Burton v. Class Counsel (In re Wal-Mart Wage & Hour Empl. Practices Litig.), Nos. 11-17718, 11-17778, 2013 U.S. App. LEXIS 25014 (9th Cir. Dec. 17, 2013) [click for opinion]

The parties to a national wage and hour multi-district litigation against Wal-Mart Stores, Inc. reached a global settlement.  Pursuant to the agreement, Wal-Mart would pay up to $85 million to settle all claims, and any fee disputes among Plaintiffs’ counsel would be arbitrated.  The district court approved the settlement and awarded $28 million in attorneys’ fees to Plaintiffs' counsel.  After Plaintiffs’ counsel could not agree on a proper allocation of the fees, they submitted to arbitration.

The arbitrator issued a ruling and allocated the $28 million fee award among Plaintiffs’ counsel, doling out $6 million to the Burton Group and $11 million to Bonsignore.  When Bonsignore moved to confirm the arbitration award, the Burton Group moved to vacate pursuant to § 10 of the Federal Arbitration Act (“FAA”), which provides the four statutory grounds for vacatur of an arbitral award.  The court confirmed the award, and the Burton Group appealed to the Ninth Circuit. 

On appeal, Bonsignore cited the “non-appealability clause” in the parties’ settlement agreement, which provides that arbitration resolving any fees dispute would be “binding” and “non-appealable.”  On the basis of this clause, Bonsignore argued that the Ninth Circuit lacked jurisdiction to review the arbitrator’s award on any ground.  The Burton Group argued in response that the phrase “binding, non-appealable arbitration” should be construed to preclude only federal review of the merits of the arbitrator’s decision, and should not be read to eliminate the parties’ right to seek appeal of the arbitrator’s decision under § 10 of the FAA.  The issue was one of first impression in the Ninth Circuit. 

The court, citing Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), explained that “just as the text of the FAA compels the conclusion that the grounds for vacatur of an arbitration award may not be supplemented, it also compels the conclusion that these grounds are not waivable, or subject to elimination by contract.”  In the court's view, the language of § 10 of the FAA—under which a federal court “must” confirm an arbitration award unless it is vacated—carries “no hint of flexibility and does not sound remotely like a provision meant to tell a court what to do just in case the parties say nothing else.”

The Court further explained that allowing parties to contractually eliminate all judicial review of arbitration awards would run counter to the text of the FAA and would “frustrate Congress’s attempt to ensure a minimum level of due process for parties to an arbitration.”  If parties could contractually bypass § 10 of the FAA, the “balance Congress intended would be disrupted, and parties would be left without any safeguards against arbitral abuse.”  The Court concluded that the statutory grounds for vacatur under the FAA may not be waived or eliminated by contract and a non-appealability clause in an arbitration agreement that eliminates all federal court review of arbitration awards, including review under § 10 of the FAA, is not enforceable.