Cable Connection, Inc. v. DirecTV, Inc.

82 Cal. Rptr. 3d 229

Cal.

2008

Check Treatment

CABLE CONNECTION, INC., et al., Plaintiffs and Appellants, v. DIRECTV, INC., Defendant and Respondent.

No. S147767

Supreme Court of California

Aug. 25, 2008.

44 Cal.4th 1334

COUNSEL

Beatie and Osborn and Daniel A. Osborn for Plaintiffs and Appellants.

Reed Smith, Margaret A. Grignon, Andrew E. Paris; Kirkland & Ellis, Michael E. Baumann and Becca Wahlquist for Defendant and Respondent.

Horvitz & Levy, Barry R. Levy, Jeremy B. Rosen and Alicia A. Pell for L.F.P., Inc., as Amicus Curiae on behalf of Defendant and Respondent.

OPINION

CORRIGAN, J.-This case presents two questions regarding arbitration agreements. (1) May the parties structure their agreement to allow for judicial review of legal error in the arbitration award? (2) Is classwide arbitration available under an agreement that is silent on the matter?

On the first question, the United States Supreme Court has held that the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) does not permit the parties to expand the scope of review by agreement. (

Hall StreetAssociates, L.L.C. v. Mattel, Inc. (2008) 552 U.S. 576, [170 L.Ed.2d 254, 128 S.Ct. 1396, 1404–1405] (Hall Street).) However, the high court went on to say that federal law does not preclude “more searching review based on authority outside the [federal] statute,” including “state statutory or common law.” (.) In [10 Cal.Rptr.2d 183, 832 P.2d 899] (Moncharsh), this court reviewed the history of the California Arbitration Act (CAA; Code Civ. Proc., § 1280 et seq.).¹ We concluded that the California Legislature “adopt[ed] the position taken in case law ... that is, ‘that in the absence of some limiting clause in the arbitration agreement, the merits of the award, either on questions of fact or of law, may not be reviewed except as provided in the statute.’ ” (, quoting (Crofoot).)

We adhere to our holding in Moncharsh, recognizing that contractual limitations may alter the usual scope of review. The California rule is that the parties may obtain judicial review of the merits by express agreement. There is a statutory as well as a contractual basis for this rule; one of the grounds for review of an arbitration award is that “[t]he arbitrators exceeded their powers.” (§§ 1286.2, subd. (a)(4), 1286.6, subd. (b).) Here, the parties agreed that “[t]he arbitrators 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.” This contract provision is enforceable under state law, and we reverse the contrary ruling of the Court of Appeal.

Regarding the classwide arbitration issue, we remand for redetermination by the arbitrators. The contract directs the arbitrators to apply California substantive law, but specifies that the arbitration proceedings are to be governed by federal law and the rules of the American Arbitration Association (AAA).² The arbitration panel, in a split decision, decided that classwide arbitration is a substantive right under California case law, and that AAA rules allow classwide arbitration unless the arbitration clause forbids it. We conclude that the majority arbitrators misapplied both California law and AAA rules, and that it is proper to return the matter to them for reconsideration under the proper legal standards.

I. BACKGROUND

Defendant DIRECTV, Inc., broadcasts television programming nationwide, via satellite. It contracts with retail dealers to provide customers with equipment needed to receive its satellite signal. In 1996, DIRECTV employed a “residential dealer agreement” for this purpose. A new “sales agency agreement” was used in 1998. Both agreements included arbitration clauses; neither mentioned classwide arbitration.

In 2001, dealers from four states filed suit in Oklahoma, asserting on behalf of a nationwide class that DIRECTV had wrongfully withheld commissions and assessed improper charges. DIRECTV moved to compel arbitration. As the Oklahoma court was considering whether the arbitration could be conducted on a classwide basis, the United States Supreme Court decided

Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444 [156 L.Ed.2d 414, 123 S.Ct. 2402] (Bazzle). A plurality in Bazzle held that the arbitrator must decide whether class arbitration is authorized by the parties’ contract. (; see .) Accordingly, the Oklahoma court directed the parties to submit the matter to arbitration in Los Angeles as provided in the sales agency agreement.³

After the dealers presented a statement of claim and demand for class arbitration in March 2004, a panel of three AAA arbitrators was selected. Following the procedure adopted by the AAA in response to Bazzle, the panel

first addressed whether the parties’ agreement permitted the arbitration to proceed on a classwide basis.

After briefing and argument, a majority of the panel decided that even though “the contract is silent and manifests no intent on this issue,” arbitration on a classwide basis was authorized under

Blue Cross of California v. Superior Court (1998) 67 Cal.App.4th 42 [78 Cal.Rptr.2d 779] (Blue Cross), and (Keating), overruled on other grounds in . The majority deemed the question one of substantive California law, though it also relied on AAA rules and policy governing class arbitration. The award emphasized that class arbitration was not necessarily required in this case; it was merely permitted by the contract. Whether the arbitration would actually be maintained on a classwide basis would be the subject of a future hearing.

The dissenting arbitrator found that the sales agency agreement provided “ample indication” the parties had contemplated arbitration only on an individual basis. He reasoned that Blue Cross and Keating did not apply because they addressed the discretion of a court to permit classwide arbitration, based not on contractual intent but on policy considerations reflected in the CAA. Under Bazzle, on the other hand, this determination is for arbitrators to make based on the terms of the contract. The dissent considered the availability of classwide arbitration to be a procedural issue subject to the FAA and AAA rules, under the terms of the arbitration clause.

DIRECTV petitioned to vacate the award, contending (1) the majority had exceeded its authority by substituting its discretion for the parties’ intent regarding class arbitration; (2) the majority had improperly ignored extrinsic evidence of contractual intent; and (3) even if the majority had not exceeded the authority generally granted to arbitrators, the award reflected errors of law that the arbitration clause placed beyond their powers and made subject to judicial review. The dealers responded that the majority had properly applied

California law and had not refused to receive extrinsic evidence. The trial court vacated the award, essentially accepting all of DIRECTV‘s arguments.

The Court of Appeal reversed, holding that the trial court exceeded its jurisdiction by reviewing the merits of the arbitrators’ decision. Although in the trial court the dealers did not question whether a contract may provide for an expanded scope of judicial review, the Court of Appeal deemed it an important matter of public policy, suitable for consideration for the first time on appeal. The court agreed with two previous Court of Appeal decisions holding such provisions unenforceable. (

Oakland-Alameda County Coliseum Authority v. CC Partners (2002) 101 Cal.App.4th 635, 645 [124 Cal.Rptr.2d 363]; (Crowell).) It concluded that the provision for judicial review in this case was severable from the remainder of the arbitration agreement, and directed the trial court to confirm the award.

We granted DIRECTV‘s petition for review.

II. DISCUSSION

A. Contract Provisions for Judicial Review of Arbitration Awards

1. The CAA, the FAA, and Prior Case Law

“In most important respects, the California statutory scheme on enforcement of private arbitration agreements is similar to the [FAA]; the similarity is not surprising, as the two share origins in the earlier statutes of New York and New Jersey. (See Recommendation and Study relating to Arbitration (Dec. 1960) 3 Cal. Law Revision Com. Rep. (1961) p. G-28 ...; Feldman, Arbitration Law in California: Private Tribunals for Private Government (1957) 30 So.Cal.L.Rev. 375, 388, fn. 45.)” (

Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 406 [58 Cal.Rptr.2d 875, 926 P.2d 1061] (Rosenthal).) The CAA, like the FAA, provides that arbitration agreements are “valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (§ 1281; see 9 U.S.C. § 2.) This provision was intended “to overcome an anachronistic judicial hostility to agreements to arbitrate, which American courts had borrowed from English common law.” (; see also, e.g., ; ; .)

Consistent with that purpose, the CAA and the FAA provide only limited grounds for judicial review of an arbitration award. Under both statutes, courts are authorized to vacate an award if it was (1) procured by corruption, fraud, or undue means; (2) issued by corrupt arbitrators; (3) affected by prejudicial misconduct on the part of the arbitrators; or (4) in excess of the arbitrators’ powers. (§ 1286.2, subd. (a)⁴; 9 U.S.C. § 10(a).⁵) An award may be corrected for (1) evident miscalculation or mistake; (2) excess of the arbitrators’ powers; or (3) imperfection in form. (§ 1286.6⁶; 9 U.S.C. § 11.⁷)

As noted at the outset, and discussed further below, in Moncharsh we declared that ” ‘in the absence of some limiting clause in the arbitration agreement, the merits of the award, either on questions of fact or of law, may not be reviewed except as provided in the statute.’ (Crofoot, supra, 119 Cal.App.2d at p. 186.)” (

Moncharsh, supra, 3 Cal.4th at p. 25.) In the years following the Moncharsh decision, our Courts of Appeal have rejected claims that review of the merits was authorized inferentially, by contract clauses stating that ” ‘[t]he award will be in the form of a statement of decision’ ” (), or that California law ” ‘shall govern [the] interpretation and effect’ ” of the contract (), or that the arbitrator ” ‘shall apply California law’ ” and ” ‘shall be constrained by the rule of law’ ” ( (Baize)). In each of these cases, however, the courts noted that an expanded scope of review would be available under a clause specifically tailored for that purpose. (; ; .)

Nevertheless, when the issue has been squarely presented, no Court of Appeal has enforced a contract clause calling for judicial review of an arbitration award on its merits.⁸ In

Old Republic Ins. Co. v. St. Paul Fire & Marine Ins. Co. (1996) 45 Cal.App.4th 631 [53 Cal.Rptr.2d 50] (Old Republic), a stipulation for binding arbitration provided that a special master would enter findings of fact and conclusions of law, which would be reviewed by the trial court under the CAA, entered as a judgment, and “treated as a judgment of the Superior Court for all purposes, including, without limitation, the right of any party adversely affected by said judgment

to seek review of the findings of fact, conclusions of law, or judgment as if this matter had been tried to the Court without a jury and judgment entered thereon.’ ” (

Old Republic, supra, 45 Cal.App.4th at pp. 634-635.) The Court of Appeal refused to review the merits, because the stipulation was “inconsistent with some of the primary purposes of arbitration, quicker results and early finality.” (.) Moreover, “the flexibility in the consideration of both evidence and law afforded to arbitrators” made plenary review on appeal problematic. (Ibid.) The court also held that the limitations on the scope of the trial court‘s review precluded more extensive appellate review, and that the parties could not create appellate jurisdiction by consent. (.)

Crowell, supra, 95 Cal.App.4th 730, the parties’ contract included an arbitration clause requiring the arbitrator to make written findings and conclusions ” ‘supported by law and substantial evidence.’ ” (.) The award was to be ” ‘final, binding and enforceable ..., except that upon the petition of any party to the arbitration, a court shall have the authority to review the transcript of the arbitration proceedings and the arbitrator‘s award and shall have the authority to vacate the arbitrator‘s award, in whole or in part, on the basis that the award is not supported by substantial evidence or is based upon an error of law.’ ” (Ibid.)

The Crowell court, in a split decision, decided that the statutory bases for vacating and correcting arbitration awards are exclusive, and that permitting the parties to expand those grounds by agreement would undermine the purpose of reducing expense and delay. (

Crowell, supra, 95 Cal.App.4th at p. 735.) Noting that section 1296 authorizes review of the merits following a public contract arbitration, the majority reasoned that the absence of such a provision for other forms of arbitration “suggests the legislative intent that parties cannot agree to a review on the merits.” (.) “Because the Legislature clearly set forth the trial court‘s jurisdiction to review arbitration awards when it specified grounds for vacating or correcting awards in sections 1286.2 and 1286.6, we hold that the parties cannot expand that jurisdiction by contract to include a review on the merits.” (.)

A lengthy dissent in Crowell argued that the arbitration statutes do not prohibit judicial review of the merits. The dissenting justice saw section 1296 as a demonstration of the courts’ suitability to provide substantive review of arbitration awards, and noted that Moncharsh only bars such review in the absence of a limiting clause in the arbitration agreement. (

Crowell, supra, 95 Cal.App.4th at pp. 743-745 (dis. opn. of Nott, J.).) The dissent took the position that courts have fundamental jurisdiction to review arbitrationawards, and parties may consent to a scope of review broader than that provided by the CAA. It also contended that the policies favoring arbitration would be best served by honoring the parties’ freedom to contract for the resolution of disputes under rules of their own choosing. The most costly and time-consuming aspects of litigation could be handled by an arbitrator, with the courts merely providing an oversight function. Parties who fear that the benefits of speed and reduced expense may be obtained at the expense of a capricious arbitration award would be encouraged to select arbitration, with the assurance provided by judicial review. (.) Here, the dissent said, the majority had “throw[n] ‘the baby out with the bathwater’ ” by forcing parties who had agreed to arbitration to go through “full court litigation.” (.)

The Crowell dissent has found support in dicta. One Court of Appeal has deemed it “strong,” and criticized the majority opinion as inconsistent with Moncharsh. (

Baize, supra, 142 Cal.App.4th at p. 301, fn. 5.) However, the views of the Crowell majority were followed in . There the arbitration agreement included the following provision: ” ‘[E]ither party may file an application to correct or vacate the arbitration award or an application for de novo review on all questions of law based on the arbitrator‘s finding[s] of fact (which are deemed for such purpose to be stipulated by the parties), in either case under California Code of Civil Procedure Section 1285 et seq. ...’ ” (.) The Court of Appeal agreed with the “primary holding in Crowell,” that the scope of review could not be expanded by contract. (.) But rather than invalidating the entire arbitration agreement, the court severed the provision for judicial review and affirmed the judgment confirming the award. Unlike the agreement in Crowell, the CC Partners contract included a severance clause. (.)

Before the Hall Street decision was handed down, the federal circuits were split on whether the FAA grounds for judicial review are exclusive. The First, Third, Fourth, Fifth, and Sixth Circuits held or indicated that contract provisions for expanded review of arbitration awards were enforceable.⁹ The

Seventh, Eighth, Ninth, and Tenth Circuits took the opposite view.¹⁰ As we discuss next, a majority of the Supreme Court in Hall Street decided the FAA was intended to provide exclusive criteria for review of arbitration awards.

2. Hall Street and the Question of Preemption

The Hall Street case arose from an arbitration agreement negotiated during litigation, to resolve an indemnification claim. The agreement was approved and entered as an order by the trial court. It provided: ” ‘The Court shall vacate, modify or correct any award: (i) where the arbitrator‘s findings of facts are not supported by substantial evidence, or (ii) where the arbitrator‘s conclusions of law are erroneous.’ ” (

Hall Street, supra, 552 U.S. at pp. ___ [128 S.Ct. at pp. 1400-1401].) The trial court vacated the arbitrator‘s award and remanded for further consideration; at the time, the Ninth Circuit approved of contract provisions for expanded judicial review. (; see .) After the arbitrator ruled a second time, both parties sought modification, and both appealed from the trial court‘s judgment modifying the award. By that time, the Ninth Circuit had changed its view on the enforceability of judicial review provisions. (See .) It reversed the judgment. (.)

After another ruling by the trial court modifying the award, and another reversal by the Ninth Circuit, the Supreme Court granted certiorari. A majority of the court agreed with the Ninth Circuit that the grounds for vacatur and modification provided by sections 10 and 11 of the FAA are exclusive. (

Hall Street, supra, 552 U.S. at p. ___ [128 S.Ct. at p. 1401].) First, the majority rejected the argument that the nonstatutory “manifest disregard of the law” standard of review recognized by some federal courts supports the enforceability of contract provisions for additional grounds to vacate or modify an arbitration award. (.) It reasoned that the “manifest disregard” exception presumes a rule against general review for legal error, and should not be seen as a “camel‘s nose” under the arbitration tent. (; on “manifest disregard,” see, e.g., .)

Next, the Hall Street majority disposed of the contention that allowing parties to contract for an expanded scope of review is consistent with the

FAA‘s primary goal of ensuring the enforcement of arbitration agreements. “[T]o rest this case on the general policy of treating arbitration agreements as enforceable as such would be to beg the question, which is whether the FAA has textual features at odds with enforcing a contract to expand judicial review following the arbitration.” (

Hall Street, supra, 552 U.S. at p. ___ [128 S.Ct. at p. 1404].) The majority decided that, indeed, those textual features exist. It characterized the statutory grounds for review as remedies for “egregious departures from the parties’ agreed-upon arbitration,” such as corruption and fraud. (Ibid.) It viewed the directive in section 9 of the FAA, that the court ” ‘must grant’ ” confirmation ” ‘unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11,’ ” as a mandatory provision leaving no room for the parties to agree otherwise. (.)

“Instead of fighting the text, it makes more sense to see the three provisions, §§ 9-11, as substantiating a national policy favoring arbitration with just the limited review needed to maintain arbitration‘s essential virtue of resolving disputes straightaway. Any other reading opens the door to the full-bore legal and evidentiary appeals that can ‘rende[r] informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process,’

Kyocera, [supra,] 341 F.3d, at 998; cf. , and bring arbitration theory to grief in post-arbitration process.” (.)

Despite this strict reading of the FAA, the Hall Street majority left the door ajar for alternate routes to an expanded scope of review. “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 under state 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.” (

Hall Street, supra, 552 U.S. at p. ___ [128 S.Ct. at p. 1406].)

Furthermore, the Hall Street majority recognized that the trial court‘s case management authority under rule 16 of the Federal Rules of Civil Procedure might support its order adopting the parties’ agreement to review of the merits. However, it remanded for further proceedings on this point, concluding that it was “in no position to address the question now, beyond noting the claim of relevant case management authority independent of the FAA.” (

Hall Street, supra, 552 U.S. at p. ___ [128 S.Ct. at p. 1407].)

In dissent, Justice Stevens, joined by Justice Kennedy, took issue with the majority‘s view of the policy served by the FAA. He argued that “in light of the historical context and the broader purpose of the FAA, §§ 10 and 11 are best understood as a shield meant to protect parties from hostile courts, not a sword with which to cut down parties’ ‘valid, irrevocable and enforceable’ agreements to arbitrate their disputes subject to judicial review for errors of law. [11] § 2.” (

Hall Street, supra, 552 U.S. at p. ___ [128 S.Ct. at p. 1409] (dis. opn. of Stevens, J.).) Justice Stevens agreed that “there may be additional avenues available for judicial enforcement of parties’ fairly negotiated review provisions” (), but he would have resolved the conflict among the federal circuits in favor of the parties’ freedom to supplement by contract the statutory grounds for vacatur and modification, “an agreement that does not even arguably offend any public policy whatsoever” ().

Justice Breyer also dissented. He too agreed with the majority that the FAA ” ‘is not the only way into court for parties wanting review of arbitration awards.’ ” (

Hall Street, supra, 552 U.S. at p. ___ [128 S.Ct. at p. 1410] (dis. opn. of Breyer, J.), quoting .) Justice Breyer, however, would have remanded with instructions to affirm the trial court‘s judgment, apparently on the basis that the FAA had no effect on the court‘s independent authority to approve the parties’ agreement as a matter of case management. (.)

The dealers in this case urge us to follow the rationale of the Hall Street majority. They contend that any other construction of the CAA would result in its preemption by the FAA. Alternatively, they argue that Hall Street provides a persuasive analysis of the FAA that should be applied to the similar CAA provisions governing judicial review. We consider first the question of preemption, because if the dealers are correct on that point, it would be fruitless to consider alternate interpretations of state law.¹²

Section 2 of the FAA, declaring the enforceability of arbitration agreements, “create[s] a body of federal substantive law of arbitrability,

applicable to any arbitration agreement within the coverage of the Act.” (

Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24 [74 L.Ed.2d 765, 103 S.Ct. 927].) The FAA governs agreements in contracts involving interstate commerce, like those in this case. (; (Cronus).) The United States Supreme Court has frequently held that state laws invalidating arbitration agreements on grounds applicable only to arbitration provisions contravene the policy of enforceability established by section 2 of the FAA, and are therefore preempted. (E.g., ; ; ; ; see .)

However, “the United States Supreme Court does not read the FAA‘s procedural provisions to apply to state court proceedings.” (

Cronus, supra, 35 Cal.4th at p. 389.) Sections 3 and 4 of the FAA, governing stays of litigation and petitions to enforce arbitration agreements, do not apply in state court. ( (Volt); ; ; .) As we have noted, the provisions for judicial review of arbitration awards in sections 10 and 11 of the FAA are directed to “the United States court in and for the district wherein the award was made.” (Fn. 12, ante.) We have held that similar language in sections 3 and 4 of the FAA reflects Congress‘s intent to limit the application of those provisions to federal courts. (.)

In several cases, California Courts of Appeal have rejected claims that the FAA grounds for reviewing arbitration awards preempt their CAA counterparts. (

SWAB Financial, LLC v. E*Trade Securities, LLC (2007) 150 Cal.App.4th 1181, 1195 [58 Cal.Rptr.3d 904]; ; ; see also [FAA does not displace CAA provisions governing appealable orders].)¹³ The Siegel court, after reviewing the legislative history of the FAA, noted that “[n]othing in the legislative reports and debates evidences a congressional intention that postaward and state court litigation rules be preempted so long as the basic policy upholding the enforceability of arbitration agreements remained in full force and effect.” (.)

Thus, as in Cronus and Rosenthal, the FAA‘s procedural provisions are not controlling, and the determinative question is whether CAA procedures conflict with the FAA policy favoring the enforcement of arbitration agreements. (

Cronus, supra, 35 Cal.4th at pp. 390-391; .)

Before Hall Street, we would have had no difficulty concluding that enforcing agreements for judicial review on the merits is consistent with the fundamental purpose of the FAA. The high court has made it clear that the FAA does not “prevent[] the enforcement of agreements to arbitrate under different rules than those set forth in the Act itself. Indeed, such a result would be quite inimical to the FAA‘s primary purpose of ensuring that private agreements to arbitrate are enforced according to their terms. Arbitration under the Act is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate [citation], so too may they specify by contract the rules under which that arbitration will be conducted. Where ... the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA .... By permitting the courts to ‘rigorously enforce’ such agreements according to their terms [citation], we

give effect to the contractual rights and expectations of the parties, without doing violence to the policies behind by the FAA.” (

Volt, supra, 489 U.S. at p. 479.)

The court has repeatedly ruled that the terms of the parties’ agreement are controlling over considerations of expediency in the dispute resolution process. “After all, the basic objective in this area is not to resolve disputes in the quickest manner possible, no matter what the parties’ wishes [citation], but to ensure that commercial arbitration agreements, like other contracts, ‘are enforced according to their terms,’ [citation], and according to the intentions of the parties [citation].” (

First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 947 [131 L.Ed.2d 985, 115 S.Ct. 1920]; see also ; .) The court has viewed the federal policy served by the FAA as “at bottom a policy guaranteeing the enforcement of private contractual arrangements.” (; see also, e.g., .)

The Hall Street majority, however, brushed aside policy considerations favoring the enforcement of contractual arbitration arrangements, concentrating instead on whether “the FAA has textual features at odds with enforcing a contract to expand judicial review following the arbitration.” (

Hall Street, supra, 552 U.S. at p. ___ [128 S.Ct. at p. 1404].) Underlying the FAA provisions governing judicial review, it discerned “a national policy favoring arbitration with just the limited review needed to maintain arbitration‘s essential virtue of resolving disputes straightaway.” (.)

Nevertheless, we do not believe the Hall Street majority intended to declare a policy with preemptive effect in all cases involving interstate commerce.¹⁴ Hall Street was a federal case governed by federal law; the

court considered no question of competing state law. It reviewed the application of FAA provisions for judicial review that speak only to the federal courts. The court unanimously left open other avenues for judicial review, including those provided by state statutory or common law. (

Hall Street, supra, 552 U.S. at p. ___ [128 S.Ct. at p. 1406], and p. ___ [128 S.Ct. at p. 1410] (dis. opns. of Stevens, J., and Breyer, J.).) While the court, of course, decided nothing about the viability of these alternatives, their mention in the majority opinion indicates that holding on the effect of the FAA is a limited one.

Moreover, the

Hall Street majority‘s disposition of the case before it suggests that its interpretation of sections 10 and 11 of the FAA does not preclude other grounds for review. Rather than simply affirming the reversal of the judgment modifying the arbitrator‘s award, the majority vacated and remanded for consideration of the trial court‘s authority to approve the parties’ agreement as a matter of case management under the Federal Rules of Civil Procedure. Had the majority meant to impose a uniform national policy requiring judicial review solely on the grounds stated in the FAA, it would not have left open the possibility of trial court review under its “case management authority independent of the FAA.” (.)

We conclude that the

Hall Street holding is restricted to proceedings to review arbitration awards under the FAA, and does not require state law to conform with its limitations. Furthermore, a reading of the CAA that permits the enforcement of agreements for merits review is fully consistent with the FAA “policy guaranteeing the enforcement of private contractual arrangements.” (; see 9 U.S.C. § 2.)

3. Moncharsh and the California Rule

Moncharsh, the parties’ arbitration clause included no provision for an expanded scope of judicial review. (.) We considered and rejected the appellant‘s claim that the award was nevertheless reviewable for error of law on its face causing substantial injustice, a proposition which had some support in case law. (.) We reaffirmed “the general rule that an arbitrator‘s decision is not ordinarily reviewable for error by either the trial or appellate courts” (), and quoting ; see also, e.g., ; ; ; ; .) held that the statutory grounds for review were intended to implement that rule (). To that extent, our conclusions were consistent with those of the majority. However, in several respects reflects a very different view of arbitration agreements and the arbitration statutes, as applied to the scope of judicial review. Therefore, we disagree with the dealers’ argument that is persuasive authority for a restrictive interpretation of the review provisions in the CAA.

Moncharsh began from the premise that ” ‘[t]he scope of arbitration is . . . a matter of agreement between the parties’ [citation], and ” ‘[t]he powers of an arbitrator are limited and circumscribed by the agreement or stipulation of submission.“’ [Citation.]” (.) ” ‘The policy of the law in recognizing arbitration agreements and in providing by statute for their enforcement is to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing.’ [Citation.]” (.) “Because the decision to arbitrate grievances evinces the parties’ intent to bypass the judicial system and thus avoid potential delays at the trial and appellate levels, arbitral finality is a core component of the parties’ agreement to submit to arbitration. Thus, an arbitration decision is final and conclusive because the parties have agreed that it be so. By ensuring that an arbitrator‘s decision is final and binding, courts simply assure that the parties receive the benefit of their bargain.” (.)

“Moreover, ‘[a]rbitrators, unless specifically required to act in conformity with rules of law, may base their decision upon broad principles of justice and equity, and in doing so may expressly or impliedly reject a claim that a party might successfully have asserted in a judicial action.’ [Citations.]” (

Moncharsh, supra, 3 Cal.4th at pp. 10-11.) “Thus, both because it vindicates the intentions of the parties that the award be final, and because an arbitrator is not ordinarily constrained to decide according to the rule of law, it is the general rule that, ‘The merits of the controversy between the parties are not subject to judicial review.’ [Citations.]” (.)

Our reasoning in

Moncharsh centered not on statutory restriction of the parties’ contractual options, but on the parties’ intent and the powers of the arbitrators as defined in the agreement. These factors support the enforcement of agreements for an expanded scope of review. If the parties constrain the arbitrators’ authority by requiring a dispute to be decided according to the rule of law, and make plain their intention that the award is reviewable for legal error, the general rule of limited review has been displaced by the parties’ agreement. Their expectation is not that the result of the arbitration will be final and conclusive, but rather that it will be reviewed on the merits at the request of either party. That expectation has a foundation in the statutes governing judicial review, which include the ground that “[t]he arbitrators exceeded their powers.” (§§ 1286.2, subd. (a)(4), 1286.6, subd. (b).)

We have consistently recognized that “[a]n exception to the general rule assigning broad powers to the arbitrators arises when the parties have, in either the contract or an agreed submission to arbitration, explicitly and unambiguously limited those powers. (

Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 375-376, 383 [36 Cal.Rptr.2d 581, 885 P.2d 994].) ‘The powers of an arbitrator derive from, and are limited by, the agreement to arbitrate. [Citation.] Awards in excess of those powers may, under sections 1286.2 and 1286.6, be corrected or vacated by the court.’ (.)” (.) Our review in of the CAA‘s legislative history confirms that while the statutory grounds for correction and vacation of arbitration awards do not ordinarily include errors of law, contractual limitations on the arbitrators’ powers can alter the usual scope of review.

The current version of the CAA was enacted following a study by the California Law Revision Commission, undertaken at the Legislature‘s direction. (

Moncharsh, supra, 3 Cal.4th at p. 24.) “The commission‘s report was transmitted to the Governor in December 1960. (Recommendation and Study Pertaining to Arbitration, [supra, 3 Cal. Law Revision Com. Rep.].) On the subject of the scope of judicial review, the report explained that, ‘Nothing in the California statute defines the permissible scope of review by the courts. Numerous court rulings have, however, developed the following basic principles which set the limits for any court review: [[] . . . [[] (2) Merits of an arbitration award either on questions of fact or of law may not be reviewed except as provided for in the statute in the absence of some limiting clause in the arbitration agreement.’ ” (, quoting Recommendation and Study Pertaining to Arbitration, supra, p. G-53 (Arbitration Study).)

“The Arbitration Study emphasized that arbitration should be the end of the dispute and that ‘the ordinary concepts of judicial appeal and review are not applicable to arbitration awards. Settled case law is based on this assumption.’ (Arbitration Study, supra, [3 Cal. Law Revision Com. Rep.,] p. G-54.)¹⁵ After surveying the state of the law, the report concluded that although the California statutes do not ‘attempt to express the exact limits of

court review of arbitration awards, . . . no good reason exists to codify into the California statute the case law as it presently exists.’ (Ibid.) Further, the report recommended that the ‘present grounds for vacating an award should be left substantially unchanged.’ (Id. at p. G-57.)” (

Moncharsh, supra, 3 Cal.4th at p. 25.) Considering the nature of the revisions incorporated in the CAA, this court concluded that the Legislature intended to “adopt the position taken in case law and endorsed in the Arbitration Study, that is, ‘that in the absence of some limiting clause in the arbitration agreement, the merits of the award, either on questions of fact or of law, may not be reviewed except as provided in the statute.’ ” (, quoting .)

The

Crofoot rule does not suggest that review of the merits must rest on a nonstatutory basis. As discussed below, reference to a limiting clause in the agreement pertains to limits on the arbitrators’ powers. Thus, the merits of an award may come within the ambit of the statutory grounds of review for excess of the arbitrators’ powers. (§§ 1286.2, subd. (a)(4), 1286.6, subd. (b).) However, absent such a limitation, the scope of review provided by statute is quite limited. In , we noted that section 1286.2 includes no provision for review of the merits like that found in section 1296, governing public construction contract arbitrations.¹⁶ (.) The court, and the Court of Appeal below, considered section 1296 an indication that the Legislature did not intend to permit review of the merits by agreement. (.) This view is mistaken. In we inferred from section 1296 that “the Legislature did not intend to confer traditional judicial review in private arbitration cases.” (.) However, the failure to provide for that scope of review by statute does not mean the parties themselves may not do so by contract. Moreover, section 1296 authorizes review for legal error without any specific agreement to that effect. The parties to a public construction contract need only provide that the award must be supported by law and substantial evidence. Thus, section 1296 says nothing about the Legislature‘s intent regarding contracts expressly permitting review on the merits.

Our holding in

Moncharsh that the CAA incorporates the rule is irreconcilable with the notion that the parties are barred from agreeing to limit the arbitrators’ authority by subjecting their award to review on the merits. The history of the FAA, as reviewed by the majority,

includes no similar indication that Congress intended the statutory grounds for review to operate as default provisions, providing only limited review unless the parties agree otherwise. (

Hall Street, supra, 552 U.S. at pp. ___, fn. 7 [128 S.Ct. at pp. 1405, 1406, fn. 7].) Nor did address whether the FAA provision for vacatur “where the arbitrators exceeded their powers” (9 U.S.C. § 10(a)(4)) is applicable when the agreement specifically limits the arbitrators’ powers by providing for an award governed by law and reviewable for legal error. Therefore, FAA analysis is inapposite.

In California, the policy favoring arbitration without the complications of traditional judicial review is based on the parties’ expectations as embodied in their agreement, and the CAA rests on the same foundation. “Accordingly, policies favoring the efficiency of private arbitration as a means of dispute resolution must sometimes yield to its fundamentally contractual nature, and to the attendant requirement that arbitration shall proceed as the parties themselves have agreed.” (

Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 831 [88 Cal.Rptr.2d 366, 982 P.2d 229].) The scope of judicial review is not invariably limited by statute; rather, “the parties, simply by agreeing to arbitrate, are deemed to accept limited judicial review by implication . . . .” (Ibid.) It follows that they may expressly agree to accept a broader scope of review.¹⁷

Neither

Crofoot, the Arbitration Study, nor had occasion to explore the nature of the “limiting clause in the arbitration agreement” that all these sources recognized as an exception to the usual rule barring review of the merits of an award. (; Arbitration Study, supra, 3 Cal. Law Revision Com. Rep., p. G-53; see .) In the case before it, the court rejected the claim that the parties’ agreement limited the arbitrator‘s powers. (.) However, the two authorities cited in

Crofoot that discuss contract limitations suggest the scope of judicial review may be expanded by provisions restricting arbitrators’ usual broad powers.

Crofoot quoted , for the proposition that ” ‘[a]rbitrators, unless specifically required to act in conformity with rules of law, may base their decision upon broad principles of justice and equity, and in doing so may expressly or impliedly reject a claim that a party might successfully have asserted in a judicial action.’ ” (, italics added; see also .) The court followed this statement with a citation to , where the court reviewed the parties’ agreement and observed: “We note that no restriction is placed upon the arbitrators in any degree within their respective provinces. No reservation is made for reviewing any decision of law or fact. The case is not like many of those cited in the plaintiff‘s brief where the arbitrators were required to determine questions of law according to legal rules and the decisions of the courts on identical matters. Neither is it like other instances where the statute requires the award to be made agreeable to certain precepts or in pursuance of an order or rule of court where the award must be subject to the approval of the tribunal making the order. In the instant case the unrestricted terms of the submission differentiate it from all such precedents. It is said in 5 C. J. 183: [][] ‘In the absence of a special requirement, the arbitrators are not bound to decide according to law, and therefore in such case a mistaken construction of the law has been held not sufficient ground of avoidance of an award . . . .‘” (, italics added.)

The

Crofoot court also relied on Kagel, California Arbitration Statute (1950) 38 Cal. L.Rev. 799, 825 et seq. (Kagel). (.) There, the author stated: “Whether an arbitrator‘s decision on questions of law and facts is final and not subject to judicial review seems to depend on the ‘submission agreement. . . . If the submission agreement is qualified and provides, for example, that an arbitrator should ‘make his judgment and award according to the legal rights of the parties,’ . . . apparently the award is subject to judicial review.” (.)¹⁸ After quoting , to the same

effect as in

Crofoot, Kagel concluded: “The wording of the arbitration clause or submission agreement is important then, affecting the limits of review.” (.)

The Arbitration Study discussed in

Moncharsh includes a similar observation. Regarding the statutory ground of review for excess of the arbitrators’ powers, the study stated: “Arbitrators may base their decision on broad principles of justice and equity, but if the submission agreement specifically requires an arbitrator to act in conformity with rules of law, the arbitrator exceeds his authority if his decision is not based on rules of law.” (Arbitration Study, supra, 3 Cal. Law Revision Com. Rep, p. G-56, fns. omitted.)

These early authorities might be read to support a rule that a provision simply requiring the arbitrators to follow the rule of law places it beyond their powers to apply the law incorrectly, so that the award may be vacated or modified on that basis. However, the Legislature has since enacted a similar rule for public contract arbitrations. (§ 1296; see fn. 16, ante, and accompanying text.)¹⁹ Had it intended to make review of the merits generally available on that basis, presumably it would have included a similar provision in sections 1286.2 and 1286.6. Moreover, requiring the parties to expressly provide for an expanded scope of review is consistent with the usual expectations of parties to arbitration agreements, who accept the risk of legal error in exchange for the benefits of a quick, inexpensive, and conclusive resolution. (See

Moncharsh, supra, 3 Cal.4th at pp. 11-12.)

A provision requiring arbitrators to apply the law leaves open the possibility that they are empowered to apply it “wrongly as well as rightly.” (

Utah Const. Co. v. Western Pac. Ry. Co., supra, 174 Cal. at p. 163; see .) As we recently observed: “When parties contract to resolve their disputes by private arbitration, their agreement ordinarily contemplates that the arbitrator will have the power to decide any question of contract interpretation, historical fact or general law necessary, in the arbitrator‘s understanding of the case, to reach a decision. (; ; .) Inherent in that power is the possibility the arbitrator may err in deciding some aspect of the case. Arbitrators do not ordinarily exceed their contractually created powers simply by reaching an erroneous conclusion on a contested issue of law or fact, and arbitral awards may not ordinarily be vacated because of such error,

law, and proceed upon that theory without deciding the point.” (

Id. at p. 163.) The court reviewed the award and found no legal error. (.)

for ‘ “[t]he arbitrator‘s resolution of these issues is what the parties bargained for in the arbitration agreement.” ’ (

Moshonov v. Walsh, at pp. 775-776, quoting .)” (.)

Therefore, to 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.²⁰ 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. (Cf.

Advanced Micro Devices, Inc. v. Intel Corp., supra, 9 Cal.4th at p. 383.)

Those Court of Appeal opinions refusing to enforce specific provisions for judicial review of the merits are disapproved insofar as they conflict with our analysis. (

Crowell v. Downey Community Hospital Foundation, supra, 95 Cal.App.4th 730, 735; ; .) The objections raised in these cases are outweighed by the freedom of contract that is fundamental to arbitration, by the availability of an expanded scope of review in other contexts, and by the considerable public and private benefits that such review can provide.

Review on the merits has been deemed incompatible with the goals of finality and informality that are served by arbitration and protected by the arbitration statutes. (

Crowell, supra, 95 Cal.App.4th at p. 735; .) However, as discussed above, those policies draw their strength from the agreement of the parties. It is the parties who are best situated to weigh the advantages of traditional arbitration against the benefits of court review for the correction of legal error.

Arbitration provisions calling for review of the merits have also been condemned as attempts to create jurisdiction where none exists. (

Crowell, supra, 95 Cal.App.4th at p. 739; .) But the CAA authorizes review on the ground that an award exceeds the arbitrators’ powers. (§§ 1286.2, subd. (a)(4), 1286.6, subd. (b).)

Because those powers are circumscribed by the terms of the parties’ agreement (

Gueyffier, supra, 43 Cal.4th at p. 1185; ), there is no jurisdictional impediment to contracts limiting the arbitrators’ authority by subjecting their award to correction for legal error.

Some courts have expressed concern that arbitration is so different from judicial proceedings that courts would be unable to adequately review the substance of arbitrators’ decisions. (

National Union, supra, 69 Cal.App.4th at pp. 715-716; .) This problem has not appeared in those circumstances where arbitration awards have been reviewed for legal error. Section 1296 has provided for review of the merits in public construction contract arbitrations since 1979. Arbitration awards have been reviewed to determine whether the arbitrators complied with statutes conferring unwaivable rights. (See, e.g., ; .) Until recently, federal courts have reviewed arbitration awards under agreements calling for an expanded scope of review. (See fn. 9, ante.) Obstacles to effective review have not been evident in any of these settings.²¹ Problems with the record are not reflected in the cases, but in the event they arise, there is a ready solution in the familiar rule that the decision under review is presumed correct on matters where the record is silent. (; see ; Goldman, supra, 8 Harv. Negot. L.Rev. at p. 187.)

To the extent the concern with reviewability arises from apprehension that permitting review on the merits would open the door to contracts imposing unfamiliar standards of review, it appears to be unfounded. We have discovered no case where the parties attempted to make the courts apply an unusual standard of review. Instead, as in this case, they have required the arbitrators to apply legal standards, resulting in awards that can be reviewed in traditional fashion. (See Goldman, supra, 8 Harv. Negot. L.Rev. at p. 186.) We need not speculate about provisions calling for bizarre modes of decision, but we note that arbitration agreements are “as enforceable as other contracts, but not more so.” (

Prima Paint Corp. v. Flood & Conklin Mfg. Co. (1967) 388 U.S. 395, 404, fn. 12 [18 L.Ed.2d 1270, 87 S.Ct. 1801]; .) Thus, just as the parties to any contract are limited in the constraints they may place on judicial review, an arbitration agreement providing that a “judge would review the award by flipping a coin or studying the entrails of a dead fowl” would be unenforceable. ( (conc.

opn. of Kozinski, J.); see Cole, Managerial Litigants? The Overlooked Problem of Party Autonomy in Dispute Resolution (2000) 51 Hastings L.J. 1199, 1263 (Cole).)

The benefits of enforcing agreements like the one before us are considerable, for both the parties and the courts. The development of alternative dispute resolution is advanced by enabling private parties to choose procedures with which they are comfortable. Commentators have observed that provisions for expanded judicial review are a product of market forces operating in an increasingly “judicialized” arbitration setting, with many of the attributes of court proceedings. The desire for the protection afforded by review for legal error has evidently developed from the experience of sophisticated parties in high stakes cases, where the arbitrators’ awards deviated from the parties’ expectations in startling ways. (Goldman, supra, 8 Harv. Negot. L.Rev. at pp. 172-173; Cole, supra, 51 Hastings L.J. at p. 1243; Brunet, Replacing Folklore Arbitration with a Contract Model of Arbitration (1999) 74 Tul. L.Rev. 39, 40-42, 52-57, 62-63; Younger, Agreements to Expand the Scope of Judicial Review of Arbitration Awards (1999) 63 Alb. L.Rev. 241.)

The judicial system reaps little benefit from forcing parties to choose between the risk of an erroneous arbitration award and the burden of litigating their dispute entirely in court. Enforcing contract provisions for review of awards on the merits relieves pressure on congested trial court dockets. (See

Crowell, supra, 95 Cal.App.4th at pp. 752-753 (dis. opn. of Nott, J.); ; ; Moses, supra, 52 U. Kan. L.Rev. at p. 443; Goldman, supra, 8 Harv. Negot. L.Rev. at p. 184; Hulea, supra, 29 Brook. J. Int‘l L. at pp. 353-354.) Courts are spared not only the burden of conducting a trial, but also the complications of discovery disputes and other pretrial proceedings. Incorporating traditional judicial review by express agreement preserves the utility of arbitration as a way to obtain expert factual determinations without delay, while allowing the parties to protect themselves from perhaps the weakest aspect of the arbitral process, its handling of disputed rules of law. (See Rau, supra, 8 Am. Rev. Int‘l Arb. at p. 233; Hulea, supra, 29 Brook. J. Int‘l L. at p. 354.)

There are also significant benefits to the development of the common law when arbitration awards are made subject to merits review by the parties’ agreement. “[I]f courts are reduced to the function of merely enforcing or denying arbitral awards, without an opportunity to discuss the reasoning for the arbitral decision, the advancement of the law is stalled, as arbitral decisions carry no precedential value. [Fn. omitted.] Thus, expansion of judicial review gives the courts of first instance the opportunity to establish a record, and to include the reasoning of expert arbitrators into the body of the law in the form of written decisions. This procedure better advances the state of the law and facilitates the necessary beneficial input from experts in the field.” (Hulea, supra, 29 Brook. J. Int‘l L. at pp. 354-355.)

These advantages, obtained with the consent of the parties, are substantial. As explained in

Moncharsh, the drafters of the CAA established the statutory grounds for judicial review with the expectation that arbitration awards are ordinarily final and subject to a restricted scope of review, but that parties may limit the arbitrators’ authority by providing for review of the merits in the arbitration agreement. (

Notes

Further statutory references are to the Code of Civil Procedure unless otherwise indicated. All statutory references are to this code unless otherwise indicated.

The contract allows enforcement proceedings to be brought in either state or federal court. Because the parties proceeded in state court under the CAA, we conclude that judicial review of the award is governed by state law, though the arbitration proceedings are governed by federal procedural law and AAA rules under the terms of the contract. (See fn. 12, post.) The Arbitration Study also cites for the proposition that “Arbitrators may base their decision on broad principles of justice and equity, but if the submission agreement specifically requires an arbitrator to act in conformity with rules of law, the arbitrator exceeds his authority if his decision is not based on rules of law.” (Arbitration Study, supra, 3 Cal. Law Revision Com. Rep. at p. G-56, fns. omitted; see id., fn. 168.) , which predated the modernization of arbitration with the 1927 statute, contemplates a more expansive notion of judicial review that most post-1927 cases have rejected. (See .) In any case, even did not decide if the error of law in the case before it was grounds for vacating the arbitration award, merely assuming that it would be and then finding no error. (.) In the 90-plus years since this case was decided, my research could find no court that has embraced dictum and overturned an arbitration award after undertaking full-scale de novo judicial review, even when the error was not clear from the face of the award. There is no indication the Commission or the Legislature intended to incorporate this expansive reading of or to extend it to include situations in which arbitrators reasonably decide unsettled questions of law.

The sales agency agreement, unlike the earlier residential dealer agreement, specified that claims of $250,000 or more would be heard by three arbitrators. The arbitrators, the trial court, and the Court of Appeal applied the arbitration clause in the sales agency agreement. The parties do not question the use of that clause.

Section 18.12 of the sales agency agreement, captioned “ARBITRATION,” states:

“(a) Any dispute or claim arising out of the interpretation, performance, or breach of this Agreement, including without limitation claims alleging fraud in the inducement, shall be resolved only by binding arbitration, at the request of either party, in accordance with the rules of the American Arbitration Association, modified as herein provided. The arbitrators shall be, to the fullest extent available, either retired judges or selected from a panel of persons trained and expert in the subject area of the asserted claims. If the claim seeks damages of less than $250,000, it shall be decided by one arbitrator. In all other cases, each party shall select one arbitrator, who shall jointly select the third arbitrator. If for any reason a third arbitrator is not selected within one month after the claim is first made, the third arbitrator shall be selected in accordance with the rules of the American Arbitration Association. The arbitrators shall apply California substantive law to the proceeding, except to the extent Federal substantive law would apply to any claim. The arbitration shall be conducted in Los Angeles, California. An award may be entered against a party who fails to appear at a duly noticed hearing. The arbitrators shall prepare in writing and provide to the parties an award including factual findings and the reasons on which their decision is based. The arbitrators 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. The decision of the arbitrators may be entered and enforced as a final judgment in any court of competent jurisdiction. The parties shall share equally the arbitrator‘s fees and other costs of the arbitration.

“(b) Notwithstanding the foregoing, the following shall not be subject to arbitration and may be adjudicated only by the Los Angeles County, California Superior Court or the U.S. District Court for the Central District of California:

“(1) any dispute, controversy, or claim relating to or contesting the validity of DIRECTV‘S right to offer DBS Service to the public or any of DIRECTV‘s Trade Secrets or Marks; and

“(2) the request by either party for preliminary or permanent injunctive relief, whether prohibitive or mandatory, or provisional relief such as writs of attachment or possession.

“(c) This Section and any arbitration conducted hereunder shall be governed by the United States Arbitration Act (9 U.S.C. Section 1 et seq.). The parties acknowledge that the transactions contemplated by this Agreement involve commerce, as defined in said Act. This Section 18.12 shall survive the termination or expiration of this Agreement.”

I note that this is not a case in which more rigorous judicial review is necessary to enable a party to vindicate an unwaivable statutory right. (See .)

“[T]he court shall vacate the award if the court determines any of the following:

“(1) The award was procured by corruption, fraud or other undue means.

“(2) There was corruption in any of the arbitrators.

“(3) The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator.

“(4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.

“(5) The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title.

“(6) An arbitrator making the award either: (A) failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware; or (B) was subject to disqualification upon grounds specified in Section 1281.91 but failed upon receipt of timely demand to disqualify himself or herself as required by that provision. However, this subdivision does not apply to arbitration proceedings conducted under a collective bargaining agreement between employers and employees or between their respective representatives.” (§ 1286.2, subd. (a).)

Of course, the arbitrators decided only that classwide arbitration is potentially available under the agreement, and have not yet decided whether such arbitration is appropriate in the present case.

“In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration-

“(1) where the award was procured by corruption, fraud, or undue means;

“(2) where there was evident partiality or corruption in the arbitrators, or either of them;

“(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

“(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” (9 U.S.C. § 10(a).)

“[T]he court, unless it vacates the award pursuant to Section 1286.2, shall correct the award and confirm it as corrected if the court determines that:

“(a) There was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award;

“(b) The arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted; or

“(c) The award is imperfect in a matter of form, not affecting the merits of the controversy.” (§ 1286.6.)

“In either of the following cases the United States court in and for the district wherein the award was made may make an order modifying or correcting the award upon the application of any party to the arbitration- “(a) Where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award.

“(b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted.

“(c) Where the award is imperfect in matter of form not affecting the merits of the controversy.

“The order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties.” (9 U.S.C. § 11.)

Two divided Courts of Appeal have treated arbitration proceedings as other forms of alternative dispute resolution, so as to permit review of the merits. In (National Union), a stipulation for arbitration was deemed ” ‘a reference by consent of the parties’ ” under section 638. In , the court construed an agreement for binding arbitration before a retired judge as a stipulation for trial before a temporary judge under article VI, section 21 of the California Constitution.

(dicta; see also ); (dicta); ; ; (dicta). See also (LaPine), overruled by (Kyocera).

(dicta); (dicta); ; .

“In the years before the passage of the FAA, arbitration awards were subject to thorough and broad judicial review. See Cohen & Dayton, The New Federal Arbitration Law, 12 Va. L.Rev. 265, 270–271 (1926); Cullinan, Contracting for an Expanded Scope of Judicial Review in Arbitration Agreements, 51 Vand. L.Rev. 395, 409 (1998). In §§ 10 and 11 of the FAA, Congress significantly limited the grounds for judicial vacatur or modification of such awards in order to protect arbitration awards from hostile and meddlesome courts.”

At our invitation, the dealers also briefed the question whether the proceedings for judicial review of the arbitration award in this case are governed by the FAA, given the contract specification that “any arbitration conducted hereunder shall be governed by the United States Arbitration Act ....” The dealers contend this clause requires application of the FAA grounds for review, as strictly limited by Hall Street. DIRECTV responds that the FAA provisions governing judicial review are specific to federal courts; that the dealers waived their FAA theory by failing to raise it in the trial court or on appeal; and that the contract calls only for the arbitration itself to be governed by the federal statute, not postarbitration proceedings in court.

We conclude that DIRECTV has the better argument. Sections 10 and 11 of the FAA refer to review by “the United States court in and for the district wherein the award was made.” (9 U.S.C. §§ 10(a), 11.) The parties’ contract did not specify whether enforcement proceedings were to be brought in state or federal court, providing generally that “[t]he decision of the arbitrators may be entered and enforced as a final judgment in any court of competent jurisdiction.” DIRECTV‘s petition to vacate the award was filed, argued, and appealed in state court, and before the Hall Street decision both parties proceeded on the theory that the CAA was controlling. “The rule is well settled that the theory upon which a case is tried must be adhered to on appeal. A party is not permitted to change his position and adopt a new and different theory on appeal. To permit him to do so would not only be unfair to the trial court, but manifestly unjust to the opposing litigant.” (

Ernst v. Searle (1933) 218 Cal. 233, 240-241 [22 P.2d 715]; see also ; 9 Witkin, Cal. Procedure (4th ed. 1997) Appeal, § 404, p. 455.)

Other courts have reached similar conclusions. See ; , reversed on other grounds in ; . Compare , holding that a “complete irrationality” standard articulated by the Rhode Island Supreme Court violated the policy established by section 2 of the FAA, and was therefore preempted in cases involving interstate commerce.

Such an effect would be sweeping indeed in the commercial setting. Not only would state courts be barred from giving a more expansive interpretation to state law as it applies to agreements for merits review of arbitration awards, but state legislatures would be unable to specifically permit contract provisions for expanded review. (See, e.g., N.J. Stat. Ann. § 2A:23B-4(c) [“nothing in this act shall preclude the parties from expanding the scope of judicial review of an award by expressly providing for such expansion ....“].) Arguably, statutory provisions for review of the merits in particular contexts, such as public contract arbitrations (see § 1296), would be precluded. The viability of public policy exceptions to the general rule of limited review would also be called into question. For example, when unwaivable statutory rights are at stake, this court has repeatedly held that review must be ” ‘sufficient to ensure that arbitrators comply with the requirements of the statute.’ ” (,

The study makes it clear that the assumption noted above is drawn from the normal form of agreement to conclusive arbitration, and the statutes accommodating that norm. “Both the agreement between the parties that the award shall be final and binding and the statutory treatment of arbitration agreements suggest that the ordinary concepts of judicial appeal and review are not applicable . . . .” (Arbitration Study, supra, 3 Cal. Law Revision Com. Rep., p. G-54.)

Section 1296 states: “The parties to a construction contract with a public agency may expressly agree in writing that in any arbitration to resolve a dispute relating to the contract, the arbitrator‘s award shall be supported by law and substantial evidence. If the agreement so provides, a court shall, subject to Section 1286.4, vacate the award if after review of the award it determines either that the award is not supported by substantial evidence or that it is based on an error of law.”

Law review commentary has tended to support this view. (Goldman, Contractually Expanded Review of Arbitration Awards (2003) 8 Harv. Negot. L.Rev. 171, 183-184 (Goldman); Hulea, Contracting to Expand the Scope of Review of Foreign Arbitral Awards: An American Perspective (2003) 29 Brook. J. Int‘l L. 313, 351 (Hulea); Moses, Can Parties Tell Courts What to Do? Expanded Judicial Review of Arbitral Awards (2004) 52 U. Kan. L.Rev. 429, 430-431 (Moses); Rau, Contracting Out of the Arbitration Act (1997) 8 Am. Rev. Int‘l Arb. 225, 230-231 (Rau); but see Schmitz, Ending a Mud Bowl: Defining Arbitration‘s Finality Through Functional Analysis (2002) 37 Ga. L.Rev. 123, 189-190; Smit, Contractual Modification of the Scope of Judicial Review of Arbitral Awards (1997) 8 Am. Rev. Int‘l Arb. 147, 150.)
The approach to judicial review outlined in the concurring and dissenting opinion is a novel one. Whatever its merits may be, the parties in this case certainly did not agree to such a scope of review. Nor is it reflected in any reported case. If “the CAA permits parties to clearly define the limits to an arbitrator‘s powers,” it is unclear why they should be allowed only “some measure of judicial review” defined by a court, instead of the scope of review authorized by their contract and the statutes permitting review for excess of the arbitrator‘s powers. (Conc. & dis. opn., post, at p. 1375.)

In a footnote, Kagel refers to . (Kagel, supra, 38 Cal. L.Rev. at p. 827, fn. 126.) The agreement in that case included a clause calling for the arbitrator to ” ‘make his judgment and award, according to the legal right of the parties . . . .‘” (.) The court noted that this provision “bound the arbitrator to decide in conformity with the law, and left him without authority to do otherwise.” (.) However, it then said: “Our final conclusion on the merits renders it unnecessary to determine whether the submission agreement, when properly construed, did or did not empower him to decide the law wrongly as well as rightly. We may assume, for the purposes of the case, that he was empowered only to decide correctly as to the

DIRECTV has requested that we take judicial notice of the legislative history of section 1296. We grant the request, but do not find the history useful.

The arbitration clause states: “The arbitrators 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.”

It is noteworthy that the Court of Appeal below, despite its holding limiting the scope of review, had no difficulty examining the merits of the arbitrators’ decision on the alternative assumption that the award was reviewable for legal error.

The arbitration clause provides in relevant part: “Any dispute or claim arising out of the interpretation, performance, or breach of this Agreement . . . shall be resolved only by binding arbitration, at the request of either party, in accordance with the rules of the American Arbitration Association . . . . The arbitrators shall apply California substantive law to the proceeding, except to the extent Federal substantive law would apply to any claim.” The clause further specifies: “This Section and any arbitration conducted hereunder shall be governed by the United States Arbitration Act (9 U.S.C. Section 1, et seq.).”

In relevant part, the policy states: “On October 8, 2003, in response to the ruling of the United States Supreme Court in , the American Arbitration Association issued its Supplementary Rules for Class Arbitrations to govern proceedings brought as class arbitrations. In , the Court held that, where an arbitration agreement was silent regarding the availability of class-wide relief, an arbitrator, and not a court, must decide whether class relief is permitted. Accordingly, the American Arbitration Association will administer demands for class arbitration pursuant to its Supplementary Rules for Class Arbitrations if (1) the underlying agreement specifies that disputes arising out of the parties’ agreement shall be resolved by arbitration in accordance with any of the Association‘s rules, and (2) the agreement is silent with respect to class claims, consolidation or joinder of claims.” (AAA, Policy on Class Arbitrations, supra.)