Arbitration Insight No. 15


Eighteen years ago, Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1 held that an arbitration award cannot be vacated because of errors of law. Moncharsh recognized, however, “that there may be some limited and exceptional circumstances justifying judicial review of an arbitrator’s decision” such as when “granting finality to an arbitrator’s decision would be inconsistent with the protection of a party’s statutory rights.” (Id at p. 32.) Because that issue did not arise in that case, Moncharsh did not develop the exception.

Eight years after Moncharsh, and consistent with the dicta in that case, the Supreme Court indicated that the scope of judicial review may be somewhat greater in the case of a mandatory employment arbitration agreement that encompasses an employee’s unwaivable statutory rights. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 106–107.) Then, two years ago, the Court held that parties could expressly provide in an arbitration agreement for expanded judicial review. (Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1340.)

In April of this year, in Pearson Dental Supplies, Inc. v. Superior Court (2010) 48 Cal.4th 665, the Court made another inroad into the concept of limited judicial review of arbitration awards, holding that an error of law by an arbitrator in a FEHA case, where the employee was subject to a mandatory arbitration agreement, can be reviewed by the trial court.

In Pearson, the employer-employee relationship included a written agreement which provided that any covered dispute “must be submitted to binding arbitration within one year from the date the dispute arose or the employee or Pearson first became aware of the facts giving rise to the dispute.” At the subsequent arbitration, the arbitrator, without explaining his reasoning, granted the employer’s motion for summary judgment because of the plaintiff’s failure to timely submit his claim to binding arbitration. The trial court vacated the award, concluding that the arbitrator had misapplied the relevant tolling statute. The Court of Appeal, while agreeing with the trial court that the arbitrator had erred, held nonetheless that such error was not a valid basis for vacating an arbitration award and reversed the trial court.

The Supreme Court held both that the arbitrator had erred in ruling that the employee’s claim was time-barred and that the error, where the employee was subject to a  mandatory arbitration agreement, deprived the employee of a hearing on the merits of an unwaivable statutory employment claim. (Id. at pp. 669-670.)

Pearson also held that, for “such judicial review to be successfully accomplished, an arbitrator in a FEHA case must issue a written arbitration decision that will reveal, however briefly, the essential findings and conclusions on which the award is based.” (Id. at p. 678.)

In summary, Pearson holds, in part, that (1) arbitrators in FEHA cases must issue awards which reveal “the essential findings and conclusions on which the award is based” and (2) that such awards, where the employee is subject to a mandatory arbitration agreement, can be reviewed by the trial court for legal error. However, in a non-FEHA arbitration, Moncharsh still applies except where the parties have expressly provided for expanded judicial review.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, June 2010

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