California Supreme Creates Appellate Rights for Losing Parties in Arbitration

In Cable Connections, Inc. v. DirecTV, Inc., the California Supreme Court has fundamentally altered the nature of arbitration in California. 

Previously, it had been well established that an arbitrator's decision was final and binding and could be vacated only for the most limited of reasons, such as outright corruption, refusing to hold a hearing, or exceeding his jurisdiction.  By agreeing to arbitrate, parties were deemed to have accepted the risk that an arbitrator might commit errors of fact or law -- and to have thereby waived any right to second-guess the ruling in the event that they lost.  Under this scheme, the whole point of arbitration was to allow disputes to be resolved quickly and economically with little or no involvement by the judicial system. 

Under Cable Connections, however, the arbitrator's ruling is no longer necessarily final.  Instead, if the parties' contract is interpreted to allow appellate review, the arbitrator's ruling may now be reviewed by an Appellate Court to the same extent as any findings of fact or law made by a Superior Court Judge or jury. 

Significantly, the Court was coy about what contract language may trigger this new level of appellate review.  

[T]o take themselves out of the general rule that the merits of the award are not subject to judicial review, the parties must clearly agree that legal errors are an excess of arbitral authority that is reviewable by the courts. Here, the parties expressly so agreed, depriving the arbitrators of the power to commit legal error. They also specifically provided for judicial review of such error.  We do not decide here whether one or the other of these clauses alone, or some different formulation, would be sufficient to confer an expanded scope of review. However, we emphasize that parties seeking to allow judicial review of the merits, and to avoid an additional dispute over the scope of review, would be well advised to provide for that review explicitly and unambiguously.

Very few arbitration agreements currently contain an express provision allowing for appellate review.  On the other hand, many, if not most, arbitration agreements contain some formulation to the effect that the arbitrator is required to "apply the substantive law" of California.  If this latter type of clause is deemed sufficient to subject the parties to appellate proceedings, then arbitration in California may have just become significantly more costly and time-consuming.     

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