Labor & Employment Law

California reviews award for legal error

It was no surprise when the US Supreme Court held that the Federal Arbitration Act (FAA) does not allow a court to review an arbitrator's award for legal error, even if the parties contracted to have that happen. The FAA has limited grounds for court review, and legal error is not one of them. Hall Street Associates v. Mattell, 128 S.Ct. 1396 (2008).

But the US Supreme Court was dealing only with the FAA, and that Court made it clear that there might be other legal avenues for getting a wider scope of judicial review. The Court said:

In holding that §§10 and 11 provide exclusive regimes for the review provided by the statute, we do not purport to say that they exclude more searching review based on authority outside the statute as well. The FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement understate statutory or common law, for example, where judicial review of different scope is arguable. But here we speak only to the scope of the expeditious judicial review under §§9, 10, and 11, deciding nothing about other possible avenues for judicial enforcement of arbitration awards.

So along comes the California Supreme Court in Cable Connections, Inc. v. DirecTV, Inc. (California Supreme Court 08/25/2008) and decides that an expanded scope of review can be obtained via the California Arbitration Act.

Here's the reasoning:

California's statute allows a court to vacate an award if "the arbitrators exceeded their powers."

The parties agreed that "The arbitrator shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error."

Therefore, committing legal error was acting in excess of the arbitrator's power, and that opens up review under the California statute.

The FAA does not preempt this aspect of California law.

My view:

I agree that the FAA does not preempt here, and Hall Street specifically left open the possibility that awards could be vacated using non-FAA grounds.

I also cannot disagree with the California court's interpretation of the California statute. That's their job, not mine.

However, the California approach is a bad idea. Arbitration is supposed to get the parties to a final and binding decision. So now in California the parties are allowed to have something they will call arbitration but really isn't. I suppose the parties can also agree that an arbitrator "shall not have the power" to commit errors in admission of evidence, and in factfinding, and these also will become fully reviewable by a court.

Full post as published by Arbitration Blog on August 29, 2008 (boomark / email).