Facts

Mattel, Inc. (Mattel) (plaintiff) leased property from Hall Street Associates, L.L.C. (Hall Street) (defendant). There was a provision in the lease agreement that Mattel would indemnify Hall Street for any costs resulting from the failure of Mattel or its predecessor lessees to follow environmental laws while using the premises. Tests of the property’s well water showed high levels of trichloroethylene (TCE), a residue of manufacturing discharges by Mattel’s predecessors between 1951 and 1980. After the Oregon Department of Environmental Quality (ODEQ) discovered more pollutants, Mattel stopped drawing from the well and, along with a predecessor, signed a consent order with ODEQ providing for cleanup of the site. Mattel provided notice to Hall Street that it was terminating the lease. Hall Street filed suit against Mattel, seeking payment of the environmental cleanup under the indemnification clause in the lease. After a bench trial the parties agreed to submit to arbitration on the indemnification issue. The court order providing for arbitration included a provision for judicial review and allowed the court to confirm, vacate, modify, or correct the award. After several attempts to modify an arbitrator’s award for one side or the other, both parties appealed to the Ninth Circuit Court of Appeals. The appellate court held for Mattel and the U.S. Supreme Court eventually granted certiorari to review.

Rule of Law

Issue

Holding and Reasoning (Souter, J.)