# Petition for Writ of Certiorari — Hall Street Associates, LLC v. Mattel, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0519%3A02 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2008 - **Citation:** 552 U.S. 576 ## Text 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 CUES THIN PURESGIN 0 BSD. .cccccccccccsecessovsssesvocenorscousonece RATES 04. 1GD) SEA TINIE ccccovecsscsccncessccossennsvecossenes RULE 29.6 CORPORATE DISCLOSURE eT. eshivrnictiesniussinntinsssmanteimninsercsecesninsententeenn ENE OT sscctnancacnvinvetishininnninwiminccnmeimneteveininein Ne IT iiiieiiiticesncsiicnnsinatacinninemiennansadiininnneciniennis STATUTORY PROVISIONS INVOLVED ................. ys es fe _ Se nee STATUTORY FRAMEWORK ....000000. ccc ceceeeceeeeeeeeeeeee FS CFs I A iresescxcserevesessesnosncsenesesnesenes 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- FE NE ivcneiinbtnsiveniniensaiiadenisinniniieniccniaii (111) — — —- WN NY NY NY — < 1] 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 IIT vepiiciindineedeictsimnennmcccnstnetieeninineiianineecn 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 envir [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0519%3A02. Public record. Not legal advice.