In response to an arbitrator's refusal to deny a party's request to increase claimed damages as an impermissible amendment of the party's arbitration claim, a California appellate court held that where the contract contains a broad arbitration agreement, the arbitrator has broad authority to consider claims, award damages, and interpret the arbitration rules.

In Bow Tile Corp. v. Gangi Builders, Inc., No. B202177, 2008 WL 3906433 (Cal. Ct. App. Aug. 26, 2008), Gangi Builders (Gangi), a general contractor, subcontracted tile and paving work of a condominium project to Bow Tile. The subcontract contained an arbitration agreement that was very broad in its scope, and required arbitration before the American Arbitration Association (AAA).

After a payment dispute arose between the parties, they stipulated to go to binding arbitration with AAA. Bow Tile submitted a claim for breach of contract, and initially sought $136,000 in damages. On the fourth day of the nine-day arbitration hearing, the arbitrator gave Bow Tile leave to amend its claim, but Bow Tile never submitted an amendment. Nevertheless, Bow Tile sought $272,000 in damages in its closing brief.

The arbitrator issued a tentative award that reflected an increase in the amount of damages from the $136,000 that Bow Tile initially sought. Gangi objected, arguing that the award was beyond the scope of the claim submitted and Gangi had not been provided notice of the new claim as required by AAA Rule 6. Bow Tile argued that it had not added a "new claim," but had simply increased the amount sought on its original claim, which did not require additional notice under Rule 6. The arbitrator agreed with Bow Tile and issued an award, but after deductions, the award only totaled $117,780.

Bow Tile moved to confirm the award and Gangi moved to vacate. Gangi argued that the arbitrator exceeded the scope of his powers under Cal. Code Civ. Proc. § 1286.2 (a)(4) because the arbitrator considered claims beyond the scope of the original claim submitted to arbitration. Gangi also argued that the arbitrator exceeded his powers by failing to require Bow Tile to comply with the due process notice requirements in Rule 6 when Bow Tile added new claims. The trial court confirmed the award, holding that Gangi had not met its burden to show the arbitrator exceeded his authority. Gangi appealed.

On appeal, the Court held that parties' arbitration agreement was very broad and placed no limitations on the arbitrator's authority. The Court found that nothing in the arbitration agreement limited Bow Tile's recovery to $136,000, and in addition to that claim, Bow Tile had alleged a generic breach of contract claim in its initial demand. As a result, the Court concluded that Bow Tile's demand did not foreclose the arbitrator's consideration and award of damages generally flowing from the breach of contract.

Regarding Gangi's Rule 6 argument, the Court held that the arbitrator decided Bow Tile had not brought a new claim, so notice was not required under Rule 6. The Court found that it was within the arbitrator's broad authority to interpret Rule 6. Thus, the arbitrator did not exceed his authority, and the Court affirmed the confirmation of the award.