The Federal Arbitration Act (FAA); Whether a provision in the parties’ settlement agreement providing for de novo judicial review of arbitration awards violated the FAA; 9 USC §§ 9-11; Hall St Assocs, LLC v Mattel, Inc; Severance of an invalid provision; Distinguishing Citizen Potawatomi Nation v Oklahoma (10th Cir)

The court held that the parties’ settlement agreement regarding cleanup costs at a contaminated site contained an invalid provision for de novo judicial review of arbitration awards, and that the provision was severable. The settlement agreement required plaintiff-Avient and defendant-Westlake to arbitrate certain disputes about the allocation of cleanup costs at a Kentucky Superfund site. The court noted that Avient had “twice demanded arbitration under the agreement. But now it opposes Westlake’s demand for arbitration, on the ground, it says, that the agreement’s arbitration provisions have been invalid all along. The district court granted summary judgment to Westlake[.]” Avient claimed that § 6.3 of the settlement agreement, providing for de novo judicial review of arbitration awards, violated the FAA. The court found it “undisputed” that this provision is invalid where the Supreme Court held in Hall that “the only grounds on which a federal court can vacate, modify, or correct an arbitration award are those specified in the” FAA. The Supreme Court ruled in Hall that “the judicial-review provision there was invalid. Here, § 6.3 likewise purports to expand the grounds on which a federal district court could vacate or modify an arbitration award under the agreement.” Thus, it too was invalid. The court next held that this invalid provision did not invalidate the arbitration provision as a whole, and that § 6.3 could be severed. In contrast to the case on which Avient relied, Citizen Potawatomi Nation, the parties here “did not make their agreement to arbitrate ‘subject to’ the availability of de novo judicial review; nor does either of them have sovereign immunity; nor does the severance clause ask merely whether the invalid provision is ‘material.’” Avient gave the court no basis “to conclude that severance of § 6.3 would affect ‘in any materially adverse manner as to any Party’ the ‘economic and legal substance of the transactions contemplated’ under the parties’ settlement agreement.” Thus, it deemed “§ 6.3 severed from the agreement, which otherwise remains in effect.” Affirmed.