract or transaction, or the refusal to perform the whole or
any part thereof, or an agreement in writing to submit to
arbitration an existing controversy arising out of such a
contract, transaction, or refusal, shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract.
9 USCS § 9
§ 9. Award of arbitrators; confirmation; jurisdiction;
procedure
If the parties in their agreement have agreed that a judgment
of the court shall be entered upon the award made pursuant to
the arbitration, and shall specify the court, then at any time
within one year after the award is made any party to the
arbitration may apply to the court so specified for an order
confirming the award, and thercupon the court must grant
such an order unless the award is vacated, modified, or
corrected as prescribed in sections 10 and 11 of this title [9
USCS §§ 10, 11]. If no court is specified in the agreement of
the parties, then such application may be made to the United
States court in and for the district within which such award
was made. Notice of the application shall be served upon the
adverse party, and thercupon the court shall have jurisdiction
of such party as though he had appeared generally in the
proceeding. If the adverse party is a resident of the district
within which the award was made, such service shall be made
upon the adverse party or his attorney as prescribed by law
2a
for service of notice of motion in an action in the same court.
If the adverse party shall be a nonresident, then the notice of
the application shall be served by the marshal of any district
within which the adverse party may be found in like manner
as other process of the court.
9 USCS § 10.
§ 10. Same; vacation; grounds; rehearing
(a) In any of the following cases the United States court in
and for the district whercin the award was made may make an
order vacating the award upon the application of any party to
the arbitration --
(1) where the award was procured by corruption, fraud,
or undue means;
(2) where there was evident partiality or corruption in
the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in
refusing to postpone the hearing, upon sufficient cause
shown, or in refusing to hear evidence pertinent and
material to the controversy; or of any other misbehavior by
which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite
award upon the subject matter submitted was not made.
(b) If an award is vacated and the time within which the
agreement required the award to be made has not expired,
the court may, in its discretion, direct a rehearing by the
arbitrators.
(c) The United States district court for the district wherein an
award was made that was issued pursuant to section 580 of
title 5 may make an order vacating the award upon the
application of a person, other than a party to the arbitration,
who is adversely affected or aggricved by the award, if the
3a
use of arbitration or the award is clearly inconsistent with the
factors set forth in section 572 of title 5.
9 USCS § 11
§ 11. Same; modification or correction; grounds; order
In either of the following cases the United States court in and
for the district wherein the award was made may make an
order modifying or correcting the award upon the application
of any party to the arbitration --
(a) Where there was an evident material miscalculation
of figures or an evident material mistake in the description
of any person, thing, or property referred to in the award.
(b) Where the arbitrators have awarded upon a matter
not submitted to them, unless it is a matter not affecting the
merits of the decision upon the matter submitted.
(c) Where the award is imperfect in matter of form not
affecting the merits of the controversy.
The order may modify and correct the award, so as to effect
the intent thereof and promote justice between the parties.
4a
APPENDIX B
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
{Filed OCT 23, 2001]
Case No. CV 00-355-JO
HALL STREET ASSOCIATES, L.L.C.,
a Washington Limited Liability Company,
Plaintiff,
v.
MATTEL, INC., a Delaware corporation; TYCO INDUS-
TRIES, INC., a Delaware corporation, TYCO MANU-
FACTURING CORP., a Delaware corporation; and VIEW-
MASTER IDEAL GROUP, INC., an Oregon corporation,
Defendants.
STIPULATION AND [PROPOSED] ORDER
REGARDING AGREEMENT TO ARBITRATE
MARC D. BLACKMAN,
Oregon Bar No. 73033
RANSOM BLACKMAN LLP
1001 S.W. Fifth Avenue, Suite 1400
Portland, Oregon 97204-1144
Telephone: (503) 228-0487
Facsimile: (530) 227-5984
E-mail: marc@ransomblackman.com
PETER HSIAO, California Bar No. 119881
SIEGMUND SHYVU, California Bar No. 208076
MORRISON & FOERSTER, LLP
555 West Fifth Street, Suite 3500
Los Angeles, California 90013-10024
Telephone: (213) 892-5200
Facsimile: (213) 892-5454
E-mail: phsiao@moto.com
Attorneys for Defendant Mattel, Inc.
Sa
The partics, through the signatures of their counsel on this
Stipulation, hereby agree to the following:
|. The parties in Case No. 00-355-JO, plaintiff Hall
Street Associates, L.L.C., and defendant Mattel, Inc., agree to
arbitrate before one arbitrator all remaining issues not decided
previously in this case by the Court, the Honorable Robert E.
Jones presiding. The arbitrator shall prepare written findings
of fact and conclusions of law that may be reviewed by Judge
Jones at the request of either party, as more fully described in
paragraph 27 of the Rules attached as Exhibit A hereto.
2. All parties agree that the remaining issues in this case
are set forth in the pleadings and referenced in the pretrial
order and are as follows:
A. Whether the repairs and maintenance that Mattel
performed prior to May 31, 2001 satisfied its repair and
maintenance obligations under the Lease? If not, what
additional repairs and maintenance are required and at what
cost?
B. Whether the payments that Mattel has made to
Hall Street in connection with litigation brought by third
parties satisfied its indemnity obligation under the Lease? If
not, what amounts does it owe for:
(1) The Christopherson case;
(2) The Schiffer, Phelps and Keith cases.
C. Whether Hall Street suffered a loss, and, if so,
whether Mattel has any obligation under the Lease to
compensate Hall Street for:
(1) Remediation of shallow soil contamination
located under the buildings, including the film processing
building and injection molding buildings, including remedia-
tion of the soil and damage to and loss of use of the buildings
themselves, in excess of the amount reflected in the estimate
6a
for this work that Mattel has previously offered to pay to
Hall Street;
(2) Expenses incurred by Hall Street in relation to
the Oregon Department of Environmental Quality (“DEQ”)
proceeding relating to the deep aquifer contamination by
TCE, including any amounts Hall Street may be required to
pay to DEQ;
(3) Damages, if any, to Hall Street’s use or right
to withdraw water from under the property.
(4) Expenses incurred by Hall Street for environ-
mental consulting services performed by Dames & Moore in
connection with environmental issues on the property.
(5) Expenses incurred by Hall Street for legal
services rendered by Short, Cressman in connection with
environmental issues on the property.
(6) Expenses incurred by Hall Street in pursuing
claims against its own insurers regarding all of the above.
D. Which party is deemed to be the “prevailing
party” in this litigation and what amount is it entitled to
receive from the other under paragraph 24 of the Lease for
the attorney’s fees and costs it incurred as a result of this
litigation?
3. The arbitrator shall decide the arbitration on or before
December 30, 2001, and issue written findings of fact and
conclusions of law. Any request for review of the arbitrator's
decision will be made by motion to Judge Jones and filed
within 15 days of the arbitrator’s ruling.
4. The arbitration wil! leave in place all issues already
decided by Judge Jones, meluding the orders dated Decem-
ber 11, 2000 and May 21. 2001.
5. The parties agree to schedule the arbitration to begin
on December 12, 2001, to continue until completed to the
7a
arbitrator’s satisfaction. The parties agree that there will be no
formal discovery. The parties will exchange expert reports
prior to the arbitration, and limit the expert testimony to the
opinions contained in those reports as provide by the Federal
Rules of Civil Procedure.
6. The parties agree that they will in good faith work
together to select an arbitrator, who shall be selected on or
before November 1, 2001.
7. The parties agree to extend the Protective Order
entered by the Court on April 4, 2001 to cover all matters in
the arbitration, including the arbitrator’s written findings of
fact and conclusion of law.
8. The partics will conduct the arbitration according to
the rules attached hereto as Exhibit A.
9. The parties agree that this agreement will bind both
parties, and waive any challenge they may have to the
procedures set forth in this Agreement.
10. The parties agree that they have both fully par-
ticipated in the drafting of this Agreement, are represented by
counsel, and have negotiated this Agreement at arm’s-length,
and therefore there will be no presumption that ambiguities, if
any, in this Agreement be interpreted against the drafter.
11. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original
agreement, but all of which shall be considered one instru-
ment and shall become a binding agreement when one or
more counterparts have been signed by each of the partics and
delivered to the other.
12. This Agreement constitutes the entire agreement
among the parties to it, and supersedes any prior or contem-
poraneous understandings or agreement with respect to the
issues addressed herein. It may be amended only by a written
instrument executed by all of the parties.
8a
IT IS SO STIPULATED AND AGREED.
Dated: 10/22/01.
MARC D. BLACKMAN
RANSOM BLACKMAN LLP
PETER HSIAO
SIEGMUND SHYU
MORRISON & FOERSTER, LLP
By: /s/ [Illegible]
MARC D. BLACKMAN, Esq.
Attorneys for Defendant Mattel, Inc.
Dated: 10/22/01.
JAMES M. FINN
DEBRA MALDONADO
SCHWABE, WILLIAMSON &
WYATT, P.C.
By: /s/ James M. Finn
JAMES M. FINN, Esq.
Attorneys for Plaintiff Hall Street
Associates, L.L.C.
IT IS SO ORDERED
Dated: Oct. 23, 2001.
/s/ Robert E. Jones
HON. ROBERT E. JONES
U.S. District Court Judge
9a
RULES FOR THE ARBITRATION BETWEEN HALL
STREET ASSOCIATES, LLC AND MATTEL, INC.
General: The parties intend for this arbitration to be
conducted, to the extent possible, according to the rules
of the Federal Rules of Civil Procedure and Local
Rules of the U.S. District Court for the District of
Oregon. Where the following rules do not specifically
address the issue, the parties agree that the Federal
Rules of Civil Procedure will be given the most
persuasive weight in the arbitrator’s decision on how to
resolve the issue.
Service and Filing.
A. Service and Filing: How Made. All papers will
be served and filed by fax and mail on all counsel of
record pursuant to Fed. R. Civ. P. 5(b).
Hearing Site. The arbitration hearing shall begin on
December 12, 2001 and be held at the arbitrator’s
office, or a site to be selected by the arbitrator in
Portland, Oregon.
Appointment of Arbitrator. The arbitrator shall be
identified to the Court by November 1, 2001.
Conduct and Role of Arbitrator. In the arbitration
proceeding, an arbitrator shall be bound by the same
ethical considerations as that of a judge and will adhere
to the conduct prescribed by the Code of Judicial
Conduct, After the appointment of the arbitrator, the
arbitration proceeding thereafter shall be conducted by
the arbitrator.
Restrictions on Communication Between Arbitrator
and Parties. No disclosure of any offers or settlement
made by any party shall be made to the arbitrator prior
to the announcement of the award. Neither counsel nor
any party may communicate with the arbitrator re-
10.
10a
garding the merits of the case except in the presence of,
or upon reasonable notice to, all other parties. An
application or discussion for a postponement or other
such periphcral matters may be communicated directly
with the arbitrator when warranted by necessity and
time constraints, but only after unsuccessful attempts to
communicate through the secretary of the arbitrator and
after unsuccessful attempts to discuss the matter via
conference call among all concerned.
Compensation of Arbitrator.
A. Statement of Time Expended And Expenses. An
arbitrator shall serve a detailed Statement of Time
Expended on each party within fourteen days after the
award or supplemental award or any earlier termination
of the arbitration by scttlement or otherwise, accom-
panied by any refund due to cach party who paid the
compensation deposit. The Statement of Time Ex-
pended shall itemize the dates, task performed, and
time spent by the arbitrator on the arbitration, or shall
indicate the minimum fee charge, and shall also list
expenses reimbursable. The parties shall each pay one
half of the arbitrator’s fees and expenses.
Postponements. A hearing date may be postponed only
upon just and sufficient cause by the arbitrator, or upon
the application of any party to the arbitrator (whose
decision shall be final), or by the agreement of the
parties.
Issues to be Presented. The parties agree that the
issues to be decided in the arbitration are set forth in
the Stipulation and Order Regarding Agreement to
Arbitrate, as signed by Judge Jones.
Discovery. There will be no discovery.
11.
lla
Exchange of Proof. At least fourteen days prior to the
date of the arbitration hearing, each party shall file with
the arbitrator and serve upon all other parties a
statement containing a list of witnesses whom the party
intends to call at the arbitration hearing, a list of
exhibits and documentary evidence. The statement
shall contain a narrative statement of the matters about
which each witness will be called to testify, which will
serve as the witnesses’ direct testimony, the address
and telephone number of each such witness and affiant,
and whether the Witness will testify by telephone. At
least seven days prior to the arbitration hearing, each
party shall file and serve upon a!l other parties its
exhibits and other documentary evidence, including its
expert report, and a “trial brief” for the mediation.
Plaintiff shall designate its experts and serve on the
other party the reports required by Fed. R. Civ. P.
26(a)(2)(B) not later than November 2, 2001. Defen-
dant shall designate experts to be called by defendant
and serve on the other party the reports required by
Fed. R. Civ. P. 26(a)(2)(B) not later than November 30,
2001. Plaintiff shall not be permitted to add any new
rebuttal expert, but may serve on the other party
rebuttal expert reports not later than December 6, 2001.
The rebuttal report will be limited to respond only to
matters raised in one of defendant's expert reports, and
shall not introduce or address any issue not raised in
defendants’ report. The mediator will also take into
account the fact that defendant is not filing rebuttal
reports under this schedule, and allow appropriate
rebuttal testimony from defendant’s experts at the
arbitration hearing. All experts will be limited to testify
at trial to the matters identified in their report.
A party failing to comply with the rules delineated in
this paragraph may not present at the hearing a witness,
12.
12a
exhibit or documentary evidence required to be dis-
closed or made availabic, except with the permission of
the arbitrator.
Conduct of Hearing.
A. Procedure The arbitrator shall exercise reason-
able control over the mode and order of interrogating
witnesses and presenting evidence so as to:
1. Make the interrogation and presentatior effective
for the ascertainment of the facts.
2. Protect witnesses from harassment or undue ©
embarrassment.
B. Oaths and Evidence. The arbitration shall be
conducted under the Federal Rules of Evidence. A
witness shall be placed under oath or affirmation by the
arbitrator prior to presenting testimony. If the hear-
ing room has a speaker phone, a witness may testify
by telephone, unless the arbitrator finds that this
method would be unfair. The arbitrator may question
any witness.
C. Recording. The hearing shall be recorded by
stenographer or clectronically by the arbitrator.
D. Stipulation to Evidence. The parties should stip-
ulate to the admission of evidence where there is no
genuine issue as to its relevancy or authenticity.
FE. Privacy. Unless otherwise specifically provided
by law, the hearing and all proccedings herein shall be
private. All matters in the arbitration, including but not
limited to any testimony, documents, findings of fact,
conclusions of law, or transcript of the proceedings,
shall be kept confidential under the terms of the
Protective Order entered by the U.S. District Court in
this matter on April 4, 2001.
13.
14.
15.
16.
13a
F. Exhibit/Witness List. The arbitrator shall make a
record of the names and addresses of the witnesses, and
the exhibits offered and reccived into evidence.
Sanction for Failure to Comply with Arbitration
Order. The arbitrator shall have the authority to
require a party, an attorney advising each party, or
both, to pay the reasonable expenses, including
attorney’s fees, caused by the failure of such party or
attorney, or both, to obcy an order of the arbitrator.
Subpoena and Contempt Power. The arbitrator shall
have the power granted in 9 USC Sec. 7 to compel the
attendance of witnesses duly notified by either party
and to enforce from either party the production of all
books, papers and documents deemed material to the
cause by the arbitrator. The arbitrator or a party shall
have the right granted in 9 USC Sec. 7 to initiate
contempt proceedings against any witness or party
refusing to answer a subpoena or obey any lawful order
of the arbitrator.
Failure or Refusal of a Party to Participate; Prima
Facie Hearing. The failure, refusal, or inability of any
party to participate in the arbitration process or to
attend the hearing or any portion thereof, or a party’s
failure to obtain an adjournment or postponement of the
hearing or any portion thereof after due notice thereof,
shall not prevent the arbitration process from con-
tinuing or prevent the hearing from taking place as
scheduled or prevent an award from being rendered.
However, the arbitrator shall not render an award
except upon evidence made at the hearing sufficient to
support the award rendered.
Adjournments. Upon the request of any party and at
the discretion of the arbitrator, the hearing maybe
adjourned from time to time. The hearing shall be
adjourned upon the joint request of all parties.
17.
18.
19.
20.
21.
22.
l4a
Closing of Hearing. After each party has stated that it
has no further evidence to present, the arbitrator shall
declare the hearing closed and may thereupon, at the
discretion of the arbitrator, hear oral arguments of the
parties.
Reopening of Hearing. A hearing may be reopened
prior to the rendering of the award upon the motion of
the arbitrator or by the arbitrator upon the application
of any party if, in the discretion of the arbitrator, it
appears just and proper to do so.
When Decision Due. The arbitrator shall render a
written decision promptly and shall make every rea-
sonable effort to render the award within fourteen days
from the close of the hearing.
Scope of the Decision. The arbitrator shall prepare
written findings of fact and conclusions of law.
Form of Decision and Delivery. The decision shal’ be
in writing and signed by the arbitrator. A signed
original of the award shall be served upon each party
by fax on the date it is signed, and by regular mail.
Costs and Attorney’s Fees.
A. Procedure. If the arbitrator decides that the Lease
requires the payment of attorney’s fees and costs to
cither side, the arbitrator shall require the prevailing
party to submit a statement containing a detailed,
itemized list of such feces and costs sought in com-
pliance with the Federal Rules of Civil Procedure and
the Local Rules of the U.S. District Court for the
District of Oregon. The arbitrator shall provide the non
prevailing party an opportunity to submit a written
objection, also in compliance with the Federal Rules
and Local Rules as stated above. The arbitrator will set
a schedule for the submission of these items, and issue
23.
24.
N
lSa
a supplemental decision without farther hearing (unless
requested by the arbitrator) that contains findings of
fact and conclusions of law sufficient to support any
such payment. The award shall specifically state the
award in a dollar amount,, and provide that payment is
to be made in 30 days from the date of decision. The
supplemental decision shall be issued within 21 days of
the decision issued pursuant to Paragraph 19 above,,
following the same form and procedure for the entry of
that decision, and shall be limited to the issue of costs
and attorney’s fees.
Correcting an Award.
A. Purpose. A decision or supplemental decision
may be amended by the arbitrator to correct an inad-
vertent miscalculation, description, designation, etc., or
a typographical error or misplaced decimal point. An
amended award shall not change any decision on its
merits.
Confirmation of Award by Judgment. The parties
will submit the decision and supplemental decision to
U.S. District Court for the District of Oregon (U.S.
District Judge Robert E, Jones, presiding) within thirty
(30) days after the issuance of the decision, for the
confirmation of the decision as a judgment of such
court. Either party may request that the Court set a
bricfing schedule for review or modification of the
dvcision. Any Court review of the arbitrator’s decision
shall be as set forth in paragraph 27 below.
Return of Exhibits. The exhibits and any recording of
the proceeding will be submitted upon request of either
party to the U.S. District Court for its review. If these
materials are not requested by the Court, the arbitrator
may request that the partics stipulate to the release
and/or destruction of these materials.
26.
27.
28.
l6a
Modification of Rules by Stipulation. The parties
may by stipulation modify any of these rules.
Judicial Review of Arbitrator’s Findings of Fact
and Conclusions of Law. The arbitrator shall decide
the matters submitted based upon the evidence
presented and the applicable law. The arbitrator shall
issue a written decision which shall state the basis of
the decision and include specific findings of fact and
conclusions of law. The United States District Court for
the District of Oregon may enter judgment upon any
award, either by confirming the award or by vacating,
modifying or correcting the award. The Court shall
vacate, modify or correct any award: (i) where the
arbitrator’s findings of factS are not supported by
substantial evidence, or (ii) where the arbitrator’s con-
clusions of law are erroneous.
No Contesting of Arbitration Rules. The partics agree
that no party shall contest in any court of law the
arbitration rules set forth herein as contrary to any le ¥,
regulation, rule, or guidcline.
17a
APPENDIX C
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
Case No. CV 00-355-JO
HALL STREET ASSOCIATES, L.L.C.,
a Washington Limited Liability Company,
Plaintiff,
V.
MATTEL, INC., a Delaware corporation; TYCO INDUS-
TRIES, INC., a Delaware corporation, TYCO MANU-
FACTURING CORP., an Oregon corporation; TYCO
TOYS INC., a Delaware corporation; and VIEW-
MASTER IDEAL GROUP, INC., an Oregon corporation,
Defendants.
ARBITRATOR’S FINDINGS OF FACT AND
CONCLUSION OF LAW
FINDINGS OF FACT
1. Plaintiff dall Street Associates, L.L.C. (“Hall Street”)
is a Washington limited liability company and is the owner of
certain property in Washington County, Oregon, located at
8585 S.W. Hall Boulevard, Beaverton, Oregon (the “Prop-
erty”). Cascade Square Associates (“Cascade”) is the sole
principal of Hall Street and its predecessor-in-interest.
2. Defendant Mattel, Inc. (“Mattel”) is a Delaware corpora-
tion doing business in Oregon. Its “predecessors-in-interest.”” as
that tenn is commonly understood, but without regard to the
“Lease” referred to below, are View-Master International
Group, Inc., and View-Master Ideal Group (collectively “View-
Master”); and Tyco Industries, Inc.. Tyco Manufacturing
Corporation, and Tyco Toys, Inc. (“collectively “Tyco”).
18a
History of the Property
3. The Property was once a part of a lasgcr, 50-acre L-
shaped property. The larger property consisted of three
distinct parcels, known as Parcels |, 2, and 3.
4. From 1951 to 1967, Sawyers, Inc. (“Sawyers”) owned
Parcels 1, 2, and 3, and operated a toy manufacturing facility.
5. In 1967, GAF acquired Sawyers and continued
operations at the site.
6. In 1979, GAP sold Parcel 3 to the Southern Pacific
Industrial Development Company.
7. In 1981, GAF sold Parcels | and 2 to View-Master.
8. View-Master owned and operated Parcels | and 2 from
approximately 1981 to 1983.
9. In 1983, View-Master sold Parcels | and 2 to Western
International Propertics (also known as Western Industrial
Propertics), but leased back Parcel 1 to continue its manu-
facturing activities.
10. In 1984, Western International Properties subdivided
Parcel 1, with the northwest corner sold to Commercial Real
Estate Company, which redeveloped it as an office building.
The remaining portion of Parcel | (the “Property”) was sold
to John Eyler in 1984. Mr. Eyler subsequently conveyed
Parcel | to Cascade in 1985.
11. In 1989, Tyco acquired the assets of View-Master,
which remained a subsidiary of Tyco.
12. In 1997, Mattel acquired Tyco.
13. In 1998, Cascade transferred its ownership interest in
the Property to Hall Strect.
14. On May 31, 2000, Mattel sent Hall Street a Notice of
Termination informing Hall Strect that it was terminating the
lease effective May 31, 2001, almost two years prior to the
scheduled lease termination date in 2003. At an earlier stage
19a
of this litigation, Hall Street alleged ihat Mattel’s early
termination of the lease term was not permitied under the
terms of the lease. Judge Jones bifurcated tha’ issue from the
issues in this arbitration and, after a two-day bench trial,
concluded that Mattei’s termination did not violate the
agreement. Accordingly, Mattel’s early termination of the
lease is not an issue in this arbitration.
15. The Lease terminated and Mattel vacated the Property
on May 31, 2001. Except for remediation efforts, the Property
remains unoccupied.
The Lease
16. On March 5, 1991, View-Master entered into a Lease
Agreement with Cascade for the Property (the “Lease”). On
April 26, 1996, Cascade and View-Master executed a First
Amendment to the Lease, which, among other items,
extended the term of the Lease.
17. The Lease was negotiated by Robert Hibbs, an attorney
and partner of Cascade, for the Landlord, and Dennis
Wesolowski and Michael Kennedy, attorneys for Vicw-
Master. Both parties participated in drafting certain portions
of the Lease.
18. The Lease was negotiated in the context that View-
Master was the only party with intimate knowledge of the
property and would, therefore, indemnify Hall Street for all
activities with respect to the premises whether or not they
occurred before the date of the original lease of June 1, 1985,
with limited exceptions.
19. The Lease replaced the Original Lease dated June 1,
1985, which had provided in Section 6.3 as follows:
“Tenant shall indemnify and defend Landlord from
any claim, loss, or liability arising out of or related to
any action or inaction of Tenant, its employees, agents
or invitees or any condition of the Property.” (Em-
phasis added.)
20a
20. The recitals to the Lease provide as follows:
“B. View-Master designed and constructed the
Premises as a toy manufacturing facility at a time
when it owned the underlying real property. View-
Master has been the only party to occupy or conduct
business on the Premises. View-Master continued to
lease the Premises front Landlord pursuant to the
Original Lease which provided that View-Master
Indemnified Landlord for its actions with respect to
the Premises or any condition of the Premises. The
parties intended that such Indemnity applied to
Tenant’s actions in constructing the Premises, including
its choice of building materials, and all activities with
respect to the Premises whether or not they occurred
before the date of the Original Lease.
C. In Executing this Lease, the parties intend that
Tenant shall assume View-Master’s obligation to
indemnify Landlord under the Original Lease, which
indemnity obligation shal] survive termination of the
Original Lease, and intend that Tenant shall indem-
nify Landlord for any actual or potential liability
Landlord may be exposed to as a result of Tenant’s
future actions with respect to the Premises. Because
the Premises are a_ self-contained manufacturing
facility constructed and previously owned by View-
Master, and because the Original Lease was on a
triple net basis, Landlord has not been actively
involved in managing the Premises and relied on
View-Master’s agreement to indemnify Landlord for
Its actions.” (Emphasis added.)
21. In addition, the Lease contains the following relevant
sections:
a. Section 5(b) provides, in pertinent part:
“Tenant shall comply at its expense with all ap-
plicable laws, rules and regulations of any public
2la
authority, including but not limited to those regarding
maintenance, operation, and use of the Premises, use
of machinery and signs on the Premises, and those
regarding discharging hazardous materials or any
other waste.” (Emphasis added.)
. Section 5(c) provides, in pertinent part:
“Tenant shall not conduct or permit any activities on the
Premises that create a nuisance or damage the reputation
of the Premises or Landlord’s adjoining property, or are
reasonably offensive to Landlord, or other owners or
users of adjoining property.”
. Section 8(a) provides:
‘Maintenance of the Premises. Tenant will, at its sole
cost and expense, maintain the Premises and make
repairs to the Premises, including without limitation
the heating, ventilating, air conditioning, mechanical,
electrical, elevator, and plumbing systems, structural
roof, walls, and foundations, the fixtures and appur-
tenances to the Premises, other improvements, sidewalks
and parking areas as and when required or requested
by any governmental agency or when needed to
preserve them in good repair, operating condition,
working order and good appearances, and regardless
of whether the repairs are ordinary or extraordinary,
foresceable or unforeseeable, capital or noncapital, or
the fault or not the fault of Tenant, its agents,
employees, invitees, visitors, or contractors. All such
repairs will be in quality and class equal to the
original work or installations.” (Emphasis added.)
. Section 12(a) provides, in pertinent part:
“Tenant shall comply with all federal, state and local
environmental laws and regulations in its use of the
Premises, including but not limited to the Resource
22a
Conservation and Recovery Act, as amended
(RCRA), and the Comprehensive Environmental
Response Compensation and Liability Act, as
amended (CERCLA). . .. Tenant shall indemnify,
hold harmless and defend Landlord against all costs
and claims associated with a release {of hazardous
wastes] whether occurring before the Lease Com-
mencement Date, or during the Lease term.”
(Emphasis added.)
. Section 12(b) provides:
“Tenant shall use its best efforts and safety practices
to prevent the release by Tenant, its agents or
employees of hazardous substances as herein defined
on the Premises. Tenant shall immediately notify
Landlord in writing of any release of hazardous waste. In
addition, Tenant assumes liability for the use or
presence in the Building materials or on or about the
Premises of any hazardous waste including but not
limited to asbestos or lead. Tenant assumes all
responsibility for the investigation and cleanup of any
such release or presence or use of hazardous Building
materials and shall indemnify and defend Landlord, its
officers, agents, and employces, against and from any
and all losses, costs, damages, expenses (including
environmental abatement costs) or liabilities directly
or indirectly resulting or arising from any such
release or presence or use or hazardous building
materials. Subject to the conditions of Section 12c,
below, this provision shall continue in full force and
effect regardless of whether this Lease is terminated
pursuant to any other provision or the Premises are
vacated by Tenant,” (Emptas:s © ed.)
. Section 12(c) provides, fhomert part:
“To the extent Tenant has been in compliance with
applicable environmental laws then, notwithstanding
23a
the foregoing language in Section 12.b. above, Tenant
shall not be held liable following the expiration of this
Lease term for the following: . . .
(iii) the removal and disposal of any hazardous waste
on the Premises, the presence or use of which
hazardous waste has not been caused directly or
indirectly by the acts of the Tenant or View-
Master Ideal Group, Inc.
If Landlord decides, at the time of the expiration of the
Lease, to demolish or otherwise tear down the Building,
and not to relet the Premises, then Tenant shall be liable
only for amounts that Tenant would have had to expend
had the Building remained standing and not for any
additional costs associated with the demolition or tearing
down of the Building.” (Emphasis added.)
. Section 12(d) provides:
“Hazardous waste, hazardous building materials or haz-
ardous substances for the purposes of this Lease shall be
defined to include, but shall not be limited to, the
following: ...
1b) Any substance defined as “hazardous substance,”
“hazardous material,” or “toxic substance” in:
(1) the Comprchensive Environmental Response,
Compensation, and Liability Act of 1980, as
amended;
(2) the Hazardous Materials Transportation Act, as
amended;
(3) the Resource Conservation and Recovery Act, as
amended; and
(4) any similar federal, state, or local law or
regulation now or hereafter in effect.”
24a
h. Section 13({a) provides:
“Indemnification. Tenant shall defend and indemnify
Landlord and save it harmless from and against any
and all liability, damages, costs, or expenses, includ-
ing attorneys’ fees, arising from any act, omission, or
negligence of Tenant or its officers, contractors,
licensee; agents, servants, employees, guests, invitces,
predecessors-in-interest, or visitors in or about the
Building or Premises as a result of any act, omission
or negligence of Tenant or its officers, contractors,
licensees, agents, servants, employees, guests, invitees,
predecessors in interest, or visitors, whether occur-
ring in the construction of or choice of building
materials for the Building, occurring during or prior to
the Original Lease [or] during this Lease, relating to
discharging hazardous materials, or arising from any
breach or default under this Lease by Tenant.
In the event that Landlord is sued for failure to
comply with local, state or federal environmental
laws and/or regulations regarding the Premises, and it
is alleged the spill or violation occurred over a number
of years, some portion of which time is outside of the
term of this Lease or the Original Lease, then Landlord
shall agree to seek to have the other tenants (whether
prior or subsequent to the Lease or Original Lease) pay
for their prorated amount of Landlord’s defense costs in
such suit. Tenant’s obligation to defend shall not be
delayed but shall be limited to its allocable portion of
such defense costs. . . .
To the extent Tenant has been in compliance with
applicable environmental laws, notwithstanding the
foregoing language in Section 13.a. above, Tenant shall
not be held liable following the expiration of this Lease
term for the following: . . .
25a
(iit) the removal and disposal of any hazardous waste
on the Premises, the presence or use of which
hazardous waste has not been caused directly or
indirectly by the acts of the Tenant or View-
Master Ideal Group, Inc. ...
(iv) Any other liability, damage, cost, or expense
which has not been caused directly or indirectly
by the acts of Tenant or View-Master Ideal
Group, Inc. ...
If Landlord decides, at the time of the expiration of the
Lease, to demolish or otherwise tear down the Building,
and not to relet the Premises, then Tenant shall be liable
only for amounts that Tenant would have had to expend
had the Building remained standing and not for any
additional costs associated with the demolition or tearing
down of the Building.” (Emphasis added.)
1. Section 20 provides, in pertinent part:
“{U]pon expiration of the term of this Lease, whether by
lapse of time or otherwise, Tenant shall promptly and
peacefully surrender the Premises, together with all keys
thereto, to Landlord in as good condition as when re-
ceived by View-Master from Landlord under the Orig-
inal Lease or as thereafter improved, reasonable use,
wear and tear excepted.”
}. Section 31 provides:
“The Premises and Landlord’s adjoining property are
both served by a drainage system which consists of open
grates and underground sewers and catch basins. Tenant
shall maintain in good condition and repair the portion
of such system on the Premises and shall be responsible
to Landlord pursuant to the indemnity provisions in
Section 13 for any materials Tenant discharges into such
drainage system.
26a
k. Section 32 provides:
“The Premises and Landlord’s adjoining property are
both served by one unified sanitary sewer system. Ten-
ant shall be responsible for maintaining in good condi-
tion and repair the portion of such system located on the
Premises and shall be responsible to Landlord pursuant
to the indemnity provisions in Section 13 for any
materials Tenant discharges into such drainage system.”
19. During the negotiations, View-Master asked Cascade to
remove the term “predecessors-in-intercst” from Section 13a,
fearing that the language would later be interpreted to include
Sawyers and GAF. Cascade refused, but did agree to add
other language to Section 13 limiting View-Master’s liability
if certain conditions were met. Despite that refusal, View-
Master signed the Lease.
Environmental Issues at the Property
22. From approximately 1951 to 1980, GAF/Sawyers used
trichlorocthene (“TCE”) to remove grease from metal parts.
The degreasing operations occurred in a building on Parcel 2,
where TCE contamination of the shallow groundwater is
found today. GAF/Sawyers also disposed of sanitary wastes
via a septic tank and drainficld located at the north end of
Parcel 1, where shallow groundwater contamination is also
found today. Spills of TCE by GAF/Sawyers occurred at the
degreasing location and other areas. Drums of degreaser
wastes were dumped on Parcel 3 by GAF/Sawyers. There is
no evidence of TCE use at the facility after GAF sold the
Property in 1981.
23. The well and water tower on Parcel | were installed in
1950. The on-site well supplied facility water.
24. During the period 1981-1998, View-Master, Tyco, and
Mattel did not test the well water, groundwater, or shallow
soils for contaminants.
27a
25. In March 1998, during testing performed at the instance
of Hall Street by SECOR, an environmental consultant, water
from the well was discovered to contain TCE at levels far in
excess of the federal maximum allowable level. Efforts were
initiated under the auspices of the Oregon Department of
Environmental Quality (“DEQ”) to investigate the environ-
mental contamination problem and plan remedial efforts.
Those investigations revealed contamination of the Property
and adjacent parcels by several types of contaminants, in-
cluding TCE, petroleum hydrocarbons (“TPH”), cyanide,
chromium and silver. The contamination was determined to
exist not only in the on-site well, but also in the shallow soil,
groundwater, and deep aquifer underlying the Property.
26. Mattel shut down the well upon discovery of the
contamination. This shutdown is permanent and Hall Strect
has lost any water rights it had.
27. There is insufficient evidence to prove that Mattcl’s use
of the well aficr 1981 circulated TCE and resulted in
additional contamination of the shallow soil and groundwater.
28. There is insufficient evidence to prove that the condi-
tion of certain pipes after 1981 resulted in TCE leaks and
additional contamination of the shallow soil and groundwater.
29. In November 1998, Mattel and GAF entered into a
consent order with DEQ. GAF agreed to investigate the cn-
vironmental conditions of the Property, and Mattel agreed to
provide public outreach and communications to the employ-
ees. Interim cleanup actions to address areas of immediate
concern were completed during the Summer of 2001.
30. As part of the site investigation, a risk assessment was
performed under DEQ’s direction to evaluate all contami-
nants at all areas. The risk assessment identified current and
future risks at the site in two locations. First: unacceptable
risk was identified from TCE in the deep aquifer if that
source is to be used as drinking water. The risk assessment
also identified possible impact to ecological receptors in the
28a
wetland, if untreated water from the deep groundwater were
ever to be pumped to the surface and discharged.
31. Second, unacceptable risk was identified from TCE in
the shallow groundwater located at Parcel 2 in the location of
spills from GAF/Sawyers at the degreasing machine area and
at Parcel | in the GAF/Sawyers drainfield urea. This risk was
limited to trench workers who may be exposed to shallow
groundwater in those areas, should there be any excavation of
those areas in the future. The shallow groundwater in all other
areas of the Property have only low levels of TCE and other
associated compounds present, and therefore no current or
future remediation or special conditions are necessary.
32. Petroleum hydrocarbons were also identified in the soil
located under Buildings 400 and 800/900 that were used by
both GAF and View-Master for injection molding machines
and boilers. Because the hydrocarbons capped by the building
are immobile, and have low toxicity, DEQ has found that
the hydrocarbons are posing no risk and is not requiring
their remediation. However, if the buildings were ever re-
moved, and the soil was subsequently disturbed, the hydro-
carbons in the soil must, under DEQ’s direction, be properly
treated.
33. The contaminants in the soil in the remainder of Parcel
1 are below residential cleanup standards; therefore, no
current or future remediation or special conditions are neces-
sary as to the shallow soil.
34. The investigation and cleanup of contamination at the
Property, to the extent required by DEQ, is being addressed
by G-I Holdings, the successor to GAF, under DEQ’s
supervision. On October 29, 2001, DEQ issued its Recom-
mended Remedial Action Staff Report for the Property.
Repair Issucs
35.In general, View-Master, Tyco, and Mattel failed to
repair and maintain the Property as required by Section 8a
prior to 2000.
29a
36. In preparation for terminating the Lease and vacating
the Property, Mattel cngaged in an extensive program to
assess and repair the facility.
37. Mattel offered to pay the Landlord the cost of repair, in
lieu of performing them, if the Landlord intended to tear
down the buildings to redevelop the Property. Hall Street
refused.
38. Mattel provided a list of repairs to the Landlord before
beginning work. Mattel kept Halli Street informed by
providing regular status reports and providing Hall Street
with the opportunity to inspect the work. Neither Hall Street
nor Mortenson, Hall Street’s consultant, responded to the
letters, and neither visited the Property er criticized the work
while it was performed.
39. The City of Beaverton inspected repairs on the roof and
other building elements both before and after the work was
completed, and approved all work performed. All of the
materials used in the work performed were cqual or better in
quality and class to the original work.
40. Mattel expended more than one million dollars in
repairs to the Hall Street facility in 2000. In its final
inspections before returning the Property to the Landlord at
the end of May 2001, Mattel determined that the structures
were in good condition, that none of the roofs leaked, and that
all of the mechanical, electrical, water and other equipment,
pipes, fixtures, pavement and systems on the Property were in
good working order.
41. Hall Street presented no evidence regarding the condi-
tion of the Property when View-Master began its lease:
Third Party Lawsuits
42. Hall Street and Cascade were sued by former em-
ployees of Tyco for their negligence as Landlord for the TCE
Contamination. These cases are identified as the Keith,
30a
Phelps, and Schiffer cases. Those cases were subsequently
dismissed for lack of proof of any injury caused by any
condition at the property.
43. Hall Street incurred expenses defending those claims
and sceks indemnification from Mattel.
44. GAF, Hall Street, and Mattel were also sued by the
daughter of a Tyco worker in the Christopherson case for
personal injuries allegedly caused by TCE contamination at
the Property. That case was subsequently dismissed for lack
of proof of any injury caused by any condition at the
property.
45. Schwabe, Williamson & Wyatt was the only counsel of
record for Hall Street in the Christopherson cases, Matte] has
paid for those attorneys’ fees and costs.
46. In addition, Hall Street incurred defense costs from
Short, Cressman & Burgess, the law, firm of Mr. Robert
Hibbs, in defending the Christopherson case and seeks
indemnification from Mattel.
47. The Court previously ruled that Hall Street’s “conduct
did not result in a waiver of the indemnity requirement” in the
Christopherson case. The parties dispute whether this
constituted a determination that Mattel was required to
indemnify Hall Street for defense costs in Christopherson.
CONCLUSIONS OF LAW
1. The Arbitration Agreement between the parties defines
the issues for decision in this Arbitration:
(a) Whether the repairs and maintenance that Mattel
performed prior to May 31, 2001 satisfied its repair and
maintenance obligations under the I.case? If not, what
additional repairs and maintenance are required and at
what cost?
3la
(b) Whether the payments Mattel made to Hall Street
in connection with litigation brought by third partics
satisfied its indemnity obligation under the lease? If not,
what amounts does it owe for:
(1) The Christopherson case:
(2) The Schiffer, Phelps, and Keith cases.
(c) Whether Hall Street suffered a loss, and, if so,
whether Mattel has any obligation under the Lease to
compensate Hall Strect for:
(1) Remediation of shallow soil contamination located
under the buildings, including the film processing
building and injection molding buildings, includ-
ing remediation of the soil and damage to and loss
of use of the buildings themselves, in excess of the
amount reflected in the estimate for this work that
Mattel has previously offered to pay to Hal! Strect;
(2) Expenses incurred by Hall Street in relation to the
DEQ proceeding relating to the deep aquifer con-
tamination by TCE, including any amounts Hall
Street may be required to pay to DEQ;
(3) Damages, if any, to Hall Strect’s use or right to
withdraw water from under the property;
(4) Expenses incurred by Hall Street for environ-
mertal consulting services performed by Dames &
Moore in connection with environmental issues on
the property;
(5) Expenses incurred by Hall Street for legal services
rendered by Short. Cressman in connection with
environmental issues on the property; and
(6) Expenses incurred by Hall Street in pursuing
claims against its own insurers regarding all of the
above.
32a
(d) Which party is deemed to be the “prevailing party”
in this litigation and what amount is it entitled to receive
from the other under paragraph 24 of the Lease for the
attorney’s fees and costs it incurred as a result of this
litigation?
2. Hall Street brings each of these claims against Mattel
under the theory of breach of contract. That is, Hall Street
alleges that Mattel breached the Lease. Under Oregon law, to
maintain an action for breach of contract the plaintiff must
establish (1) a valid contract between the parties, (2) a breach
or failure without legal excuse to perform any promise that is
a part of the contract, and (3) resulting damages to the
plaintiff. 17A Am. Jur. 2d Contracts § 716 (1991); Reliable
Credit Assoc. Inc. v. Credithrift of America, Inc., 570 P.2d
379, 381 (Or. 1977). For there to be a valid contract, the party
bringing the action must be in compliance with the terms of
the contract, and not in breach. 17A Am. Jur. 2d Contract
§ 716 (1991). Hall Strect, as the plaintiff in this action, has
the burden of proof to establish all requisite elements to
maintain a breach of contract. Pickard v. Or. Senior Citizens,
Inc., 395 P.2d 168, 170 (Or. 1964).
Lease Interpretation
3. Under Oregon law, the construction of a contract is a
question of law for the court. Anderson v. Divito, 130 Or.
App. 272, 277, 908 P.2d 315 (1995) (citing Timberline Equip.
Co., Inc. v. St. Paul Fire & Marine Ins. Co., 281 Or. 639,
643, 576 P.2d 1244 (1978)). The court’s goal is to give effect
to the intention of the contracting parties. Anderson v. Jensen
Racing, Inc., 324 Or. 570, 375-76, 931 P.2d 763 (1997)
(citing /nvestment Serv. Co. v. Smither, 276 Or. 837, 843, 556
P.2d 955 (1976) and O.R.S. 42.240 (in the construction of a
written instrument the intention of the parties is to be pursued
if possible)).
33a
“To interpret a contractual provision . . . , the court follows
three steps. First, the court examines the text of the disputed
provision, in the context of the document as a whole.”
Yogman v. Parrott, 325 Or. 358, 361, 937 P.2d 1019 (1997).
“If the provision is clear, the analysis ends.” /d.
When considering a written contractual provision, the
court’s first inquiry is what the words of the contract say
.... 10 determine that, the court looks at the four corn-
ers of a written contract, and considers the contract as a
whole with emphasis on the provision or provisions in
question. The meaning of disputed text in that context is
then determined. In making that determination, the court
inquires whether the provision at issue is ambiguous.
Whether terms of a contract are ambiguous is a question
of law. In the absence of an ambiguity, the court
construes the words of a contract as a matter of law.
Id. (quoting Eagle Indus., Inc. v. Thompson, 321 Or. 398,
405, 900 P.2d 475 (1995).
A contract or tennis unambiguous if it has only one
sensible and reasonable interpretation. D & D Co. v. Kauf-
man, 139 Or. App. 459, 462, 912 P.2d 411 (1996). For a
contract or term to be legally ambiguous, it must be
susceptible to at least two plausible interpretations when
examined in the context of the contract as a whole. Moon v.
Moon, 140 Or. App. 402, 407, 914 P.2d 1133, rev. den., 323
Or. 484, 918 P.2d 848 (1996).
If the contractual provision at issuc is still ambiguous after
examining the text and its context, the sccond step “is to
examine extrinsic evidence of the contracting parties’ intent.”
Yogman, 325 Or. at 363. In determining whether an ambig-
uity exists, the court may consider parol and other extrinsic
evidence. AMfoon, 140 Or. App. at 407; see also Adams v.
Knoth, 102 Or. App. 238, 243-44, 794 P.2d 796 (1990) (“in
deciding if the language of a contract is ambiguous, It ts
34a
proper for the court to consider extrinsic evidence regarding
the circumstances under which the agreement was made or to
which it relates.”). The parties’ “practical construction of
an agreement may hint at their intention.” Yogman, 325 Or.
at 364.
If the first two analytical steps have not resolved the
ambiguity, the court proceeds to the third and final analytical
step: the usc of “appropriate maxims of construction.” /d.
Presumably, if the language is still ambiguous, then what the
parties intended by that language is to be decided by the trier
of fact. See Oregon Sch. Employees Ass'n v. Rainier Sch.
Dist. No. 13, 311 Or. 188, 194, 808 P.2d 83 (1991) (“If
contract terms are ambiguous, then the trier of fact is to
ascertain the intent of the parties and construe the contract
consistentiy with their intent.”).
4. Considering the text of the Lease as recited in
Paragraphs 18 and 19 of the Findings of Fact in the context of
the document as a whole, I conclude as follows:
a. The Lease, as written, is not ambiguous.
b. Repairs/Maintenance: Sections 8a and 20 must be
read together. Mattel assumed all repair and main-
tenance obligations, with all such repairs to be in
quality and class equal to the original work or
installations. This obligation is in no way diminished
by the terms of Section 20. However, nothing in the
Lease requires Mattel to build new buildings, to
bring existing buildings up to current code require-
ments, or to retrofit the buildings to comply with the
accessibility requirements of the American with
Disabilities Act (“ADA”).
c. Indemnification: The term “predecessors-in-inter-
est,” as used in Section 13a, includes Sawyers and
GAF. The term would otherwise be meaningless
since View-Master, the tenant under the Lease, had
35a
no other predecessors-in-interest. Therefore, Mattel
agreed to a comprehensive indemnification of Hall
Street, including for occurrences prior to the original
lease: The only exception arises when Mattel, Tyco,
and View-Master (i.e., not including Sawyers and
GAF) have been in compliance with applicable
environmental laws and have not directly or indi-
rectly contributed to the presence or use of the
particular hazardous waste. This exception applies to
both the cleanup of hazardous wastes and to any
other liability, damages, or expenses.
d. Environmental: In addition to the indemnification
clause, Section 13a, Mattel agreed in Section 12 to
assume all liability for the use or presence of haz-
ardous wastes irrespective of when the use occurred.
However, the same exception applies.
Environmental Issues
5. TCE: Mattel is not liable for the TCE contamination to
the shallow soil and groundwater on the Property. Mattel,
Tyco, and View-Master have been in compliance with the
applicable environmental laws with respect to TCE and,
therefore, the exception to liability under Sections 12 and 13a
have been met. They did not use TCE and their actions have
not been shown to have resulted in additional TCE
contamination. Their failure to test for, or otherwise discover,
the TCE contamination does not constitute a violation of
“applicable environmental laws” regarding TCE.
6. TPH: Mattel is liable for the TPH contamination under
Buildings 400 and 800/900. Although this gontamination
poses no immediate risk and remediation is only required if
the buildings are removed, it must eventually be cleaned up.
“Mattel is only responsible for remediation costs and not for
any demolition or restoration costs since the cleonup is not
required until the buildings are removed. The cost of exca-
36a
vating, hauling, and disposing of this soil and concrete is not
“in excess of the amount reflected in the estimate for this
work that Mattel has previously offered to pay to Hall Street,”
i.e., $130,000.00.
7. Water Rights: Mattel is not liable for loss of the use of
the well due to TCE contamination of the deep aquifer.
Mattel, Tyco, and View-Master have been in compliance with
the applicable environmental laws with TCE and, therefore,
the exception to liability under Sections 12 and 13a have been
met. They did not use TCE and their actions have not been
shown to have resulted in additional TCE contamination.
Their failure to test well water for contaminants may con-
stitute a violation of other laws, but does not constitute a
violation of “applicable environmental laws” regarding TCE.
Hall Street specifically argues that Mattel violated “appli-
cable environmental laws” by violating ORS § 448 and OAR
§ 333-061, which are provisions administered by the Oregon
Health Division of é1e Départment of Human Resources that
obligate both the owner and operator of public water systems
to test the water. However, as far as the Lease is concerned,
these health provisions are designed to protect a specific type
of injury, i.e., health injury to people from drinking the water,
and are not designed to protect landowncrs from having their
property protected from environmental contamination.
8. Expenses: Mattcl is not liable for the expenses incurred
by Hall Strect in relation to the DEQ proceeding relating to
the deep aquifer contamination by TCE, for environmental
consulting services performed by Dames & Moore, for legal
services rendered by Short, Cressman, or in pursuing claims
against its own insurers. These expenses primarily relate to
TCE contamination for which Mattel ts not responsible and
the non-TCE related expenses cannot be veadily determined
from the evidence.
37a
Repair Issues
9. Mattel met its repair and maintenance obligations under
Sections 8a and 20 prior to vacating the Property on May 31,
2001.
10. The Lease did not require Mattel to upgrade the facility
beyond what was required during its leasehold interest, since
such upgrades would clearly be in “quality and class” greater
than the original works. Oregon statutes explicitly do not
require buildings to upgrade to newer requirements so long as
the same occupancy is being continued. Uniform Building
Code § 1101.5, 3401; Oregon Electrical Specialty Code,
Chapter 27.01.040; see also Prudential Insurance, .65. F.3d at
372-74.
11. Therefore, since none of the required repairs involved
substantial alterations to the buildings on the Property, Mattel
was not required to bring the buildings up to current code
standards or to b~ ig the buildings into compliance with
the accessibility requirements of the American with Disabil-
ities Act.
12. The only evidence is that the leak in the roof over
Building 800 developed afier May 31, 2001.
Indemnity front Third-Party Lawsuits
13. Hall Street is not entitled to any further indemnification
from Mattel for the third-party lawsuits since these claims all
related to TCE contamination. As noted above, Mattcl is not
liable for the TCE contamination, having met the exception
under Sections 12 and 13a. Section 1|3a(iv) likewise pro-
vides an exception to liabiiity for the costs of defending
these lawsuits.
CONCLUSION
Based on the foregoing, the ultimate issues are answered as
follows:
38a
A. The repairs and maintenance that Mattel performed
prior to May 31, 2001, satisfied its repair and maintenance
obligations under the .Leasc.
B. The payments Mattel has made to Hall Street in con-
nection with litigation brought by third patties has satisfied its
indemnity obligation under the Lease.
C. Hall Street has not suffered any compensable losses for
soil contamination in excess of the amount previously offered
to Hall Street by Mattel, for expenses relating to the deep
aquifer contamination, for damages from the right to with-
draw water, for expenses for consulting services performed
by Dames & Moore, for expenses for legal services rendered
by Short Cressman, or for expenses incurred in pursuing
claims against Hall Street’s insurers.
D. Considering the foregoing and the Court’s prior rulings
in this case, Mattel is the “prevailing party” for purposes of
this litigation and is entitled to its attorneys’ fees, costs, and
expenses under the Lease incurred as a result of this
litigation.
IT IS THEREFORE the Order of the Arbitrator, pursuant
to the Arbitration Agreement between the partics, that
judgment be granted to Mattel, Inc. on all issues presented,
and Hall Street take nothing beyond the sum of $130,000.00
previously offered. Mattel is directed to submit its statement
of attorney fees and costs by January | 1, 2002. Hall Street is
directed to file its objections by January 18, 2002. Oral
argument, if requested, ‘will be held via conference telephone
call thereafter.
Dated this 2nd day of January, 2002.
‘s/ Larry T. Coady
LARRY T. COADY
Arbitrator
39a
APPENDIX D
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
[Filed APR 29, 2002]
Case No. 00-355-JO
HALL STREET ASSOCIATES, L.L.C.,
a Washington Limited Liability Company,
Plainuff,
v.
MATTEL, INC., a Delaware corporation; et ai,
Defendants.
James M. Finn
Michael A. Cohen.
SCHWABE WILLIAMSON & WYATT
1211 S.W. Fifth Avenue, Suite 1700
Portland, OR 97204
Attorneys for Plaintiff
Laurie D. Zelon
Peter Hsiao
Scott A. McPhee
Siegmund Shyu
MORRISON & FOERSTER
555 West Fifth Street
Los Angeles, CA 90013-1024
Marc D. Blackman
Ransom Blackman
1001 S.W. Fifth Avenue, Suite 1400
Portland, OR 97204
Attorneys for Defendants
40a
JONES, Judge:
OPINION AND ORDER
Plaintiff Hall Street Associates (“Hall Street”) brings this
action against defendants Mattel, Inc. (“Mattel”) and its
predecessors for indemnification arising out of a lease agree-
ment. Having resolved the other issues in prior proceedings,
the court now addresses the issue of Mattel’s liability for-
environmental cleanup and related costs. These issues were
submitted to an arbitrator on December 12-14, 2001, who
found generally in favor of Mattel and awarded fees
and costs.
The case is now before me on Hall Street’s Motion for an
Order Vacating, Modifying and/or Correcting the Arbitration
Findings of Fact and Conclusions of Law (# 70) and Hall
Street’s Motion to Strike (# 79). After considering the par-
ties’ arguments, Hall Street’s Motion to Vacate (# 70) is
GRANTED and its Motion to Strike (# 79) is DENIED
as moot.
BACKGROUND
This case involves several disputes between a landlord and
its tenant over the tenant’s obligations under a lease
agreement. Plaintiff Hall Street Associates, L.L.C. (“Hall
Street”) is the owncr of the property at issue, located at
8585 S.W. Hall Boulevard, Beaverton, Oregon (the “prop-
erty”). Defendant Mattel, a Delaware corporation doing
business in Oregon, leased the premises from Hall Street,
until May 31, 2001.' In this portion of the action, Hall Street
' In its original complaint, Hall Strect also asserted that Mattel was
attempting to prematurely terminate its lease in violation of the lease
agreement. After a bench trial in which the court reviewed the lease
agreement and parol evidence surrounding its execution, | held that Mattel
could terminate its lease. anytime after May of 1997, with one year’s
notice. Accordingly, having given notice of termination in May of 2000,
Matte! terminated the lease in May of 2001.
4la
contends that Mattel is liable for cleanup and third party
litigation costs.
History
The relevant history surrounding the premises began more
than 50 years ago, when Sawyer’s, Inc., owned the property
and began a toy manufacturing facility on the site.’ Sawyer’s
was acquired by GAF Corporation in 1967, which continued
the toy manufacturing operations. GAF eventually sold the
premises to View-Master in 1981, which operated a similar
toy operation on the site. In 1983, View-Master sold the
property to Western International Properties, but then Icased
back the property from Western to continue its operations. In
1984, Western subdivided the property and sold the relevant
portion of the property to John Eyler. Mr. Eyler then
conveyed the property to Cascade Square Associates in 1985.
In 1989, while View-Master was still leasing the property,
View-Master was acquired by Tyco.’ Mattel acquired Tyco in
1997. Finally, in 1998, Cascade transferred its ownership
interest in the property to Hall Street. The current action
is primarily between Hall Street and Mattel, as successors
in interest.
The Lease Agreements
On March 5, 1991, View-Master entered into a Lease
Agreement (the “Lease”) with Cascade Square Associates,
pursuant to which Cascade Square Associates agreed to lease
ihe premises to View-Master.* The Lease was negotiated by
Robert Hibbs, an attorney and partner for Cascade, and
~ At that time, the property was separated into three parcels: parcels 1,
2 and 3. The only parcel relevant to this action is parcel |, and | therefore
discuss parcel | in this opinion.
’ Tyco refers collectively to Tyco Industries, Inc.. Tyco Manufacturing
Corporation and Tyco Toys, Inc.
The Lease was substantially similar to the original lease executed on
June 1, 1985 and containing the same basic rights and responsibilities.
42a
Dennis Wesolowski and Michael Kennedy, attorneys for
View-Master. The Lease provided that View-Master would
lease the property for commercial purposes for a term of
approximately six years. Because View-Master and _ its
predecessors had used the property and operated its facilities
for many years, they were generally more familiar with the
condition of the property than Cascade. Accordingly, the
Lease provided that with certain limited exceptions, View-
Master would indemnify Cascade for any activities under-
taken by it or its predecessors on the property.
On April 29, 1996, Cascade Square Associates and View-
Master executed an amended lease (the “Amended Lease”),
which was substantially similar to the 1991 lease. After
acquiring Tyco, Mattel became the tenant under the Amended
Lease in 1997. Mattel informed Hall Street in May of 2000
that it intended to terminate its lease, and the Icase was
terminated on May 31, 2001.
Environmental Issues on the Property
In 1950, a well and water tower were installed on the
property to supply water to the facility. Thereafter, between
1951 and 1980, Sawyers, Inc. and GAF used trichlorocthene
(“TCE”) in its toy manufacturing operations. While most of
the work with TCE was done on the surrounding areas of
the property, and not the property at issue in this action,
Sawyers/GAF did dispose of sanitary wastes through a septic
tank and drainfield located at the north end of the prop-
erty. There is no evidence that any party used TCE in any
operations on the property after 1981. It is undisputed that
neither Mattcl nor any of its predecessors, however, ever
tested the well water, groundwater or shallow soils for
contaminants.
In March of 1998, Hall Street commissioned SECOR, an
environmental consultant, to test the property's well water for
pollutants. SECOR discovered that the water contained TCF
43a
levels that far cxceeded the federal maximum allowable
level.” Upon this discovery, the Oregon Department of
Environmental Quality (“DEQ”) began investigating the
contamination and planning remedial! measures. The DEQ’s
investigations revealed additional contaminants, including
petroleum hydrocarbons (“TPH”), cyanide, chromium and
silver. The contamination was discovered on the property as
well as its adjacent parcels, and was found in the well water,
the shallow soil, the groundwater and the deep aquifer
underlying the property. Upon discovery of the extensive
contamination at the site, Mattel shut down the well. The
shutdown continues today.
In November of 1998, Mattel and GAF entered into a
consent order with the DEQ, pursuant to which GAF agreed
to investigate the environmental conditions of the property
and Mattel agreed to provide public outreach and commu-
nications to its employees. As part of the site investigation,
the DEQ performed a risk assessment (“RA”) to evaluate the
levels of contaminants and the dangers they posed. The RA
identified current and future risks at the site:
1) Unacceptable risks from TCE in the deep aquifer
underlying the property, if that source is used for drinking
water; and 2) Unacceptable risk from TCE in the
drainfield area, primarily faced by trench workers
performing excavation in that area who may be exposed
to shallow groundwater. In addition, petroleum hydro-
carbons were identified in the soil located under certain
buildings on the property. The DEQ found that the
hydrocarbons pose no threat as long as the buildings
remain, but noted that if the buildings were ever removed,
the hydrocarbons in the soil would have to be treated.
* The Federal Drinking Water Standard for TCE is 5 micrograms per
liter (ug/l). The well water on the property purportedly contained TCE in
concentrations of 1220 to 1520 ug/1.
44a
On October 29, 2001, the DEQ issued its Recommended
Remedial Action Staff Report for the Property. Thereafter,
G-1 Holdings, the successor to GAF, undertook the inves-
tigation and cleanup on the property. The DEQ is currently
supervising the remedial work being performed by G-1
holdings.
Repair Issues on the Property
In the arbitrator’s decision, he found that Mattel and its
predecessors had “failed to repair and me «tain the Property
as required by Section 8(a) prior to 2000.” See Arbitrator’s
Findings of Fact and Conclusions of Law (“FFCL”), at 4 35.
The arbitrator also found, however, that Mattel did initiate
repair efforts in 2000, in preparation for terminating the
Amended Lease. Mattel offered to pay Hall Strect the cost of
the necessary repairs, in lieu of performing them, but Hall
Street refused. Mattel then proceeded with the repair work,
keeping Hall Street apprized of the progress of the work with
regular status reports. The City of Beaverton eventually
inspected and approved Mattel’s repair work. Mattel spent in
excess of one million dollars in repairs on the property, and in
its final inspections of the property before rclinquishing
control to Hall Street, it determined that the structures were
in good condition, the roofs were leak-proof, and all the
mechanical, electrical, water and other equipment, pipes,
fixtures, pavement and systems were in good working order.
The evidence indicates that Hall Street presented no evidence
regarding the condition of the property when View-Master
began its lease, and did not inspect Mattel’s repair work while
it was being performed.”
6 . . . °
In its motion to vacate, Hal! Street does not challenge the arbitrator's
decision with respect to Mattel’s repair efforts
45a
Third Party Lawsuits
After the contamination was discovered, former employees
of Tyco brought suit against Hall Street and Cascade for
injuries allegedly caused by their negligence in permitting
and/or not detecting the TCE contamination. These cases are
identificd as Keith, Phelps and Schiffer. They were even-
tually dismissed for lack of proof of any injury caused by the
condition of the property. In a fourth action, the Christo-
pherson case, the daughter of a Tyco worker brought suit
against GAF, Hall Street and Mattel, also for injuries
allegedly caused by the TCE contamination at the site. This
case, too, was dismissed for inadequate proof of injury, and
Mattel has paid all costs incurred in litigating this action.
Hall Street initiated the instant action on March 10, 2000.
Its complaint raised three general issues: 1) Whether Mattel
could legitimately terminate its lease on May 31, 2001, if it
provided one year’s notice of termination; 2) Whether Mattel
was obligated to indemnify Hall Street for costs related to
environmental cleanup; and 3) Whether Mattel was obligated
to indemnify Hall Street for expenses it incurred in defending
itself against third party lawsuits.
The first issue was resolved by a bench trial to this court on
April 27, 2001. The remaining issues were resolved in an
arbitration held on December 12-14, 2001, in which the
arbitrator found generally in favor of Mattel. He concluded
that Mattel was not obligated to indemnify Hall Street either
for environmental cleanup costs or for third party lawsuits.’
In a second opinion, the arbitrator ordered Hall Street to pay
Mattel for costs and fees incurred in litigating this action, in
the sum of $441,545.58.
” The arbitrator did order Mattel to pay Hall Street $130,000 for Mat-
tel’s lability for the TPH contamination under buildings on the property,
but Mattel had already agreed to pay this amount.
46a
STANDARD OF REVIEW
Typically, arbitration awards are given substantial defer-
ence and will not be set aside unless the arbitrator acted in
manifest disregard of the law. Todd Shipyards Corp. v.
Cunard Line, Ltd., 943 F.2d 1056, 1060 (9th Cir. 1991)
(“Arbitrators are judges chosen by the parties to decide the
matters submitted to them, finally and without appeal. . . . 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 . . . will not set it aside for error, either in law
or fact... . An arbitrator’s decision must be upheld unless it
is ‘completely irrational,’ or it constitutes a ‘manifest disre-
gard of law’”). Parties are free, however, to draft a contract
that sets rules for arbitration and dictates an alternative
standard of review. Sec, e.g., LaPine Tech. Corp. v. Kyocera
Corp., 130 F.3d 884, 889 (9th Cir. 1997) (“Federal courts can
expand their review of an arbitration award beyond the
FAA’s grounds, when . . . the parties have so agreed”). An
intent to specify an alternative standard must be clearly
expressed. /d.
In this case, the parties drafted an Arbitration Agreement
that set the rules for arbitration. Paragraph 27 of the Rules tor
Arbitration set forth the applicable standard of review: “The
Court shall vacate, modify or correct any award: (i) where the
arbitrator’s findings of fact are not supported by substantial
evidence, or (ii) where the arbitrator’s conclusions of law are
erroneous.” Thus, the court must review the arbitrator’s
findings of fact for substantial evidence, and his conclusions
of law for error.
DISCUSSION
|. Plaintiffs Motion to Vacate, Modify or Correct
Arbitration Award
Following arbitration, the arbitrator issued two separate
opinions in this action. First, on January 2, 2002, he issued
47a
findings of fact and conclusions of law in which he found for
Mattel as to liability (the “January 2 findings”). Second, on
January 29, 2002, he issued findings of fact and conclusions
of law in which he awarded fees and costs to Mattel
(“January 29 findings”). Hall Street filed its motion to vacate,
modify and/or correct the arbitration award on February 2,
2002, challenging both the January 2 findings and the January
29 findings.
A. Liability
In his January 2 findings, the arbitrator reached three basic
conclusions with respect to Mattel’s liability to Hall Street: 1)
Mattel is not liable for environmental cleanup costs because
Hall Street has suffered no loss, and even if it had, Mattel
remained in compliance with “applicable environmental
laws” as required by the Amended Lease; 2) Mattel satisfied
all of its repair and maintenance obligations under the
Amended Lease prior to its termination; and 3) to the extent it
was liable, Mattel fully indemnified Hall Street for the third-
party lawsuits brought against Hall Street. In its motion to
vacate, Hall Street challenges (1) and (3) above.
1. Timeliness
At the outset, Mattel contends that to the extent Hall
Street’s motion challenges the arbitrator’s findings on the
issue of liability, it is time-barred under the Arbitration
Agreement because it was filed more than 15 days after the
opinion on liability was issued, on January 2, 2002. Hall
Street responds that its motion to vacate was filed as a
combined motion to challenge both the arbitrator’s decision
on liability and the decision on attorneys’ fees. The arbitrator
issucd his findings on the fees issue on January 29, 2002. Hall
Street filed its motion to vacate both decisions on Febru-
ary 13, 2002.
There is no question that parties consenting to arbitration
can stipulate a time period within which any challenge to the
arbitrator's decision must be filed. See, e.g.. Sheet Metal
48a
Workers’ Int’l Assoc., Local No. 252 v. Standard Sheet
Metal, Inc., 699 F.2d 481, 482-83 (9th Cir. 1983). Mattel
contends that the Arbitration Agreement unambiguously
provides that any motion challenging any decision of the
arbitrator must be challenged within 15 days of its issuance.
In support, it cites paragraph 3 of the parties’ Arbitration
Agreement, which provides:
The arbitrator shall decide the arbitration on or before
December 30, 2001, and issue written findings of fact
and conclusions of law.* Any request for review of the
arbitrator’s decision will be made by motion to Judge
Jones and filed within 15 days of the arbitrator’s ruling.
Paragraph 3 does not define the specific “decision” that may
be revicwed upon a subsequent motion. Mattel contends that
the best reading of this provision is that each “decision”
issued by the arbitrator must itself be challenged within 15
days of its issuance. Under this interpretation, Hall Strect
would have to challenge the liability decision and the feces
decision in separate motions, cach filed less than 15 days
after the decisions were issued.
In further support of this view, Mattel citcs |) paragraph 22
of the Rules of Arbitration, which refers to a decision on the
issuc of fees as “supplemental” to the underlying decision on
the merits, and 2) the “uniform rule that an unresolved issue
of attorney’s fees for the litigation in question does not
prevent judgment on the merits from being final,” Budinich v.
Becton Dickinson & Co., 486 U.S. 196, 200-02 (1988), and
3) Fed. R. Civ. P. 54(d)(2)(C), which states that an award of
fees should be “sct forth in a separate document.” Relying on
the Arbitration Agreement and the relevant law, Mattel
* By stipulation of the parties, the December 30, 2001 deadline was
extended to allow the arbitrator to issue his decision on the merits no later
than December 31, 2001 and a decision on the issue of fees no later than
January 28, 2002.
49a
argues that the Arbitration Agreement is unambiguous,
permits no considcration of extrinsic evidence, and mandates
the conclusion that the motion to vacate is untimely to the
extent it challenges the January 2 FFCL.
Hall Street correctly points out, however, that several
provisions of the Arbitration Agreement support the conclu-
sion that a single motion challenging any and all conclusions
reached by the arbitrator was intended. First, paragraph 3,
rclied on heavily by Mattel, states that the arbitrator shall
decide “the arbitration,” implying that he will issue one
comprehensive opinion that may then be challenged by the
losing party. Paragraph | of the Arbitration Agreement states
that the partics “agree to arbitrate before one arbitrator all
remaining issues.” Paragraph | itself then refers to paragraph
27, which permits this court to “enter judgment upon any
award cither by confirming the award or by vacating, modi-
fying or correcting the award” (emphasis added). In other
places in the Arbitration Agreement, including paragraphs 7
and 19, the arbitrator’s final decision is referred to as an
“award” as well. Relying on these provisions, Hall Strect
contends that the Arbitration Agreement on this issue is, at
the very least, ambiguous, and permits consideration of
outside evidence.
Oregon law provides that in order for a contract or term to
be legally ambiguous, it must be susceptible to at least two
plausible interpretations when cxamincd in the context of the
contract as a whole. Hoyt Street_ Properties, L.L.C. _v.
Burlington Nornhern & Santa Fe Ry. Co., 38 F.Supp.2d 1185
(D. Or. 1999). In this case, in light of the use of “award” and
“decision” in separate provisions of the Arbitration Agree-
ment, both parties have probably put forth plausible inter-
pretations of the contract, and the court therefore finds that it
is ambiguous.
Finding an ambiguity on this issuc permits the court to
consult extrinsic evidence to shed light on what was intended
50a
by the parties. Hall Street cites two pieces of outside evidence
to support its claim that the parties intended that a final
decision by the arbitrator resolving all issues in the case
would be challenged in a single motion. First, it cites a
January 2, 2002 letter written by the arbitrator, in which the
arbitrator indicates that he will issue one comprehensive
“award” that may then be challenged here. In the January 2
letter, the arbitrator stated that “once the attorney fees and
costs are resolved, | will issue the Arbitration Award,” While
this letter certainly docs not, on its own, evidence the view of
the parties, the lack of response or clarification by Mattel
indicates that its understanding was not inconsistent. Second,
it contends that the parties initially intended that the arbitrator
would issue one final decision on all issues no later than
December 30, 2001. When it became apparent that the
arbitrator would not meet this deadline, the parties apparently
agreed to extend the deadline to December 31, 2001, for the
decision on the merits, and January 28, 2001, for the decision
on fees. At the time the extension was discussed, Hall Street
states that the parties neither envisioned nor discussed a
requirement that the decisions be challenged in separate
motions. The extrinsic evidence thus indicates that to the
extent it was considered, the parties intended that the arbi-
trator would issue one “award,” which could then be chal-
lenged in a single motion within 15 days.
As the court has discussed, there are persuasive arguments
to the contrary. On the whole, however, the Arbitration
Agreement and the facts support Hall Street’s argument that
its Motion to Vacate was timely filed. In light of the parties’
substantial interests at stake in this case, it would be
extraordinary to deny either party its right to judicial review
on the basis of a disputable filing deadline, the alleged
violation of which prejudiced no one. Given these consid-
erations and the discussion above, the court concludes that
Hall Street’s Motion was timely filed.
S5la
2. The Merits
The key issue before me is whether the arbitrator erred in
concluding that Mattel was in compliance with applicable
environmental laws while leasing the property, and therefore
was not liable to Hall Street for environmental cleanup costs.
Under the lease, because Mattel and its predecessors, espe-
cially View-Master, were most familiar with the condition
and operations at the property, they were obligated under the
Lease to indemnify Hall Street for Mattcl’s and its pred-
ecessors’ activities at the site. Section 6.3 of the original
lease, for example, provided as follows: “‘Tenant shall indem-
nify and defend Landlord from any claim, loss, or liability
arising oat of or related to any action or inaction of Tenant, its
employees, agents or invitees or any condition of the Prop-
erty.” Other provisions of the original lease were consistent
with this clause:
¢ Section 5(b): Tenant must comply with “all applic-
able laws, rules and regulations of any public
authority”; |
¢ Section 12(a): “Tenant shall comply with all federal,
state and local environmental laws and regulations in
its use of the Premises . . . Tenant shall indemnify,
hold harmless and defend Landlord against all costs
and claims associated with a release [of hazardous
wastes |”;
* Section 12(b): “Tenant shall use its best efforts and
safety practices to prevent the release by Tenant, its
agents or employees of hazardous substances. . . .
Tenant assumes liability for the use or presence. . .
of any hazardous waste. . . . Tenant assumes all
responsibility for the investigation and cleanup of
any such release or presence or use of hazardous
Building materials and shall indemnify and defend
Landlord, its officers, agents, and employees, against
52a
and from any and all losses, costs, damages,
expenses . . . or liabilities directly or indirectly
resulting or arising from any such release or presence
or use of hazardous building materials.”
These provisions consistently impose a duty on Mattel to
indemnify Hall Street for costs associated with environmental
damage, and neither party disputes that this was the general
rule under all of the lease agreements.
There was an exception to Mattel’s duty to indemnify,
however, found in section 12(c) of the Lease. Section 12(c)
provided:
To the extent Tenant has been in compliance with ap-
plicable environmental laws then, notwithstanding the
foregoing language in Section 12.b above, Tenant shall
not be held liable following the expiration of this Lease
term for the following . . . (iii) the removal and disposal
of any hazardous waste on the Premises, the presence or
use of which hazardous waste has not been caused
directly or indirectly by the acts of the Tenant or View-
Master Ideal Group, Inc.
A similar provision conditionally excepting the tcnant’s
liability is found in section |3(a) of the lease agreements.
In the January 2 findings, the arbitrator found that “Mattel,
Tyco, and View-Master have been in compliance with the
applicable environmental laws with respect to TCE and,
therefore, the exception to liability under Sections 12 and |3a
have been met.” See January 2, 2002 findings, p. 16 at § 5S.
The arbitrator acknowledged that Mattel and its predecessors
failed to test for TCE contamination at the site, constituting a
violation of O.R.S. § 448 and O.A.R. § 333-061, but con-
cluded that these provisions were not “applicable environ-
mental laws.” He stated that these sections were not ap-
plicable because they were designed to target the specific
harm of injury to end users caused by contaminated drinking
53a
water, and not potential economic injury to a private land-
owner. He noted that the law is administered by the Oregon
Health Division of the Department of Resources. Citing no
specific provision of the lease, the arbitrator reasoned that “as
far as the Lease is concerned, these health provisions are
designed to protect a specific type of injury, i.e., health injury
to people from drinking the water, and are not designed to
protect landowners from having their property protected from
environmental contamination.” January 2 findings at ¥ 7, pp.
16-17. Relying on this conclusion, the arbitrator found that
Mattel had remained in compliance with applicable environ-
mental laws, thereby meeting the exception to its gencral duty
to indemnify found in sections 12(c) and 13(a) of the Lease.
Hall Street contends that this conclusion was in error.”
After careful consideration, | conclude that Mattel’s failure
to test the water for contaminants was in fact a violation of
“applicable environmental Jaws” within the meaning of the
lease. Several considerations lead me to this conclusion.
Generally, an analysis of the lease Makes clear that it was
written to impose broad liability on the tenant for any
environmental damage on the property. The two exceptions to
this liability, found in sections 12(c) and 13 of the lease, freed
the tenant from liability on/y if it was in compliance with all
“applicable environmental laws.”
The arbitrator’s contrary reasoning—-that Oregon’s Drink-
ing Water Quality Act (““ODWQA”) does not constitute
“applicable environmental laws” because “these health
provisions are designed to protect a specific type of injury,
Le., health injury to people from drinking the water, and are
* Hall Street also contends that Mattel violated applicable environ-
mental laws by discharging TCE-contaminated water into the storm and
sanitary sewer systems. Based on the information before the court, it
appears that this was not properly submitted to the arbitrator, who made
no finding on this issue, and the court therefore declines to reach the issue
here.
54a
not designed to protect landowners from having their property
protected from environmental contamination”—is an overly
restrictive construction of “applicable environmental laws”
that is not warranted by the language of the lease. The Acct is
certainly “applicable” to Mattel, as the tenant on the property.
Further, while the Act is administered by the Oregon Health
Division, along with the DEQ, this does not necessarily
indicate that the Act is not also an environmental law. The
Act is the Oregon counterpart to the Federal Safe Drinking
Water Act (“SDWA”), 42 U.S.C. §§ 300f to 300j-26, which
is generally considered an environmental law. Sce, e.g., In re
Willy, 831 F.2d 545, 546 (Sth Cir. 1987); 323-343 E. 56th St.
Corp. v. Mobil Oil Corp., 906 F. Supp. 669, 685 n21 (D.D.C.
1995); Roe_v. Wert, 706 F. Supp. 788, 791 (W.D. Okla.
1989). Its purpose——“to protect the public health through
insuring safe drinking water within a water system”—is
complementary to the goals of most environmental statutes.
The Clean Air Act, for example, is designed “to promote the
public health and welfare and the productive capacity of the
population.” See 42 U.S.C. 7401(b)(1). See also Toxic
Substances Control Act, 15 U.S.C. §§ 2601(b)(1) (noting that
the goal of the TSCA is to “regulate chemical substances and
mixtures which present an unreasonable risk of injury to
health or the environment”). In fact, the environ:nental
component of the ODWQA is undeniable: the Act protects
the public from potential health hazards resulting from
environmental damage. Significantly, Mattel does not dispute
the general conclusion that the ODWQA is, standing alone,
an environmental law.
Instead, Mattel contends that the arbitrator was correct in
concluding that the Act is not “applicable,” because the Act ts
“a statute administered by the Health Department for the
express purpose of protecting the public from tainted drinking
water” and not “an applicable environmental statute designed
to protect Hall Strect from the property damage.” See
Mattel’s Memorandum in Opposition, p. 22. This reasoning,
55a
however, defics logic. No environmental statute advances
such a purpose; the purpose of such statutes is to protect the
environment and human health.
Mattel also argues that even were the Act “applicable” to
Mattel within the meaning of the lease, its violation of the Act
resulted in no loss to Hall Street, and therefore cannot be a
basis for Mattel’s liability to Hall Street. I reject this argu-
ment for two reasons. First, there is no requirement in the
lease that there be actual causation of loss. The lease is
written to simply impose broad liability on Mattel for envir-
onmental cleanup costs, an obligation that it can avoid only if
it complies with all applicable environmental laws.'°
Furthermore, even were the arbitrator correct in his con-
clusion that there is a causation requirement in the lease, the
third party lawsuits filed against Hall Street could in fact
constitute loss caused by Mattel’s violations. While it is true
that the Phelps, Schiffer and Keith cases alleged negligence
only against Hall Street, had Mattel tested the water and
ceased its use, the lawsuits arguably would not have been
filed. At the very least, the existence of such suits creates a
factual issue to be addressed on remand as to whether there is
loss resulting from Mattel’s violation.
In sum, the arbitrator erred as a matter of law in concluding
that Mattel’s failure to test for contaminants did not constitute
'° Mattel contends that the arbitrator concluded that there must be
causal link between the alleged violation of applicable environmental laws
and any losses incurred by Hall Street, and that this conclusion is entitled
to deference because it rests on a factual determination of the parties’
intent in the lease. The arbitrator does not explicitly reach this conclusion,
however. Furthermore, to the extent the arbitrator reaches this conclusion
implicitly, he cites no provision of the lease in support and does not
discuss any reasoning for drawing such a conclusion. In the face of a
rather clear contract provision, which imposes liability simply if Mattel
violates “applicable environmental laws.” such a conclusion devoid of
reasoning or support ts not entitled to substantial deference.
56a
a violation of applicable environmental laws. Accordingly,
this case is remanded to the arbitrator for further consid-
eration in accordance with this opinion.
3. Mattel’s Contingent Appeal
Finally, Mattel “contingently” appeals the arbitrator’s find-
ing that GAF and G-! Holdings were Mattels’ predecessors-
in-interest and that Mattel is therefore liable under the lease
for their contamination. In his January 2 findings, the arbi-
trator concluded that when the original lease was executed by
View-Master as the tenant, View-Master’s consent to in-
demnify the landlord for the acts of its predecessors must
necessarily include GAF and Sawyers, because there were no
other predecessors to View-Master with respect to the
property. The arbitrator stated:
The term “predecessors-in-interest,” as used in Section
13a, includes Sawyers and GAF. The term would
otherwise be meaningless since View-Master, the tenant
under the Lease, had no other predecessors-in-interest
Therefore, Mattel agreed to a comprchensive indemni-
fication of Hall Street, including for occurrences prior to
the original lease.
January 2 findings, p. 15 at ¥ 4c.
Mattel contends that the arbitrator’s conclusion was in
error, because he incorrectly found that GAF and Sawyers
were the only potential predecessors to View-Master at the
time the original lease was executed. It asserts that the View-
Master entity that executed the original lease was the
successor to a previous View-Master entity that owned the
property after GAF and Sawyers. It also cites the testimony of
Michael Kennedy, negotiating the leases on behalf of Tyco,
who stated that he did not intend the term predecessor-in-
intcrest to include GAF and Sawyers. According to Mattel,
there is no testimony to the contrary by any representative of
Hall Street or Cascade.
57a
From a review of the arbitrator’s decision, it appears that
the arbitrator did not revicw substantial evidence relevant to
the parties’ intent in construing the term predecessors-in-
interest. He states, simply, that the term includes GAF and
Sawyers because “[t]he term would otherwise have no
meaning,” yet he does not mention Mattel’s assertion that a
previous View-Master entity occupied and oversaw opera-
tions on the property. He does not discuss the relationship
b
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