August 29, 2008

ARBITRATION -- Revisited and Reviewed

This Blog recently criticized non- judicial arbitration because, among other problems, the arbitrator can render a binding award without following the applicable law. The California Supreme Court has ruled that the parties may agree by contract to avoid this pitfall.

In the recent case of Cable Connection Inc. v. DIRECTV, 2008 DJAR 13491, the Supreme Court held that parties to an arbitration agreement can agree in advance to judicial review of legal mistakes by the arbitrator. This is significant because many people sign arbitration provisions in this State unaware that arbitrators are not required to follow the law. For example, an arbitration provision is standard in the commonly used California Association of Realtor's form Purchase Agreement for residential real estate. If both parties initial the arbitration provision, they have agreed to binding arbitration without judicial review for legal mistakes.

Justice Carol Corrigan writing for the majority in Cable Connection Inc. v. DIRECTV explained that judicial review of an arbitrator's decision will still ease the pressure on California's trial courts. "The judicial system reaps little benefit from forcing parties to choose between the risk of an erroneous arbitration award and the burden of litigating their dispute entirely in court. Enforcing contract provisions for review of awards on the merits relieves pressure on congested trial court dockets."

What can you do to preserve the right to judicial review of an arbitrator's award. First, you must have appropriate language in the agreement to arbitrate. The provision in Cable Connection Inc. v. DIRECTV read: "The 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 such error."

Second, there must be a record made in the arbitration that is reviewable by a court. Often times awards in arbitrations merely something like, "Claimant is awarded $________ against respondent, plus costs." At the very least, a party should request a "reasoned decision" by the arbitrator in a form similar to a Statement of Decision that is issued by the Judge in a Superior Court trial. Because without a "reasoned decision" there may be nothing to review.

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