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Decision of ADR Panel Not An Arbitration Award Where Parties Did Not Intend to Arbitrate Their Dispute According to a California Court of Appeal, an arbitration panel’s decision affecting a settlement agreement did not constitute an arbitration award because the parties intended the decision to be “in aid of settlement” rather than a legally binding award. In Sheppard, Mullin, Richter & Hampton v. Superior Court, No. B181857, 2006 WL 1738160 (Cal. App. June 27, 2006), Sheppard and McClarey contrived a settlement agreement for a legal malpractice action that McClarey brought against Sheppard. The settlement agreement called for a panel of JAMS neutrals to conduct a hearing and answer a legal question relevant to the settlement. The panel was to issue a “Yes” or “No” response to the question, and the settlement dictated the effect of either response. After the hearing, a case manager at JAMS sent a memo to the parties, stating, “The Panel has deliberated and answers the question ‘No’.” Sheppard sought to have the panel’s response confirmed as an arbitration award. McClarey argued that no agreement to arbitrate existed; therefore, the panel’s decision did not constitute an arbitration award. Although the parties’ agreement to submit the legal question to a panel of judges was not labeled “an arbitration agreement,” the Court noted that a missing label was not determinative. The issue of whether Sheppard and McClarey were bound by the panel’s decision turned on whether the parties intended the panel’s response to be a legally binding arbitration award. Before a party may be bound by arbitration, it must first intend to participate in arbitration. In this case, the Court concluded that the parties intended to settle – not arbitrate – their dispute. Utilizing a panel of judges was merely a creative way to answer a question related to the terms of the settlement agreement. Although it appeared that some of the elements of an arbitration agreement were present in this case, including, a third party decision maker; a mechanism for ensuring neutrality with respect to the rendering of the decision; a decision maker who is chosen by the parties; and an opportunity for both parties to be heard, the panel’s decision was not binding because the parties intended to be bound by the settlement agreement, not an arbitration award.
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