Arbitration challenges get a big boost — but maybe not for long

If you’re a litigation or appellate lawyer, you’ve probably already read about Burlage v. Superior Court, case no. B211431 (2d Dist. Oct. 20, 2009 [opinion after rehearing]), and you’re probably not surprised to learn that the petitioners filed their petition for review in the California Supreme Court yesterday. The case had petition for review written all over it: a contentious area of the law (arbitration), a split decision, amicus involvement, lots of attention in the legal community, and heavy-hitter appellate counsel (full disclosure: I know and have worked with one of the attorneys, Ventura appellate ace Wendy Lascher, who represents the Burlages).

Other bloggers have reported the case in detail (links later in this post), so before I get to the point of this post, I’ll just give a brief recap.

The Burlages prevailed in arbitration and were awarded damages. Respondent contended that her evidence regarding damages was improperly excluded, and moved to vacate the award based on Code of Civil Procedure section 1286.2, subdivision (a)(5), which requires a trial court to vacate an arbitration award if “[t]he rights of the party were substantially prejudiced by . . . the refusal of the arbitrators to hear evidence material to the controversy.” The trial court vacated the award.

Seems rather straightforward, until you consider why the arbitrator excluded the evidence: it was irrelevant to the measure of damages the arbitrator applied. Respondent contended the measure of damages was improper, and that the excluded evidence was relevant to the correct measure of damages (which would have yielded a much smaller award). In other words, respondent was essentially arguing that the arbitrator had applied the wrong law on damages.

The Burlages petitioned for a writ of mandate directing the trial court to vacate its order vacating the arbitration award, arguing that the motion to vacate actually sought vacation of the award on the basis of an error of law in violation of Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, in which the Supreme Court held that legal error on the face of an award “does not provide grounds for judicial review.” In a split decision, Division Six of the Second District Court of appeal rejects the Burlages’ argument.

Like the Burlages, some bloggers tended to view the respondents’ reliance on section 1286.2 as an end run around the rule that an arbitration award cannot be vacated because the arbitrator applies an inapplicable legal standard. (See., e.g., Forrester on Real Estate Law [arbitrations decisions may have “become more appealable”]; California Employment Law [claiming binding arbitration is “under attack”].) And dissenting justice Perren was not coy in his criticism of presiding justice Gilbert’s opinion, claiming that the majority’s decision “cuts the heart out of Moncharsh.”

What Burlage portends for appellate practice

Burlage will be a real boon to appellate attorneys if review is denied or if it is granted and the Supremes affirm. What Burlage arguably teaches is that you can get review of an otherwise unreviewable legal error by the arbitrator if you dress the legal error in an argument for the statutory ground of improperly excluded evidence.  Every appellate lawyer in California, yours truly included, is now more likely to give a friendly ear to prospective clients seeking  to vacate arbitration awards on the apparent ground of legal error.

The court’s faith in the arbitration process

Justice Gilbert’s majority opinion is even more entertaining than usual. But I saw some entertainment value someplace where he probably didn’t intend it. Take this (my emphasis):

We agree with the trial court’s acknowledgment that not every evidentiary ruling by an arbitrator “can or should be reviewed by a court.” We also agree with its comment, “[T]hat’s not the same as saying no evidentiary ruling can or should be reviewed by a court. . . . [I]t would have the effect of . . . deleting subsection 5 from the statute [section 1286.2, subdivision (a)(5)].” This answers the dissent’s concern that our opinion makes suspect every arbitration ruling excluding evidence. In our view, should the award be affirmed, arbitration itself would be suspect.

I think arbitration is plenty suspect already. Plenty of lawyers hate it precisely for its extremely limited judicial review. By broadening the scope of that review, Burlage is just likely to make arbitration’s fans view it with suspicion, too, as they lose confidence in whether it will be truly binding.

Business litigation attorney Bruce Nye finds Justice Gilbert downright naive. You can read why at CalBizLit.

UPDATE (1/6/10): Talk about night and day! Check out my post at The Ninth Circuit Blog of Appeals regarding a Ninth Circuit case decided earlier this week that I think demonstrates a far more conservative approach to judicial review of arbitration decisions (while not concerning quite the same point as Burlage, and in the context of a three-arbitrator panel rather than a single arbitrator.)

UPDATE (1/21/10): So much for my fortune-telling skills. The Supreme Court denied review today.