California Courts Let You Have it Your Way: Arbitrate and Appeal the Award
(while we're walking down memory lane anyway, "Have It Your Way" from 1976)
When I ask litigators why they don't choose arbitration over litigation before unpredictable judges in a crowded court, their answer invariably is "because I can't appeal the ruling." We cling to appellate review even though we appeal fewer cases than we try -- which is a very small percentage of our case load as it is.
Not surprising, however, we litigators, as Max Kennerly recently noted, tend to be risk-averse, not risk-embracing (h/t Blawg Review # 174). To give up that one last chance for our client to be vindicated and for us to be triumphant is generally just too much for us.
Now we can have our arbitration cake and and follow it up with appellate ice cream. Yesterday, the California Supreme Court in Cable Connection, Inc. v. DirecTV held that arbitrating parties' agreement to seek appellate review of legal errors is enforceable in California State Courts despite its uneforceability in federal court. As the Supreme Court explained:
On the first question, the United States Supreme Court has held that the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) does not permit the parties to expand the scope of review by agreement. (Hall Street Associates, L.L.C. v. Mattel, Inc. (2008) __ U.S. __ [128 S.Ct. 1396, 1404-1405] (Hall Street).)
However, the high court went on to say that federal law does not preclude “more searching review based on authority outside the [federal] statute,” including “state statutory or common law.” (Id. at p. __ [128 S.Ct. at p. 1406].) In Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1 (Moncharsh), this court reviewed the history of the California Arbitration Act (CAA; Code Civ. Proc., § 1280 et seq.).
We adhere to our holding in Moncharsh, recognizing that contractual limitations may alter the usual scope of review.The California rule is that the parties may obtain judicial review of the merits by express agreement. There is a statutory as well as a contractual basis for this rule; one of the grounds for review of an arbitration award is that “[t]he arbitrators exceeded their powers.” (§§ 1286.2, subd. (a)(4), 1286.6, subd. (b).)
Here, 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.” This contract provision is enforceable under state law, and we reverse the contrary ruling of the Court of Appeal.
