Opinion ID: 1182211
Heading Depth: 1
Heading Rank: 12

Heading: Judicial Review of Claims of Illegality

Text: (11) Although Moncharsh acknowledges the general rule that an arbitrator's legal, as well as factual, determinations are final and not subject to judicial review, he argues that judicial review of the arbitrator's decision is warranted on the facts of this case. In support, he claims that the fee-splitting provision of the contract that was interpreted and enforced by the arbitrator was illegal and violative of public policy as reflected in several provisions of the Rules of Professional Conduct. Such illegality, he claims, has been recognized as a ground for judicial review as stated in a line of cases emanating from this court's decision in Loving & Evans v. Blick (1949) 33 Cal.2d 603 [204 P.2d 23] [hereafter Loving & Evans ]. Loving & Evans, supra, 33 Cal.2d 603, involved a dispute about money due on a construction contract for remodeling done on appellant Blick's premises. In his pleading before the arbitrator, Blick claimed as a separate and special defense that respondent contractors could not legally recover because they were unlicensed in violation of the Business and Professions Code. The arbitrator found in respondents' favor, and they moved to confirm the award. Blick objected to the award on grounds that one of the respondents was unlicensed in violation of the code. The trial court granted the motion to confirm, but that judgment was reversed by this court. Although we recognized the general rule that the merits of a dispute before an arbitrator are not subject to judicial review, the rules which give finality to the arbitrator's determination of ordinary questions of fact or of law are inapplicable where the issue of illegality of the entire transaction is raised in a proceeding for the enforcement of the arbitrator's award. ( Id. at p. 609, italics added.) The Court of Appeal reached a similar result in All Points Traders, Inc. v. Barrington Associates (1989) 211 Cal. App.3d 723 [259 Cal. Rptr. 780] [hereafter All Points Traders ]. In that case, Barrington Associates (hereafter Barrington), an investment banking firm, sought payment of a commission for its assistance in negotiating the transfer of all the corporate stock of appellant All Points Traders. The arbitrator found in Barrington's favor and the trial court confirmed the award. Nevertheless, the Court of Appeal reversed, finding the commission agreement between the parties was invalid and unenforceable in its entirety because Barrington did not hold a real estate broker's license as required by Business and Professions Code section 10130 et seq. The appellate court reasoned that [t]he Legislature selected the specific means to protect the public and has expressed its intention in section 10136 [prohibiting an unlicensed broker from bringing an action to collect a commission], and that [e]nforcement of the contract for a commission would be in direct contravention of the statute and against public policy. ( All Points Traders, supra, at p. 738 [italics added].) Both Loving & Evans, supra, 33 Cal.2d 603, and All Points Traders, supra, 211 Cal. App.3d 723, permitted judicial review of an arbitrator's ruling where a party claimed the entire contract or transaction was illegal. By contrast, Moncharsh challenges but a single provision of the overall employment contract. Accordingly, neither Loving & Evans, supra, nor All Points Traders, supra, authorizes judicial review of his claim. [14] We recognize that there may be some limited and exceptional circumstances justifying judicial review of an arbitrator's decision when a party claims illegality affects only a portion of the underlying contract. Such cases would include those in which granting finality to an arbitrator's decision would be inconsistent with the protection of a party's statutory rights. (Accord Shearson/American Express Inc. v. McMahon (1987) 482 U.S. 220, 225-227 [96 L.Ed.2d 185, 192-194, 107 S.Ct. 2332] [federal statutory claims are arbitrable under the Federal Arbitration Act unless party opposing arbitration demonstrates that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue].) Without an explicit legislative expression of public policy, however, courts should be reluctant to invalidate an arbitrator's award on this ground. The reason is clear: the Legislature has already expressed its strong support for private arbitration and the finality of arbitral awards in title 9 of the Code of Civil Procedure. (§ 1280 et seq.) Absent a clear expression of illegality or public policy undermining this strong presumption in favor of private arbitration, an arbitral award should ordinarily stand immune from judicial scrutiny. Moncharsh contends, as he did before the arbitrator, that paragraph X-C is illegal and violates public policy because, inter alia, it violates former rules 2-107 [prohibiting unconscionable fees], 2-108 [prohibiting certain types of fee splitting arrangements], and 2-109 [prohibiting agreements restricting an attorney's right to practice], of the Rules of Professional Conduct of State Bar. [15] We perceive, however, nothing in the Rules of Professional Conduct at issue in this case that suggests resolution by an arbitrator of what is essentially an ordinary fee dispute would be inappropriate or would improperly protect the public interest. Accordingly, judicial review of the arbitrator's decision is unavailable.