Arbitration Article No. 14

PARTIES MAY EXPRESSLY AGREE TO JUDICIAL REVIEW OF AN ARBITRATION AWARD

Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, which holds that parties to an arbitration may expressly agree to obtain judicial review of an arbitration award, is also significant because it presages a potential change in the Supreme Court’s strong preference that arbitrations be subject only to minimal court supervision or interference. (See, for example, Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11 holding that “It is the general rule that, with narrow (statutory) exceptions, an arbitrator’s decision cannot be reviewed for errors of fact or law.”)

In Cable Connection, the parties agreed that “[t]he arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.” In the subsequent arbitration proceeding, two of the three arbitrators decided that classwide arbitration was authorized even though the contract was both silent and manifested no intent on that issue.

DIRECTV petitioned to vacate the award, contending, in part, that it reflected errors of law subject to judicial review. The trial court vacated the award. The Court of Appeal reversed, holding that the trial court had exceeded its jurisdiction by reviewing the merits of the arbitrators’ decision.

The Supreme Court reversed the Court of Appeal, holding that a contractual right to appeal errors of law or legal reasoning was enforceable under state law. (Id. at pp. 1339; 1357.) Its legal analysis included that Moncharsh did not foreclose such an intent (id. at p. 1355); U.S. Supreme Court decisions allow for a limited review of arbitration awards (id. at p. 1349) and those same decisions do not preempt all state arbitration cases involving interstate commerce (id. at pp. 1353-1354).

The Court’s policy considerations in Cable Connection are more intriguing than its legal analysis and could have a long range impact on the future direction it takes regarding arbitrations. The five-justice majority believed that the advantages of arbitration informality and finality were outweighed by “the parties … who are best situated to weigh the advantages of traditional arbitration against the benefits of court review for the correction of legal error.” (Id. at p. 1361.) Moreover, “The judicial system reaps little benefit from forcing parties to choose between the risk of an erroneous arbitration award and the burden of litigating their dispute entirely in court. Enforcing contract provisions for review of awards on the merits relieves pressure on congested trial court dockets.” (Id. at p. 1363.)

In dissent, Justice Moreno, with Chief Justice George concurring, wrote that “Arbitration was intended to be a relatively quick and inexpensive means of resolving disputes, in part by making the arbitrator’s resolution binding and final. (Citation.) Although it is arguably the case that (Moncharsh) went too far in emphasizing arbitral finality at the expense of obtaining a just and reasonable result…, the majority goes too far in the opposite direction. The majority decision would allow parties to fundamentally refashion arbitration from being a means of binding dispute resolution to being essentially a preliminary fact-finding procedure, with trial and appellate courts required to settle decisive legal questions. … Arguably this rule will burden the courts with the minutiae of arbitration disputes, thereby negating whatever benefits arbitration may have had in conserving judicial resources. …” (Id. at pp. 1374-1375.)

Chief Justice George’s participation in the dissent signals that his belief in arbitration finality no longer holds sway over a majority of the justices and that further modifications of Moncharsh and its progeny are possible. (Only George and Baxter, of the five-person majority in Moncharsh, remain on the Court. Kennard, who concurred and dissented in Moncharsh [with Mosk concurring] , joined the majority opinion by Corrigan in Cable Connection along with Werdegar, Chin and Baxter.)

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, October 2008

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