Arbitration decisions may have become more appealable
Private arbitration decisions are not typically appealable in California, except in cases where:
1. The agreement to arbitrate specifically provides a right of appeal.
2. Our Courts of Appeal effectively provide a right of appeal.
The recent decision of the California Second District Court of Appeal, entitled Burlage v. Superior Court (August 31, 2009) (PDF) 177 Cal.App.4th 166, may open the door a bit wider to appeals of private arbitration decisions.
The California rule on private arbitrations is described this way by the California Supreme Court in Cable Connection, Inc. v. DIRECTV, Inc.:
“'Because the decision to arbitrate grievances evinces the parties' intent to bypass the judicial system and thus avoid potential delays at the trial and appellate levels, arbitral finality is a core component of the parties' agreement to submit to arbitration. Thus, an arbitration decision is final and conclusive because the parties have agreed that it be so. By ensuring that an arbitrator's decision is final and binding, courts simply assure that the parties receive the benefit of their bargain.'” Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334 at 1355, quoting Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1 at 10.
The Cable Connection court emphasized "that parties seeking to allow judicial review of the merits, and to avoid an additional dispute over the scope of review, would be well advised to provide for that review explicitly and unambiguously." Cable Connection at 1361, emphasis added.
The agreement to arbitrate in Burlage did not provide a right of appeal.
What happened in Burlage v. Superior Court:.jpg)
The Burlage dispute involved an actual encroachment of a house's pool and fence on adjoining property owned by a country club, which encroachment was allegedly known by the seller, but not disclosed to the buyer at time of sale. Before the arbitration, where the purchasers sought damages for the diminution in value of "their property and for the cost of moving the pool and fence that were on the encroaching land they now owned", the purchasers moved to exclude evidence of the fact that a title company had, subsequent to the sale, purchased a lot-line adjustment from the adjoining country club for the sum of $10,950, thereby curing the encroachment.
The arbitrator granted this motion to exclude evidence of the "fix" and, after 12 days of testimony, awarded the purchasers $552,750 in compensatory damages, $250,000 in punitive damages, and $732,570 in attorney's fees and costs. The sellers moved to vacate this award under Code of Civil Procedure section 1286.2(a)(5) on the ground that the sellers were "substantially prejudiced" by the arbitrator's refused to hear "evidence material to the controversy." Both the trial court and the Burlage court of appeal, with one justice dissenting, agreed.
Code of Civil Procedure 1286.2 "Grounds for vacation of award" provides, in pertinent part, that:
(a) Subject to Section 1286.4 [dealing with notice and opportunity to be heard], the court shall vacate the award if the court determines any of the following:
. . .(5) The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title.
(Emphasis added.)
While the majority of the Burlage panel agreed that the sellers were substantially prejudiced by the arbitrator's evidentiary ruling, the dissenting justice stated that:
"The arbitrator's ruling unquestionably precluded the admission of evidence of mitigation of damage. The exclusion, however, was the product of the arbitrator's determination that the law does not permit consideration of evidence of mitigation in a land fraud case following the close of escrow. Right or wrong, it was a legal ruling which, under both Moncharsh and Cable Connection, precludes judicial review."
By effectively reviewing, and reversing, this arbitrator's evidentiary ruling under the authority of CCP 1286.2, the Burlage majority, as pointed out by the Burlage dissenter, effectively draws into question all evidentiary rulings by all arbitrators.
My thoughts:
There is nothing in the majority opinion that clarifies what evidentiary rulings are reviewable under 1286.2, and which ones are not. Burlage, therefore, seems to encourage the final resolution of private contract arbitrations by courts of appeal, rather than by private arbitrators, a result seemingly inconsistent with the choice of private arbitration in the first place.
UPDATE:
September 30, 2009: Hat tip to Victoria Pynchon for letting us know that the Second District Court of Appeal has granted a petition for rehearing in Burlage.
UPDATE:
October 20, 2009: After rehearing, the Second District again upheld the trial court's vacation of the arbitrator's award in Burlage for the reasons discussed above. The Burlage v. Superior Court Opinion after Rehearing (PDF), 178 Cal.App.4th 524, contains some new language but is substantively unchanged from the court's August 31, 2009 opinion (PDF), 177 Cal.App.4th 166.
(The August 31, 2009 opinion is vacated by the October 20, 2009 opinion.)
UPDATE:
December 1, 2009: Thanks to Greg May at The California Blog of Appeal we now know that the petitioners in Burlage have filed a petition for review in the California Supreme Court. (Petition denied, January 21, 2010.)
