ADR Case Updates
Bad Case Makes Bad Law: Court Vacates Arbitration Award, 09/26/09
Several decisions regarding ADR have been rendered since my last update of August 20, 2009, holding:
A more detailed summary and analysis is below.
In Burlage v. Superior Court (Spencer), (August 31, 2009, Second District, Div. Six), 176 Cal App. 4th 166, buyers purchased a home and later learned that the swimming pool and fence encroached on adjacent land. They sued the seller claiming she knew of and failed to disclose the encroachment. Before the matter was arbitrated, the seller�s title company paid the adjacent property owner to effectuate a lot-line adjustment that gave the buyers title to the encroaching land.
Problem resolved and case over? No. The buyers proceeded to arbitration claiming that damages must be measured at the time of close of escrow. The arbitrator granted buyers� motion in limine to exclude evidence of the lot-line adjustment, and then awarded buyers about $1.5M for a non-existent encroachment.
The trial court vacated the award under California Code of Civil Procedure � 1286.2, subdivision (a) (5), requiring vacation of an arbitration award when a party�s rights are �substantially prejudiced� by the arbitrator�s refusal to �hear� �evidence material to the controversy.�
A divided Appellate Court affirmed. The majority concluded that the arbitrator�s ruling �disallowing� evidence of the lot-line adjustment substantially prejudiced the seller because it prevented her from refuting the buyers� evidence of damages.
The dissent observed that this �regrettable situation� was the result of the arbitrator�s legal conclusion that California law does not permit consideration of evidence of mitigation in a land fraud case after close of escrow. Right or wrong, Moncharsh v. Heily & Blase (1992) 3 Cal. 4th 1, 33, and Cable Connection, Inc., v. DIRECTV, Inc., (2008) 44 Cal. 4th 1334,1354 -1355, preclude judicial review of an arbitrator�s legal conclusion.
Clearly, the majority seeks to right an unjust result — a $1.5M windfall to the buyers. However, the arbitrator did �hear� evidence of the lot-line adjustment when ruling on the motion in limine. He just made the legal determination that it was irrelevant in light of his interpretation of substantive real property law.
Parties to arbitration agreements accept risk of legal error in exchange for a quick and cost-efficient resolution of their dispute. This decision creates a dangerous precedent that will likely spawn numerous judicial challenges couched as a failure by the arbitrator to �hear� material evidence contrary to the expectations of the parties.
Bad cases make bad law. We may see this case again if the California Supreme Court grants review.
The additional cases and holdings are:
Taheri Law Group, A.P.C., v. Sorokurs (August 18, 2009, Second District, Div. Three), 176 Cal App. 4th 956, (Court is not required to vacate arbitration award where party filed untimely response to petition to vacate);
Coffman Specialties, Inc., v. Department of Transportation, (August 19, 2009, Fourth District, Div. One), 176 Cal App. 4th 1135, (Arbitration system governing disputes over public works does not create financial bias in favor of Caltrans);
Rodriguez v. Superior Court (Witzling), (August 25, 2009, Second District, Div. Seven), 176 Cal App. 4th 1461, (Agreement to arbitrate medical malpractice claims is unenforceable where patient died prior to 30-day revocation period);
Parada v. Superior Court (Monex Deposit Company), (August 26, 2009, Fourth District, Div. Three), 98 Cal. Rptr. 3d 743, (Arbitration clause requiring panel of three arbitrators is substantively unconscionable where investment company knew of clients� limited income);
Jackson v. Rent-A-Center West, Inc., ___ F. 3d ___ (9th Cir., Sept. 9, 2009), 2009 WL 2871247, (District court must determine whether arbitration clause is enforceable where dispute arose out of federal statutory discrimination law); and
United Teachers Los Angeles v. Los Angeles Unified School District, (Sept. 17, 2009, Second District, Div. Five), 2009 WL 2963721, (Trial court errs in refusing to grant petition to compel arbitration where denial was based on substantive merits of dispute).
The California Court of Appeal opinions may be viewed at: http://www.courts.ca.gov/opinions.htm; and the Ninth Circuit case at: http://www.ca9.uscourts.gov/opinions/.
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