## Facts

- Kyocera, Prudential-Bache Trade Services, and LaPine Technology formed a mid-1980s venture to manufacture and market computer disk drives, with Kyocera manufacturing, LaPine supplying a proprietary design, and Prudential financing and acting as an intermediary purchaser/reseller.
- After LaPine experienced financial difficulties, the parties negotiated revised agreements, including an amended trading arrangement; the central dispute was whether Prudential would stop buying drives from Kyocera and LaPine would buy directly from Kyocera.
- The parties’ general agreement included a broad arbitration clause and a judicial-review clause purporting to allow a federal court to revise an arbitration award for “unsupported findings of fact” or “incorrect conclusions of law,” in addition to review permitted by the Federal Arbitration Act (FAA).
- LaPine sued Kyocera for breach of contract; the district court compelled arbitration.
- The arbitration panel found Kyocera breached by refusing to sell directly to LaPine and awarded substantial damages to LaPine and Prudential.
- Kyocera sought to vacate the award in federal court, relying on both FAA grounds and the contract’s expanded review language.

## Issues

1. Whether, under the FAA, parties may contractually require federal courts to apply broader standards of judicial review of arbitration awards than those authorized by the FAA.

## Decision

- The en banc Ninth Circuit held that parties may not expand federal-court review of arbitration awards beyond the FAA’s limited statutory grounds.
- The court treated the contract’s expanded-review provisions (review for factual insufficiency or legal error) as invalid and severable.
- Applying only the FAA’s narrow review framework, the court affirmed confirmation of the arbitration award.

## Legal Principles

- The FAA provides the exclusive grounds on which federal courts may vacate, modify, or correct arbitration awards; those standards are not default rules subject to contractual expansion.
- Parties may structure arbitration procedures and define arbitrators’ powers, but they cannot dictate to Article III courts an enlarged appellate-type review of an award.
- Contract terms requiring federal courts to review arbitral findings for factual support or legal correctness are unenforceable; if severable, the remaining arbitration agreement and award remain subject to FAA review.

## Conclusion

The Ninth Circuit (en banc) ruled that the FAA limits federal judicial review of arbitration awards to the statute’s specified grounds, invalidating and severing contract provisions that attempted to authorize broader review and affirming confirmation of the award.


Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987 (9th Cir. 2003) (en banc)