A California appellate court rejected a party's arguments that an arbitration award violated public policy, because nothing in the arbitration award violated the party's statutory rights.

In Hardie v. Bell Gardens Bicycle Club, No. B193869, 2008 WL 534752 (Cal. Ct. App. Feb. 28, 2008), Hardie sold his interest in the Club to its remaining partners. The Club agreed to pay Hardie under a promissory note. Also, the parties executed an agreement that neither party would interfere with the business of the other, and they agreed to resolve any disputes through arbitration.

Thereafter, the Club terminated payments to Hardie based on Hardie's alleged accusations that the Club had unlawfully obtained their gambling license. During arbitration, the arbitrator determined that the Club was justified in stopping payments as Hardie breached the agreement not to interfere in the operations of the Club.

The arbitrator issued an award in favor of the Club. The lower court confirmed the arbitration award. On appeal, Hardie contended that the lower court erred in confirming the arbitration award because the award violated two California public policies.

First, Hardie argued that the arbitration award violated the public policy of controlling gambling. Hardie argued that because the arbitrator interpreted the agreement as one that prevented him from disclosing information pertinent to California's Gambling Control Act, the award interfered with his statutory duties.

The Court rejected this argument. The arbitrator did not interpret the agreement to prohibit Hardie from reporting a licensing violation. The Court noted that the actions by Hardie that the arbitrator found violative of the agreement were the claims made in a blatant attempt to interfere with the Club's business and licensing of its owners.

Second, Hardie argued that the arbitration award violated the public policy against imposing penalties and forfeitures for breach of a contract. Hardie asserted that the forfeiture provision violated California Civil Code because it provided both that Hardie would be entitled to no further payments and that he would be obligated to the Club for actual damages that resulted from the breach.

Whether the forfeiture provision violated the Civil Code was a matter for the arbitrator to decide. The Court noted that the arbitrator determined that question adversely to Hardie. Further, the Court noted that the relevant provision was negotiated and agreed upon by Hardie and the Club. The Court would not allow Hardie to argue that the language he proposed and contributed to should be void as a matter of law.

The Court stated that without the explicit legislative expression of public policy, a court should be reluctant to invalidate an arbitrator's award on this ground. Further, the public policy exception has been limited to situations where private arbitration itself would impede a statutory right.

The Court stated that nothing in the arbitration award violated Hardie's statutory rights. The arbitration award in this case clearly was not barred by the public policy exception. Thus, the Court applied the ordinary rule and accorded finality to the arbitration award.