Clark & Trevithick | Arbitration Options

October 20 , 2009 Volume 1, No. 7

This edition of Currents is from David S. Olson, Esq. a litigation partner of the firm. Please contact David at dolson@clarktrev.com to inquire about the subject matter of this issue.

Recent Case Provides Reminder for
Arbitration Agreements

The proliferation of arbitration as a means of dispute resolution has resulted in far too much reliance on “standard” arbitration provisions. There are pros and cons to arbitration as an alternative to traditional litigation in the judicial system and those must be weighed carefully, and on a case by case basis, in connection with deciding whether to agree to arbitrate a dispute. Moreover, for the most part the parties can agree on the procedures to be used in the arbitration proceedings and, to some degree, on the scope of judicial review. These items should also be carefully evaluated before any agreement to arbitrate is made.

For example, in the seminal case of Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, the California Supreme Court held that errors of law in California arbitration decisions, even those causing substantial injustice, may not be vacated by the courts except for narrow grounds expressly set forth in California’s Code of Civil Procedure. In August, 2008, however, the California Supreme Court held, in Cable Connection, Inc. v DIRECTV, Inc. (2008) 44 Cal.4th 1334, that the courts may review arbitration awards for errors of law but only if the arbitration agreement expressly and clearly provides as such.

Subsequent to Cable Connection, California has thus effectively had two classes of private arbitration litigants: those who expressly contract for judicial review of arbitration decisions based on legal error and may thus obtain such judicial review, and those who do not expressly agree to such review and are thus foreclosed from seeking to vacate arbitration awards based on an arbitrator’s legal error.

In a recent decision, Burlage v. Superior Court, decided on August 31, 2009, a California Court of Appeal permitted an arbitration award to be vacated by the trial court when an arbitrator refused to allow certain information into evidence because he deemed that information irrelevant as a matter of law. Many commentators noted that Burlage would thus likely spawn a greater number of judicial challenges to arbitration decisions--even where the parties did not agree in advance to judicial review of legal errors. The Court of Appeal then vacated its opinion and is reviewing the decision.

Regardless of how the Burlage Court ultimately decides the case before it, the initial Burlage opinion serves as a reminder of the need to use care in drafting arbitration agreements. For example, as noted, the parties must provide for judicial review of errors of law if they desire such review. Among the other important items that should typically be considered and included in the arbitration agreement are the scope of discovery the parties can conduct in the arbitration proceedings and whether the arbitrator shall have the power to order that the prevailing party may recover the costs incurred in the arbitration, including the arbitrator’s fees.

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