Parties Can Contract for Expanded Judicial Review of Arbitration Awards

September 3, 2008

The California Supreme Court held that under the California Arbitration Act (CAA), parties to an arbitration agreement may agree to expanded judicial review of an arbitration award for legal error, according to Cable Connection, Inc. v. DIRECTV, Inc. (Aug. 25, 2008, S147767) ___ Cal.4th ___ [08 D.A.R. 13491].To ensure judicial review, the arbitration agreement must require the arbitrator to act in conformity with the law and provide that the arbitration award is reviewable for legal error.

In Cable Connection, DIRECTV’s sales agency agreement with retail dealers contained an arbitration provision which provided for review by the courts. DIRECTV successfully moved for arbitration. A majority of the three-member arbitration panel concluded that classwide arbitration was authorized under the arbitration agreement, although the agreement was silent about class arbitrations. The trial court vacated the award, concluding the panel erred as a matter of law. The Court of Appeal reversed, concluding the trial court erred by reviewing the merits of the arbitrators’ decision in the first instance.

The California Supreme Court reversed, concluding that, under the CAA, the parties to an arbitration agreement may agree to judicial review of arbitration awards for legal error.

In reaching this conclusion, the California Supreme Court departed from the United States Supreme Court, which, in Hall Street Associates, L.L.C. v. Mattel, Inc. (2008) ___ U.S. ___ [128 S.Ct. 1396, 1404-1405], held that the Federal Arbitration Act (FAA) does not permit the parties to agree to expanded judicial review. This seemingly inconsistent result is possible because (a) the United States Supreme Court indicated that that expanded review might be available under state law, and (b) the California Supreme Court concluded that the FAA is not preemptive, and therefore does not require state law to conform to federal law with respect to judicial review of arbitration awards.

For more information, call Jeremy B. Rosen or Alicia A. Pell at Horvitz & Levy LLP at 818-995-0800. Horvitz & Levy represented amici in support of defendant.

Source: Horvitz & Levy LLP

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