ADR Case Updates
California Supreme Court Expands Arbitration Review, 09/03/08
In sharp contrast to federal law, the California Supreme Court has significantly expanded judicial review of arbitration awards by permitting the parties to contract to allow courts to correct legal errors. In Cable Connections, Inc., v. Directv, Inc., __ Cal. Rptr. 3d __, 2008 WL 3891556 (August 25, 2008), the court held that the California Arbitration Act (�CAA�) allows for expansion of the scope of judicial review of arbitration awards if incorporated in an express agreement between the parties.
Defendant broadcasts television programming via satellite nationwide, and contracts with Plaintiff retail dealers to provide equipment to customers needed to receive the satellite signal. A dispute arose regarding commissions and charges. The contract between the parties contained an arbitration clause that provided 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.�
Plaintiffs filed suit in Oklahoma, and sought class certification. Defendant moved to compel arbitration. The Oklahoma court directed the parties to submit to arbitration in Los Angeles. After an arbitration ruling allowing for classwide arbitration, Defendant alleged the arbitrators had exceeded their authority, and the award reflected errors of law subject to judicial review per the arbitration agreement. Although the trial court agreed, the Court of Appeal reversed on the basis that the court lacked jurisdiction to review the merits of an arbitration award.
The California Supreme Court reversed and remanded. By statute, the correction of an arbitration award is not ordinarily grounded on errors of law. However, the legislative history of the CAA confirms the view that contracting parties may limit the authority of arbitrators by providing for review on the merits in the arbitration agreement. Here, the express and unambiguous language in the parties� arbitration agreement limited the arbitrators� authority to commit errors of law or legal reasoning, and therefore made the arbitration award judicially reviewable to correct any such error.
This decision premised on state law is diametrically opposed to federal law based on the Federal Arbitration Act, which does not allow the parties to expand the judicial scope of review by agreement. (Hall Street Associates, L.L.C. v. Mattel, Inc. (2008) __ U.S.__, 128 S. Ct. 1396, 1404-1405.) The Cable Connections, Inc., v. Directv, Inc., opinion may be viewed at: http://www.courts.ca.gov/opinions.htm.
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