One of the prominent features of arbitration under the Federal Arbitration Act (“FAA”)[1] and the arbitration statutes of most states is a stringently limited right of appeal, which is integral to the goal of expeditious and economical dispute resolution. Some parties choose to arbitrate for reasons other than cost and efficiency, however, such as a desire for privacy, to avoid a forum perceived to be hostile, or to present their case to a tribunal with special expertise, and those parties often would also like to reserve the right to appeal the arbitrators’ award under a traditional judicial standard of review for errors of law and the sufficiency of the evidence to support the findings underpinning the award.

The United States Supreme Court foreclosed the possibility of traditional judicial review under the FAA in 2008, when it held that the limited grounds for vacatur or modification of an arbitration award specified in the FAA are exclusive and may not be supplemented or expanded by agreement. Hall Street Assocs., L.L.C. v. Mattel, Inc.[2] The Court made clear though that it was simply construing the text of the FAA and not ruling out other avenues of expanded review of arbitration awards.[3] “The FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable.”[4] 

The Supreme Court of Texas recently confirmed that review of arbitration awards under the Texas General Arbitration Act (“TAA”)[5] is indeed different from review under the FAA, notwithstanding the substantial similarities between the FAA and the TAA.[6]  It held in Nafta Traders, Inc. v. Quinn that the TAA does not limit judicial review of an arbitration award to the grounds specifically stated in the TAA and that the FAA does not preempt expanded judicial review of an arbitration award under the TAA.[7]  Consequently, parties whose agreement to arbitrate is within the scope of the TAA may preserve the right to traditional judicial review of the arbitration award by restricting their arbitrators’ powers to those typically possessed by a judge or by expressly agreeing that the arbitration award will be subject to a traditional judicial standard of review.[8]  Of course, they will also need to make a verbatim record of the arbitration proceeding and should consider specifying in their arbitration provision that the TAA governs any proceeding thereunder and that any suit to confirm, modify, or vacate an award must be brought in a Texas state court. 


  1. 9 U.S.C. §§ 1-16.
  2. 552 U.S. 576, 578 & 584 (2008).
  3. Id. at 586-88.
  4. Id. at 590.
  5. Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001-098.
  6. The statutory grounds for vacating an arbitration award are substantially the same under both the FAA and the TAA: (1) it was procured by corruption, fraud, or undue means, (2) there was evident partiality or corruption in the arbitrators, (3) 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 any other misbehavior by which the rights of any party have been prejudiced; or (4) 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. 9 U.S.C. § 10, Tex. Civ. Prac. & Rem. Code Ann. § 171.088.
    The statutory grounds for modifying an arbitration award are likewise similar under the FAA and the TAA: that the arbitrators made an award on a matter not submitted to them or 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. 9 U.S.C. § 11, Tex. Civ. Prac. & Rem. Code Ann. § 171.091.
  7. Nafta Traders, Inc. v. Quinn, No. 08-0613, 2011 WL 1820875, at *7 & *10, 2011 Tex. LEXIS 361, at *33 & *45-46 (Tex. May 13, 2011).
  8. The issue presented for decision in Nafta Traders was the availability of judicial review concerning whether an arbitrator had exceeded his powers, but the supreme court characterized its holding more broadly: “The TAA, as we have construed it, permits parties to agree to expanded review, or to a corresponding limit on the arbitrator’s authority, as in this case . . . .” Nafta Traders, 2011 WL 1820875, at *10, 2011 Tex. LEXIS 361, at *45.

Procedural History of Nafta Traders

Following the termination of her employment by Nafta Traders, Margaret Quinn filed suit in Texas state court for alleged gender discrimination in violation of the Texas Commission on Human Rights Act (the Texas analog to federal anti-discrimination statutes). Nafta Traders’ employee handbook included a provision requiring that any dispute arising out of the employment relationship or its termination be arbitrated in Dallas, Texas, but did not indicate whether federal or state law should apply to the arbitration. Nafta Traders moved to compel arbitration of Quinn’s claims under the FAA, which Quinn did not oppose, and the Texas district court signed an agreed order compelling arbitration.

The parties selected an arbitrator through the American Arbitration Association® and, after hearing evidence, the arbitrator awarded Quinn back pay, mental anguish damages, “special damages,” and attorney’s fees and costs. The parties then went back to Texas district court. Quinn moved to confirm the arbitration award and Nafta Traders moved to vacate it “under the FAA, the TAA, the common law, and a provision in the arbitration section of the employee handbook stating that ‘[t]he arbitrator does not have authority (i) to render a decision which contains a reversible error of state or federal law, or (ii) to apply a cause of action or remedy not expressly provided for under existing state or federal law.’”

A verbatim record had been made of the proceedings before the arbitrator, and, based on the record, Nafta Traders asserted that (1) the arbitrator had mistakenly applied federal law even though Quinn had alleged only a violation of Texas law, (2) the evidence did not support an award of mental anguish damages, (3) the award of “special damages” was really a double recovery of lost wages, and (4) the attorney’s fee award was improper. Quinn responded that none of the grounds asserted by Nafta Traders was a basis for vacating an award under the FAA or the TAA. In rejoinder, Nafta Traders argued that by agreeing to the above described limits on the arbitrator’s authority, the parties had in effect agreed to expand the scope of judicial review beyond that otherwise provided by the FAA and the TAA. The district court confirmed the award with a brief order that gave no indication of the basis for the decision. Nafta Traders appealed.

While Nafta Traders’ appeal to the Dallas Court of Appeals was pending, the United States Supreme Court decided Hall Street Associates.[1]  The state court of appeals applied the TAA rather than the FAA in Nafta Traders’ appeal, but concluded that “similarities between the two statutes weighed heavily in favor of construing the TAA as Hall Street had construed the FAA.” It held accordingly that “parties seeking judicial review of an arbitration award covered under the TAA cannot contractually agree to expand the scope of that review and are instead limited to judicial review based on the statutory grounds enumerated in the statute.”[2]  Nafta Traders petitioned the Supreme Court of Texas for review of the court of appeals’ decision in August 2008.

The supreme court requested briefs on the merits, granted the petition for review, and in October 2009 heard the parties’ oral arguments in the case. The appeal languished from then until May 13, 2011, when the court issued a decision. Justice Hecht authored the opinion for a unanimous court and Chief Justice Jefferson wrote a three-paragraph concurring opinion not directed to the merits of the case. The court distinguished the arbitration provision in Nafta Traders from the provision in Hall Street Associates on the basis that the parties in Nafta Traders had not tried to expand the standard for review of their arbitrator’s award; they had instead denied the arbitrator the power to (i)render a decision containing a reversible error of state or federal law or (ii) apply a cause of action or remedy not expressly provided for under existing state or federal law. The court held that because one of the statutory grounds for vacating an arbitration award under the TAA is that it exceeds the arbitrator’s powers,[3] the award under the arbitration provision in Nafta Traders could therefore be reviewed for errors of law and to confirm that any relief granted was based on a cause of action or remedy expressly authorized under existing federal or state law.[4]  The court also held that such review under the TAA is not preempted by the FAA.[5]  Based on its holdings, the supreme court remanded the case to the court of appeals for it to consider the merits of Nafta Traders’ challenges to the arbitration award in favor of Quinn, so there may be yet another chapter in this saga.

The Criticism of Hall Street Associates

The Supreme Court of Texas could have limited its opinion in Nafta Traders to an explanation of its holding that judicial review to determine whether an arbitrator exceeded his powers is available under the TAA and is not preempted by the FAA. The court went further, however, and expressed its view that the United States Supreme Court’s textual analysis of the FAA in Hall Street Associates is flawed and that neither the FAA nor the TAA precludes review of an arbitration award under traditional judicial review standards if the parties agreed to such a standard.[6]  That portion of the Texas court’s opinion may be persuasive, but it is not binding (even in a Texas court applying the FAA) because federalism prevents state courts from construing a federal statute contrary to a construction of it by the United States Supreme Court.[7]

 In addition to the Westlaw® and LexisNexis® citations shown above, the majority and concurring opinions of the Supreme Court of Texas in Nafta Traders are also available on the court’s web site at the following hyperlinks: and

  1. The decision in Hall Street Associates was released after the parties had submitted their briefs and presented oral argument in Nafta Traders, but before the Texas court of appeals had issued its opinion. Nafta Traders, 2011 WL 1820875, at *2, 2011 Tex. LEXIS 361, at *7.
  2. Nafta Traders, Inc. v. Quinn, 257 S.W.3d 795, 798-99 (Tex. App. – Dallas), rev’d, No. 08-0613, 2011 WL 1820875, 2011 Tex. LEXIS 361 (Tex. May 13, 2011).
  3. The FAA contains a substantially similar provision. 9 U.S.C. § 10(a)(4), Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(3)(A).
  4. Nafta Traders, 2011 WL 1820875, at *7, 2011 Tex. LEXIS 361, at *33.
  5. Nafta Traders, 2011 WL 1820875, at *10, 2011 Tex. LEXIS 361, at *45-46.
  6. Nafta Traders, 2011 WL 1820875, at *4-*6, 2011 Tex. LEXIS 361, at *18-*27.
  7. Nafta Traders, 2011 WL 1820875, at *3, 2011 Tex. LEXIS 361, at *17.