Arbitration Insight No. 5

ARBITRATION AWARD NOT REVIEWABLE FOR ERRORS OF LAW

While not establishing new law, the recent decision of Baize v. Eastridge Companies (2006) No. B185823, 2006 DJDAR 11430, provides a good reminder that, absent an exception, “[a]n arbitrator’s award is not reviewable for claimed errors of law.”

In Baize, the parties agreed both to submit their claims to binding arbitration and that “The Arbitrator shall have the authority of a sitting judge with respect to handling this matter and shall apply California law.” Thereafter, the defendants opposed the plaintiffs’ petition to confirm the award on the ground that the arbitrator had failed to correctly apply California law. The trial court concluded that it lacked jurisdiction to vacate the award for that reason and entered a judgment in the plaintiffs’ favor.

In affirming that judgment (and approving, as well, an order allowing an amendment of the judgment to add a business as the alter ego of the defendant corporation), Baize discussed Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, Pacific Gas & Electric Co. v. Superior Court (1993) 15 Cal.App.4th 576 and Marsch v. Williams (1994) 23 Cal.App.4th 238. Moncharsh, as is well known, provides for the finality of an arbitrator’s decision, noting that the “courts will not review the validity of the arbitrator’s reasoning.” (Id. at p. 11.) Pacific Gas & Electric and Marsch hold that an arbitrator’s decision is not reviewable, even if he or she is required to decide the matter according to the rule of law. Pacific Gas & Electric observed that the argument “confuses the mode of decision with its finality.” (Id. at p. 587.) One year later, Marsch came to that same conclusion.

Baise found Moncharsh and Pacific Gas & Electric to be controlling but acknowledged that the parties’ agreement to judicial review of questions of law, which had not occurred therein, is an exception to the rule of finality of an arbitrator’s decision. (An interesting side note to this discussion is whether litigants can also sidestep the effect of Moncharsh by stipulating to judicial review of an arbitrator’s reasoning.)

The continuing moral of Pacific Gas & Electric, Marsch and now Baize is if attorneys want to have the right to challenge an arbitrator’s application of the law, they must not only require the arbitrator to apply the law in question but also agree to judicial review of that application.

Copyright, Michael D. Marcus, September 2006

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