Judicial Deference to the Authority of Arbitrators to Interpret and Apply Federal Antitrust Laws – Vol. 12 No. 3-4

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AuthorsHoward A. Ellins and Christopher H. Withers*

Published: October 2003

Commercial Disputes
Competition and Antitrust
Contractual Expansion or Limitation of Judicial Review
Enforcement of Arbitral Awards

Description: The split decision of a panel of the United States Court of Appeals for the Seventh Circuit in Baxter International, Inc. v. Abbott Laboratories raises some fundamental questions about the role of federal courts in enforcing international arbitral awards. The issue in Baxter was whether a federal court should enforce the terms of an arbitral award which potentially mandates the parties to violate certain aspects of the United States antitrust laws. The majority decision concluded that, even where federal law may be violated by the conduct required by the tribunal, the judicial role in reviewing the arbitral award is extremely circumscribed.

In an opinion by Judge Easterbrook, the panel held that the continued availability of arbitration as a meaningful alternative to judicial litigation, and the importance of the finality of arbitral awards, militate against a procedure in which the courts would have a broad ability to refuse enforcement of the tribunal’s decision. In a forceful dissent, Judge Cudahy found that these considerations must yield to the role of the courts in enforcing United States public policy. Under his analysis, a court should not enforce an award that sanctions a violation of the antitrust laws.

The issues addressed in Baxter have far-reaching implications for the continued development of arbitration as an effective method for resolving international commercial disputes. The objective of this article is to provide an analysis of the considerations relevant to determining the limits, if any, to the ability of arbitrators to command the parties to an international arbitration to violate the law. Section II considers the facts of Baxter and the majority and dissenting opinions. Section III sets forth the policy considerations which support the limited role of the courts in reviewing an award. Section IV examines the scope of any public policy limitation on the authority of arbitrators to interpret an agreement within the framework of applicable laws. It further considers whether the authority of arbitrators in this respect depends upon the type of antitrust violation at issue. Section V reviews the role of the federal antitrust agencies in remedying the failure by an arbitral tribunal to apply correctly federal antitrust laws, in light of the corresponding effects that may have upon the general public.

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*Howard A. Ellins is a partner and Christopher H. Withers is an associate at the New York office of Davis Polk & Wardwell. The opinions expressed in this article are solely those of the authors, and do not necessarily reflect the views of Davis Polk & Wardwell and its clients. The authors wish to acknowledge the assistance of L. Reid Skibbell (law student, Columbia University and summer associate, Davis Polk & Wardwell) in the preparation and editing of this article.