Court of Appeal Grants Rehearing in Burlage
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.
At the Federal Bar Association luncheon today I sat at attorney Wendy Lascher's table to hear the Dean of the new U.C. Law School at Irvine, Erwin Chemerinsky speak about the new Supreme Court term. Wendy represented the losing party in Burlage and was awaiting word from the Court of Appeal on her Petition for Rehearing, which was granted this afternoon.
My further thoughts below, which are 180 degrees from my initial thoughts. (As a friend recently said to me "I said THAT? about THAT issue? Did you hit the 'refresh' button?")
The question presented to the arbitrator was whether evidence of a post-escrow remedy was admissible in light of the (apparent) rule of law that damages should be measured as of the date escrow closed. Because the purchaser of the property purchased a lot line adjustment eliminating the encroachment subject of the arbitration two years after the close of escrow, the arbitrator excluded the evidence as irrelevant to the issue of damages. The trial court vacated the arbitration award 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.
When I spoke with attorney Lascher over lunch yesterday, she noted that questions such as "substantial prejudice" would require the trial court to review the entire record. Determining that substantial prejudice existed would also depend upon the application of the law to the facts. How, for instance, could there be "substantial prejudice" if the arbitrator was right about the law, i.e., that because the damages were required to be measured at the date escrow closed, evidence of a post-escrow cure were irrelevant. The appellate court opinion doesn't mention this issue, let alone resolve it.
Since the Court can't review the decision based upon the law or the findings of fact, the arbitrator could have permitted the evidence to be introduced and granted the identical relief. Presto, the arbitration award would have been made bullet-proof. I understand from reading the rehearing briefs that the arbitrator knew the "facts" that the excluded evidence would have proven, so it's highly unlikely that permitting the facts to come into evidence would have changed the result.
The Lascher rehearing brief suggests that the Burlage holding would incentivize arbitrators to admit all proffered testimony and documents into evidence to insure their awards are not made subject to judicial review, thereby making arbitration lengthier and more burdensome. Lascher also suggests that there is little to disincentivize losing parties from seeking to vacate arbitration awards whenever any evidence is excluded at the arbitration. Both of these results would, she argues, further proceduralize and undermine the utility of arbitration as an alternative to litigation.
She may well convince me that my own initial analysis of the case was wrong. We'll see whether the Court of Appeal rethinks this one. In any event, I believe we can expect to see this one before the California Supreme Court at day's end.