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Burlage: "arbitrators have a great deal of power, but not absolute power"

I recently reported with surprise the Second Appellate District's Burlage opinion in which it refused to vacate the trial court's vacation of a $1.5 million arbitration award based upon the arbitrator's rejection of evidence that the damages sought were not in fact suffered by claimants.

As the Court explained, despite the fact that an undisclosed encroachment on the claimants' property was "fixed" after its purchase, the arbitrator nevertheless permitted them to:

present[] expert testimony about the effect of what had become a nonexistent encroachment. Their experts testified about the cost to move [the encroaching] pool and fence, neither of which had to be moved [and respondent] was not even permitted to refute [claimants'] expert who opined that the encroachment reduced the value of the property $100,000. [Respondent] could not show that the title company solved the encroachment issue through a payment of approximately one-tenth that amount.
Without this crucial evidence, the arbitration assumed the nature of a default hearing in which the [claimants] were awarded $1.5 million in compensatory and punitive damages they may not have suffered.

Respondent's motion to the trial court to vacate the arbitral award was granted under section 1286.2, subdivision (a)(5), "which requires 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.'"  Two members of the three-member appellate panel affirmed.

Noting that the Respondent could not receive the benefit of the arbitration bargain if deprived of the opportunity to present material evidence, the majority had no qualms affirming the trial court's order, even in the face of a dissent that the majority opinion "makes suspect every arbitration ruling disallowing evidence."

As the majority concluded:

We agree with the trial court's acknowledgment that not every evidentiary ruling by an arbitrator "can or should be reviewed by a court." We also agree with its comment, "[T]hat's not the same as saying no evidentiary ruling can or should be reviewed by a court. . . . [I]t would have the effect of . . . deleting subsection 5 from the statute [section 1286.2, subdivision (a)(5)]." This answers the dissent's concern that our opinion makes suspect every arbitration ruling disallowing evidence. In our view, should the award be affirmed, arbitration itself would be suspect.

The majority's willingness to draw a line in the sand for arbitration awards based upon the exclusion of evidence that would have flatly disproved the existence of damages awarded is a good thing for arbitration, assuring arbitrating parties that the arbitral tribunal will provide a process that is "due" -- i.e., notice and an opportunity to be heard.  I'm hoping the Supreme Court will not depublish this opinion as it sometimes does when it's not ready to deal with an issue, particularly from an appellate panel apparently still smarting over the high court's "reversal" of its Moncharsh decision nearly twenty years ago. /*


*/ The Burlage Court opens its opinion as follows:

In 1991, we wrote what we thought was a routine arbitration opinion. (Moncharsh v. Heily & Blase (Apr. 2, 1991, B048936) [nonpub. opn.].) We relied on decades of precedent in our unpublished decision to affirm the arbitration award because no error appeared on the face of the award. In dicta, we noted that had the error appeared on the face of the award and created substantial prejudice, we would have reversed.  To our surprise, our Supreme Court granted review. Our holding was affirmed, but our dicta "reversed." (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1.) Oh well, nobody's perfect.

Comments (3)

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Philip J. Loree Jr. - September 6, 2009 3:39 PM


Nice article about a court doing the right thing in the circumstances.

Since the California provision relied upon by the majority is materially identical to Section 10(a)(3) of the Federal Arbitration Act, and provisions in other state arbitration acts, the case provides a nice, clear-cut example of one of the circumtanses under which state and federal courts should vacate arbitration awards. As you point out, the defendant was denied the benefit of its bargain, implicit in which was a fundamentally fair hearing.

I also agree that it is good for arbitration. Any court decision that upholds a freely-bargained-for arbitration agreement -- even if doing so means vacating an arbitration award resulting from it -- is good for arbitration. Were the California Supreme Court to reverse the decision, it would be effectively be granting arbitrators carte blanche to make whatever rulings it pleased, irrespective of whether those rulings were in accord with the parties' agreement to arbitrate.


Vickie Pynchon - September 6, 2009 4:25 PM

Thanks, as always, Phil, for your thoughts and your support. Much appreciated! And anyone down in the twigs reading the comments should join the LinkedIn group in which Phil so often and so generously shares his experience, knowledge and insight -- the Commercial and Industrial Arbitration and Mediation Group here: http://www.linkedin.com/groups?about=&gid=1964382&trk=anet_ug_grppro

happybirthdaywish.net - September 12, 2012 5:04 AM

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