Lead Opinion
Opinion
It is not often that a trial court vacates an arbitration award and an appellate court affirms the order. We shall explain why that happened here, but first:
Uncertainty and a Little History
We look to legal precedent in deciding cases. We believe the law is predictable and provides litigants and counsel a reasonable degree of certainty. True, but not always.
In 1991, we wrote what we thought was a routine arbitration opinion. (Moncharsh v. Heily & Blase (Apr. 2, 1991, B048936) [nonpub. opn.].) We relied on decades of precedent in our unpublished decision to affirm the arbitration award because no error appeared on the face of the award. In dicta, we noted that had the error appeared on the face of the award and created substantial prejudice, we would have reversed.
For the next decade, courts have wrestled with the question of when and under what circumstances judicial review of an arbitration award is proper. Cable Connection, Inc. v. DIRECTV, Inc. (2008)
Petitioners Roger and Cheryl Burlage, trustees of the Burlage Family Trust, purchased a house from real party in interest Martha Martinez Spencer. The parties arbitrated a dispute over the sale of the house. The arbitrator awarded the Burlages approximately $1.5 million in damages and costs. On motion from Spencer, the trial court vacated the award. The Burlages filed a petition for writ of mandate, challenging the trial court’s order.
We conclude the arbitrator excluded material evidence that substantially prejudiced Spencer pursuant to Code of Civil Procedure section 1286.2.
Facts and Procedural History
The Burlages purchased a house from Spencer in a gated community next to a country club. After escrow closed, they learned, among other things, that the swimming pool and a wrought iron fence on the property encroached upon land owned by the country club. The Burlages claim Spencer knew of these encroachments at the time of sale, but “intentionally and fraudulently failed to disclose” this information to them.
The parties chose a retired judge associated with Judicial Arbitration and Mediation Services, Inc. (JAMS), to arbitrate their dispute and they agreed to be bound by the JAMS arbitration rules.
Two years after the purchase, but before the arbitration was held, the title company paid the country club $10,950 in exchange for a lot line adjustment
The Burlages moved in limine to exclude evidence of the lot line adjustment. They argued that damages must be measured from the date escrow closed. Under this theory, Spencer could not introduce evidence of the lot line adjustment to show the Burlages were not damaged. Spencer argued that later circumstances can and should be considered in measuring damages.
The arbitrator granted the motion and excluded evidence concerning the financial effect the lot line adjustment had on the Burlages’ damages.
After 12 days of testimony, the arbitrator found Spencer knew the pool and fence encroached on the country club’s land; she did not disclose this to the Burlages; and the encroachment materially affected the property’s value. He awarded the Burlages $552,750 in compensatory damages, $250,000 in punitive damages, and $732,570 in attorney’s fees and costs.
The Burlages moved to confirm the award. Thereafter, Spencer moved to vacate the award. Her motion rested upon section 1286.2, subdivision (a)(5), which requires vacation of an arbitration award when a party’s rights are “substantially prejudiced” by the arbitrator’s refusal to hear “evidence material to the controversy.”
The trial court ruled that the arbitrator’s refusal to admit evidence of the lot line adjustment substantially prejudiced Spencer’s “ability to dispute the amount of damage suffered by” the Burlages. It vacated the arbitration award.
We issued an alternative writ of mandate. Better to have issued an order to show cause. But after further review of the record and consideration of the arguments in the briefs and at oral argument, we now conclude the trial court did not err in vacating the award.
Discussion
The Burlages contend that a private arbitration award may not be reviewed for errors in law. (Moncharsh v. Heily & Blase, supra,
We review the trial court’s order de novo but apply the substantial evidence standard to the extent the trial court’s ruling rests upon a determination of disputed factual issues. (Malek v. Blue Cross of California (2004)
A contractual arbitration agreement gives the arbitrator the power to decide all questions of contract interpretation, historical fact or general law necessary, in the arbitrator’s view, to reach a decision. (Cable Connection, supra,
But tolerance for fallibility has its limits. Section 1286.2, subdivision (a)(5) provides that a court “shall” vacate an award when a party’s rights “were substantially prejudiced ... by the refusal of the arbitrator!] to hear evidence material to the controversy . . . .” This section has been interpreted as “a safety valve in private arbitration that permits a court to intercede when an arbitrator has prevented a party from fairly presenting its case.” (Hall v. Superior Court (1993)
This is what happened here. The arbitrator excluded evidence that the title company paid for the lot line adjustment and purchase of the encroaching land. The arbitrator did not state his reasons for the evidentiary ruling, but
The question whether the arbitrator was right or wrong about the proper date from which to measure damages is not subject to judicial review. But it is self-evident that his ruling excluding evidence that the title company solved the problem through a modest payment to the country club was more than a mere erroneous evidentiary ruling. The trial court found on substantial evidence that the arbitrator’s ruling substantially prejudiced Spencer and undermined the fundamental principle embodied in section 1286.2, subdivision (a)(5) that an arbitrator must consider material evidence.
Evidence of an Absolute Defense—The Problem Is Fixed
What could be more material than evidence that the problem was “fixed” and there are no damages? Yet, the Burlages presented expert testimony about the effect of what had become a nonexistent encroachment. Their experts testified about the cost to move a pool and fence, neither of which had to be moved. Spencer was not even permitted to refute the Burlages’ expert who opined that the encroachment reduced the value of the property $100,000. Spencer could not show that the title company solved the encroachment issue through a payment of approximately one-tenth that amount.
Without this crucial evidence, the arbitration assumed the nature of a default hearing in which the Burlages were awarded $1.5 million in compensatory and punitive damages they may not have suffered. An arbitrator must consider this evidence to make an informed decision.
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, “[Tjhat’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.
Even the JAMS Comprehensive Arbitration Rules and Procedures (2005) rule 22(d) states that the arbitrator may exclude immaterial or unduly repetitive evidence, but must afford all parties “the opportunity to present material and relevant evidence.” (See also Knight et al., Cal. Practice Guide:
We disagree with the dissent’s suggestion that the arbitrator considered the lot line adjustment evidence in the in limine motion. In the context of the case, we agree with the discerning comments of our colleagues in Gonzales v. Interinsurance Exchange (1978)
The situation here is different from that in Hall v. Superior Court, supra,
It may be argued that to avoid the imposition of section 1286.2, arbitrators will simply admit evidence to insulate their decisions from review. We do not subscribe to this cynical view. It is through judicial review that the law is shaped and developed. Arbitrators do not subvert this process because a court might vacate an award. Arbitrators base their decisions on a careful analysis of the law and facts. They, like the arbitrator here, are professionals who conduct themselves according to the canons of ethics and the high degree of integrity their profession demands.
The parties to an arbitration have bargained for a final and binding decision. (Moncharsh v. Heily & Blase, supra,
Yegan, J., concurred.
Notes
All statutory references are to the Code of Civil Procedure.
Dissenting Opinion
I respectfully dissent.
As my colleagues aptly note, judicial review of a contract arbitration award is extremely limited and is not to be vacated based on the arbitrator’s error of law in making it. “Further, the existence of an error of law apparent on the face of the award that causes substantial injustice does not provide grounds for judicial review.” (Moncharsh v. Heily & Blase (1992)
The arbitrator’s ruling unquestionably precluded the admission of evidence of mitigation of damage. The exclusion, however, was the product of the arbitrator’s determination that the law does not permit consideration of evidence of mitigation in a land fraud case following the close of escrow. Right or wrong, it was a legal ruling which, under both Moncharsh and Cable Connection, precludes judicial review. This is not a surprise. Virtually every ruling on a “legal issue” at trial results in limiting the admissibility of evidence. For example, the determination that a contract is an integrated agreement bars consideration of the terms of “any prior agreement.” (§ 1856, subd. (a) [parol evidence].) If the arbitrator wrongly concludes that the agreement is integrated, admissible evidence is excluded. The determination that a statement to a physician, an attorney, a spouse or clergy, was made in confidence is privileged and bars admission of the statement. (Evid. Code, § 900 et seq.) An erroneous finding on the question of privilege would exclude admissible evidence. The determination that a mother was not
The majority tells us that “whether the arbitrator was right or wrong about the proper date from which to measure damages arguably is not subject to judicial review.” (Maj. opn., ante, at p. 530.) The majority is correct. In an effort to evade this consequence, however, the majority recasts the evidentiary ruling as more than merely erroneous. Rather, citing section 1286.2, subdivision (a)(5), the majority declares that the ruling excluding evidence of the “modest payment to the country club” “substantially prejudiced Spencer and undermined the fundamental principle . . . that an arbitrator must consider material evidence.” (Maj. opn., ante, at p. 530.) Thus, the award is subject to judicial review. This conclusion is in direct conflict with Hall v. Superior Court (1993)
The same result should follow here. Having heard repeated motions in limine specifying the evidence to be offered and showing the economic damage resulting from the sale both at the close of escrow and following the lot line adjustment, the arbitrator ruled the evidence was irrelevant. Based on this premise the arbitrator was arguably correct. But, correct or not, the arbitrator had ruled both at the time the motions in limine were made and in his “Amended Final Award,” that damages would be computed at the time of the close of escrow. This was his legal conclusion. As such it is not subject to judicial review. (Moncharsh v. Heily & Blase, supra,
In the modified opinion on rehearing, the majority state that “ ‘One cannot “consider” what one has refused to “hear.” ’ ” (Maj. opn., ante, at p. 531.) This is too fine a cut. The arbitrator was presented with repeated motions in limine in which the issue of damages actually sustained was thoroughly briefed. It is beyond question that he knew what respondent wished to prove and the evidence to be offered. The offer was rejected. It was an arbitration. The detailed procedural niceties of a civil trial yield to arbitration’s more expeditious and less formal procedures. “Having chosen arbitration over civil litigation, a party should ‘reap the advantages that flow from the use of that nontechnical, summary procedure.’ ” (Schlessinger v. Rosenfeld, Meyer & Susman (1995)
Whether the arbitrator was right or wrong, affirming the order of the trial court cuts the heart out of Moncharsh. I suggest that great mischief can and will result from the majority’s holding. In effect, every ruling resulting in witness preclusion attributable to a legal or evidentiary ruling will be rendered suspect and subject to challenge. The “ ‘strong public policy in
I would grant the writ of mandate and direct confirmation of the award.
Petitioners’ petition for review by the Supreme Court was denied January 21, 2010, S178328. Baxter, J., and Corrigan, J., were of the opinion that the petition should be granted.
All further statutory references are to the Code of Civil Procedure unless otherwise stated.