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Less than a month after one California Court of Appeal found that parties to an arbitration agreement may contract for heightened judicial review, another California Court of Appeal has refused to honor an arbitration agreement’s express provision for heightened judicial review.
In Cable Connection, Inc. v. DIRECTV, Inc., No. B188278, 2006 WL 2709407 (Cal. Ct. App. Sep. 22, 2006), Cable Connection sold and installed DIRECTV’s goods and services pursuant to a sales agency agreement. The sales agency agreement provided for arbitration in accordance with the rules of the American Arbitration Association (AAA).
The arbitration clause provided that “[t]he arbitrators shall not have the power to commit errors of law or legal reasoning, and [an] award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.”
In 2004, Cable Connection and three other DIRECTV dealers filed a demand for class arbitration with the AAA, alleging that DIRECTV unilaterally reduced their commissions. In accordance with AAA rules, the arbitration panel issued a “clause construction award” whereby a majority of the panel determined that the arbitration clause did not prohibit class arbitration.
DIRECTV moved to vacate the clause construction award on the ground that the arbitrators exceeded their authority by making errors of law and legal reasoning. The trial court vacated the award.
On appeal, Cable Connection argued that parties cannot contractually expand the court’s authority to review arbitration awards. Even though Cable Connection did not raise this argument in the trial court, the Court entertained arguments on this issue and held that the agreement for expanded review was unenforceable.
As support for its holding, the Court relied primarily on Crowell v. Downey Community Hospital Foundation, 115 Cal.Rptr.2d 810 (Cal. Ct. App. 2002) and Oakland-Alameda County Coliseum Authority v. CC Partners, 124 Cal.Rptr.2d 363 (Cal. Ct. App. 2002). In both of those cases, the court held that parties to an arbitration agreement cannot contractually expand the scope of judicial review of an arbitration award.
Though its holding was based on California law, the Court rejected DIRECTV’s argument that the Federal Arbitration Act (FAA) required enforcement of the provision for heightened review. In discussing this issue, the Court observed that federal circuit courts are currently split on whether the FAA allows parties to provide for heightened review.
Since the provision for expanded judicial review was unenforceable, the Court reversed the lower court ruling and remanded the case with instructions to confirm the clause construction award.
The Court acknowledged that Baize v. Eastridge Companies, 47 Cal.Rptr.3d 763 (Cal. Ct. App. Aug. 25, 2006) reached a different conclusion. There, the court found that by using express language, parties can contractually expand the scope of judicial review of an arbitration award.
The court in Baize questioned Crowell’s fidelity to Moncharsh v. Heily & Blase, 832 P.2d 899 (Cal. 1992), the seminal California case explaining that limited judicial review of arbitration awards “vindicates the intentions of the parties.” Despite their reliance on Moncharsh, both Cable Connection and Crowell subordinate the unmistakable intent of the parties to the comparatively nebulous intent of the legislature.
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