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The California Court of Appeal determined that parties can contract for judicial review of an arbitrator’s misapplication of the law but found a choice-of-law provision insufficient to demonstrate such intent.
In Baize v. Eastridge Cos., Nos. B185823, B188433, 2006 WL 2457952 (Cal. Ct. App. Aug. 25, 2006), Baize and his former employer, Eastridge, submitted Baize’s wrongful termination claim to arbitration. The arbitration agreement required the arbitrator to “apply the substantive law (and the law of remedies, if applicable) of the state of California.” After Baize prevailed at arbitration, Eastridge moved to vacate the award, arguing that the arbitrator misapplied California law. In denying the motion, the trial court concluded that it lacked authority to review the arbitrator’s decision for errors of law. Eastridge appealed.
On appeal, the Court construed the arbitration agreement as requiring the arbitrator to apply California law but not requiring him to apply it correctly. The Court held that “the parties could obtain court review of the merits of the arbitrator’s decision only if the arbitration agreement expressly provided that the arbitrator’s errors of law were reviewable in court.”
California’s rule is consistent with many jurisdictions that allow parties to contract for expanded judicial review. But other jurisdictions have not required any “magic words.” See Liberty Mutual Insurance Ins. Co. v. Open MRI of Morris & Essex, L.P., 813 A.2d 621, 629 (N.J. Sup. Ct. Law Div. 2002) (arbitration agreement “to decide issues in accordance with New Jersey law” encompassed judicial review for errors of law); Fils et Cables d'Acier de Lens v. Midland Metals Corp., 584 F.Supp. 240, 242 (D.C.N.Y. 1984) (agreement stating “whether as a matter of law based on said findings of fact the award should be affirmed, modified or vacated” provided for expanded judicial review). Parties in California should be mindful of the narrow reading of such clauses and clearly distinguish them from an ordinary choice-of-law provision.
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