Arbitration Article No. 6

LEGAL ERRORS IN ARBITRATION CANNOT BE REVIEWED (PART II)

At the conclusion of Arbitration Insight no. 5, I observed that “The continuing moral of (recent case law, including Baize v. Eastridge Companies (2006) 142 Cal.App.4th 293) 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.” Cable Connection, Inc. v. DIRECTV, Inc. (2006) 143 Cal.App.4th 207, which was decided shortly thereafter, provides otherwise – “that parties cannot contractually expand the jurisdiction of the trial courts to permit review of arbitration awards for legal error.” (Id. at p. 219.)

In Cable Connection, the trial court vacated an award by a majority of arbitrators who had determined that an arbitration agreement, although silent on the issue, permitted classwide arbitration. The trial court reasoned that the arbitrators had exceeded their authority by writing terms into the parties’ agreement and had erred in refusing to hear material evidence of DIRECTV’s intent.

In finding that the trial court had exceeded its authority in reviewing the merits of the controversy, Cable Connection first reviewed language in Moncharsh v. Heily & Blaise (1992) 3 Cal.4th 1, which made clear that judicial review of private arbitration awards was strictly controlled by statute. (Cable Connection, supra, at p. 217.) Next, Cable Connection discussed Pacific Gas & Electric Co. v. Superior Court (1993) 15 Cal.App.4th 576, Alexander v. Blue Cross of California (2001) 88 Cal.App.4th 1082 and Crowell v. Downey Community Hospital Foundation (2002) 95 Cal.App.4th 730 as supporting the proposition that arbitrators do not exceed their powers by failing to apply the law as required by an arbitration provision. Then, in a footnote, Cable Connection disagreed with the “suggestion” in Baize that parties could contractually restrict the scope of an arbitrator’s powers; besides, it noted, Baize’s comment was merely dicta. (Id. at p. 220, fn. 7.)

It was of no moment in Cable Connection that the parties had specified that the Federal Arbitration Act (FAA) should govern the arbitration proceedings because the court, while noting a split between the federal circuits on the issue of whether or not parties can contract for judicial review of an arbitration award, chose to follow the Ninth Circuit’s holding in Kyocera Corp. v. Prudential-Bache (9th Cir. 2003) 341 F.3d 987 that private parties have no power to alter or expand the grounds set forth in the FAA.

Cable Connection also held that the trial court erred in vacating the award because of the arbitrators’ supposed refusal to consider declarations offered by DIRECTV of several persons in an effort to support its argument that the parties had not intended to permit classwide arbitration when they entered into the arbitration agreement. (C.C.P. section 1286.2, subdivision (a)(5), provides, in part, that a trial court shall vacate an arbitration award if it determines that “The rights of the party were substantially prejudiced … by the refusal of the arbitrators to hear evidence material to the controversy.”) A review of the appellate record showed, however, that what the arbitrators had denied was not the admission of the declarations but merely the right of the declarants to be physically present; thus, the appellate court found that the arbitrators had not refused to hear evidence material to the controversy. On that issue, the justices concluded that “alleging a failure to consider evidence is not tantamount to alleging a refusal to hear evidence.” (Id. at p. 228; emphasis in the original.)

Since the Supreme Court has not decertified either Baize or Cable Connection, it would appear that it is comfortable with the status of the law, which is that a majority of appellate decisions interpreting Moncharsh have found that it does not allow parties to an arbitration to contractually allow a trial court to review an arbitrator’s reasoning or legal conclusions.

Editor’s note: After this Arbitration Insight was written, the Supreme Court granted a hearing in Cable Connect. The implications of that hearing are discussed in Arbitration Insight No. 9.

Copyright, Michael D. Marcus, November 2006

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