Opinion ID: 2600052
Heading Depth: 3
Heading Rank: 1

Heading: Did the Trial Court Err by Vacating the Arbitration Award?

Text: In order to resolve the first issue presented by this case, we address two questions: First, did the arbitrator make an error of law in granting defendant summary judgment on the grounds that plaintiff's arbitral demand was time-barred? Second, if the arbitrator did make such an error, was that sufficient grounds for the trial court to vacate the arbitration award?
In order to determine whether the arbitrator committed an error of law, we begin with the pertinent statute. Code of Civil Procedure section 1281.12 states in full: If an arbitration agreement requires that arbitration of a controversy be demanded or initiated by a party to the arbitration agreement within a period of time, the commencement of a civil action by that party based upon that controversy, within that period of time, shall toll the applicable time limitations contained in the arbitration agreement with respect to that controversy, from the date the civil action is commenced until 30 days after a final determination by the court that the party is required to arbitrate the controversy, or 30 days after the final termination of the civil action that was commenced and initiated the tolling, whichever date occurs first. Neither of the parties disputes that Code of Civil Procedure section 1281.12 applies in the present proceeding. Here, the arbitration agreement required that a dispute must be submitted to binding arbitration within one year from the date the dispute arose or the claim shall be void and considered waived to the fullest extent allowed by law. Plaintiff, the party required to initiate the action, instead commenced a civil action within the one-year period. The commencement of this civil action therefore tolled the applicable time limitation until the final order compelling arbitration. (1) According to its legislative history, the statute prevents parties from being either forced to abide by arbitration agreements of dubious validity instead of seeking court evaluation, initiating costly and duplicative proceedings, or being unfairly deprived of any forum for resolution of the dispute. Supporters observe that there are many legitimate reasons why a party might file a lawsuit in court, rather than demanding or pursuing arbitration. Among these are the following: (1) the plaintiff may believe the claims are not subject to arbitration because the arbitration agreement is unenforceable on grounds of unconscionability or similar concepts; (2) there may be a dispute about whether the particular claims at issue do or do not fall within the scope of an arbitration agreement; (3) the plaintiff may contend that one or more of the statutory grounds for denying a petition to compel arbitration set forth in Code of Civil Procedure section 1281.2 exist, assuming the defendant does file a petition to compel arbitration in response to the plaintiff's filing of the lawsuit; (4) the plaintiff may prefer a court trial or jury trial and simply be hopeful that the defendant will not assert any right to arbitrate the claims, for whatever reason [indeed, the defendant may decide that it prefers a court proceeding as well]; and (5) the plaintiff might not even be aware that there is an arbitration agreement governing the controversy. (Assem. Com. on Judiciary, Analysis of Assem. Bill No. 1553 (2005-2006 Reg. Sess.) for hearing Apr. 5, 2005, p. 3, underscoring & extra capitalization omitted.) Thus, the statute unquestionably applies in the present case, when a plaintiff files a timely action in superior court, and a defendant, either deliberately or through inadvertence, allows the lawsuit to proceed, asserting its right to arbitration only after the limitations period provided in the arbitration agreement has expired. The parties disagree, however, on how the tolling provision of Code of Civil Procedure section 1281.12 operates in the present case. As recounted above, plaintiff was terminated on January 31, 2006, and filed a civil action on October 2, 2006, well within the one-year period. The parties disagree on when the order to arbitrate became final, with defendant arguing the date was either April 12, 2007, when the trial court orally informed the parties of its ruling in favor of defendant's petition to compel arbitration, or May 2, 2007, when the trial court issued a written order. Plaintiff affixes the date on May 31, 2007, when the Court of Appeal summarily denied plaintiff's writ petition challenging the trial court's grant of defendant's petition to compel arbitration. We do not know the arbitrator's reasons for concluding Code of Civil Procedure section 1281.12 did not save plaintiff's claim, but we do have defendant's arguments in defense of the arbitral decision, which may have been adopted by the arbitrator. Defendant states in its brief before this court: If the tolling provisions of Code of Civil Procedure section 1281.12 were applicable, then the one-year limitation period expired 30 days after either April 12, 2007, when the trial court issued from the bench its final order, or May 2, 2007 when the trial court granted [defendant's] Petition to Arbitrate by Order. Therefore, plaintiff's first attempt to seek arbitration, which according to defendant was on June 13, 2007, when he agreed to an arbitrator, was untimely by defendant's reasoning. (2) To understand the error of defendant's position, we begin with the meaning of tolling. To toll has been defined most pertinently as to stop the running of; to abate . (Black's Law Dict. (8th ed. 2004) p. 1525.) When it comes to the tolling of a statute of limitations, we have stated: Tolling may be analogized to a clock that is stopped and then restarted. Whatever period of time that remained when the clock is stopped is available when the clock is restarted, that is, when the tolling period has ended. ( Woods v. Young (1991) 53 Cal.3d 315, 326, fn. 3 [279 Cal.Rptr. 613, 807 P.2d 455].) (3) The only way to make sense of defendant's position is to understand it as asserting that what is being tolled is not the running of the one-year contractual limitations period, but the contractual one-year deadline itself. In other words, according to defendant's position, the contractual limitations period continues to run after a lawsuit is filed, but the actual one-year period deadline, if and when it is reached, is tolled, i.e., temporarily abated; the deadline then is reinstated 30 days after a plaintiff is compelled by judicial determination to arbitrate, leading to termination of the right to arbitrate if a plaintiff fails to initiate arbitration within that 30-day period. What makes this interpretation untenable is not only that it is at variance with the common understanding of the term tolling, but also that it contradicts the express language of Code of Civil Procedure section 1281.12 that tolling starts from the date the civil action is commenced. This language establishes that what is being tolled is the running of the contractual limitations period itself, as plaintiff argues. Under a proper interpretation of Code of Civil Procedure section 1281.12, therefore, plaintiff's claim was not time-barred. Leaving aside any tolling of the statute that may have resulted from the filing of a complaint with the DFEH, approximately eight months had passed between the time of the termination on January 31, 2006, and October 2, 2006, when plaintiff filed a complaint in superior court. Choosing arguendo the earliest date defendant offers for when the trial court's order to arbitrate became final, April 12, 2007, then, by the terms of Code of Civil Procedure section 1281.12, the tolling ended 30 days after that, on May 12, 2007. But the end of the tolling period simply means that the contractual limitations clock began to run again, not that the limitations period ended. Because there were approximately four months left on the one-year limitation period when the civil action was filed, even if there was no FEHA tolling, then plaintiff had four months from the May 12, 2007, date to initiate the arbitration. Plaintiff's initiation, which even by defendant's calculation was no later than June 13, 2007, was well within this period. Therefore, the trial court and the Court of Appeal were both correct in concluding that the arbitrator misapplied the tolling provision and on that basis erroneously granted summary judgment for defendant.
In assessing whether the trial court was correct in vacating the arbitrator's award due to arbitral error, we begin by reviewing pertinent case law. In Moncharsh, supra, 3 Cal.4th 1, a case involving an arbitration between an attorney and his former law firm over certain claims arising from his employment agreement, we noted that arbitration proceedings are governed by title 9 of the Code of Civil Procedure, sections 1280-1294.2. Section 1286.2 sets forth the grounds for vacation of an arbitrator's award. It states in pertinent part: `[T]he court shall vacate the award if the court determines that: [¶] (a) The award was procured by corruption, fraud or other undue means; [¶] (b) There was corruption in any of the arbitrators; [¶] (c) The rights of such party were substantially prejudiced by misconduct of a neutral arbitrator; [¶] (d) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted; or [¶] (e) The rights of such 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.' ( Moncharsh, supra, 3 Cal.4th at pp. 12-13.) We rejected a line of earlier cases that had held or suggested that notwithstanding these statutory criteria for vacating an arbitration award, an award may also be vacated when an error of law appears on the face of the arbitrator's decision and causes substantial injustice. ( Moncharsh, supra, 3 Cal.4th at p. 13.) Instead, after an extensive review of the historical development of arbitration and judicial review of arbitration awards, the court made clear `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.' ( Id. at p. 25.) [2] The court further rejected the argument that Code of Civil Procedure section 1286.2, subdivision (d) (now subd. (a)(4)), which authorizes an arbitration award to be vacated if the arbitrators exceeded their powers, was a basis for reviewing errors of law in an arbitration award. It is well settled that `arbitrators do not exceed their powers merely because they assign an erroneous reason for their decision.' [Citations.] A contrary holding would permit the exception to swallow the rule of limited judicial review; a litigant could always contend the arbitrator erred and thus exceeded his powers. To the extent Moncharsh argues his case comes within section 1286.2, subdivision (d) merely because the arbitrator reached an erroneous decision, we reject the point. ( Moncharsh, supra, 3 Cal.4th at p. 28.) (4) The Moncharsh court recognized that there may be some limited and exceptional circumstances justifying judicial review of an arbitrator's decision such as when granting finality to an arbitrator's decision would be inconsistent with the protection of a party's statutory rights. ( Moncharsh, supra, 3 Cal.4th at p. 32.) Because the issue did not arise in that case, the Moncharsh court had no occasion to develop this exception. (5) In Armendariz, supra, 24 Cal.4th 83, a case involving an alleged violation of the statutory right to be free of sexual harassment under FEHA, we considered the validity of a mandatory employment arbitration agreement, i.e., an adhesive arbitration agreement that an employer imposes on the employee as a condition of employment. ( Armendariz, supra, 24 Cal.4th at pp. 91-92, 103, fn. 8.) Although holding that such an agreement is enforceable, we concluded that it is evident that an arbitration agreement cannot be made to serve as a vehicle for the waiver of statutory rights created by the FEHA ( id. at p. 101), because the enforcement of such rights was for the public benefit and was not waivable ( id. at pp. 100-101). We concluded that a party to such an arbitration agreement must be able to fully vindicate his or her statutory cause of action in the arbitral forum. ( Id. at p. 101.) In order to ensure such vindication, we held that arbitration of claims under the FEHA is subject to certain minimal requirements: (1) the arbitration agreement may not limit the damages normally available under the statute ( Armendariz, supra, 24 Cal.4th at p. 103); (2) there must be discovery `sufficient to adequately arbitrate their statutory claim' ( id. at p. 106); (3) there must be a written arbitration decision and judicial review `sufficient to ensure the arbitrators comply with the requirements of the statute' ( ibid. ); and (4) the employer must `pay all types of costs that are unique to arbitration' ( id. at p. 113). ( Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1076 [130 Cal.Rptr.2d 892, 63 P.3d 979].) (6) In the present case, we are concerned with the third requirement aboveadequate judicial review. We quote in full this portion of Armendariz : As the United States Supreme Court has stated: `[A]lthough judicial scrutiny of arbitration awards necessarily is limited, such review is sufficient to ensure that arbitrators comply with the requirements of the statute' at issue. ( Shearson/American Express Inc. v. McMahon (1987) 482 U.S. 220, 232 [96 L.Ed.2d 185, 107 S.Ct. 2332] ( McMahon ).) In Moncharsh, we acknowledged that judicial review may be appropriate when `granting finality to an arbitrator's decision would be inconsistent with the protection of a party's statutory rights.' ( Moncharsh, supra, 3 Cal.4th at p. 32; see also Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269, 276-277 [52 Cal.Rptr.2d 115, 914 P.2d 193].) We are not faced in this case with a petition to confirm an arbitration award, and therefore have no occasion to articulate precisely what standard of judicial review is `sufficient to ensure that arbitrators comply with the requirements of [a] statute.' ( McMahon, supra, 482 U.S. at p. 232 . . . .) [3] All we hold today is that in order for such judicial review to be successfully accomplished, an arbitrator in a FEHA case must issue a written arbitration decision that will reveal, however briefly, the essential findings and conclusions on which the award is based. While such written findings and conclusions are not required under the CAA [citations], nothing in the present arbitration agreement precludes such written findings, and to the extent it applies to FEHA claims the agreement must be interpreted to provide for such findings. In all other respects, the employees' claim that they are unable to vindicate their FEHA rights because of inadequate judicial review of an arbitration award is premature. ( Armendariz, supra, 24 Cal.4th at pp. 106-107.) More recently, in Cable Connection , in deciding that parties may contract for heightened judicial review, we recognized the public policy exceptions to the general rule of limited [judicial] review; 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.' ( Cable Connection, supra, 44 Cal.4th at p. 1353, fn. 14, quoting the portion of Armendariz cited above.) (7) In the present case, we are faced precisely with the question that was prematurely posed in Armendariz , i.e., the proper standard of judicial review of arbitration awards arising from mandatory arbitration employment agreements that arbitrate claims asserting the employee's unwaivable statutory rights. As an initial matter, we reject the suggestion of amicus curiae Employers Group, echoed by the concurring and dissenting opinion, that all Armendariz requires is a written arbitral award. Obviously, we did not envision such a written award as an idle act, but rather as a precondition to adequate judicial review of the award so as to enable employees subject to mandatory arbitration agreements to vindicate their rights under FEHA. That being said, we note that the arbitrator's award in the present case did not even comply with the requirements set forth in Armendariz that an arbitrator in a FEHA case must issue a written arbitration decision that will reveal, however briefly, the essential findings and conclusions on which the award is based. ( Armendariz, supra, 24 Cal.4th at p. 107.) The arbitrator stated that plaintiff had failed to submit his claims and disputes to binding arbitration within the one-year period as required by the Dispute Resolution Agreement or within the tolling period prescribed in Code of Civil Procedure section 1281.12, without explaining, even briefly, his reasoning as to why plaintiff did not benefit from the tolling period. Nor need we decide whether the rules suggested by plaintiff and amicus curiae California Employment Lawyers Association is correct that all legal errors are reviewable in this context, or that all errors involving the arbitration statute itself are reviewable. We address only the case before us, and a narrower rule is sufficient for its resolution. Here, as a result of the arbitrator's clear legal error, plaintiff's claim was incorrectly determined to be time-barred. Indeed, the legal error misconstrued the procedural framework under which the parties agreed the arbitration was to be conducted, rather than misinterpreting the law governing the claim itself. [4] It is difficult to imagine a more paradigmatic example of when granting finality to an arbitrator's decision would be inconsistent with the protection of a party's statutory rights ( Moncharsh, supra, 3 Cal.4th at p. 32) than the present case, in which, as a result of allowing the procedural error to stand, and through no fault of the employee or his attorney, the employee will be unable to receive a hearing on the merits of his FEHA claims in any forum. Nor can it be plausibly argued that plaintiff merely received the justice he bargained for. It is beyond dispute that there was no opportunity for bargaining over the arbitration agreement in this case. (8) We therefore hold that when, as here, an employee subject to a mandatory employment arbitration agreement is unable to obtain a hearing on the merits of his FEHA claims, or claims based on other unwaivable statutory rights, because of an arbitration award based on legal error, the trial court does not err in vacating the award. Stated in other terms, construing the CAA in light of the Legislature's intent that employees be able to enforce their right to be free of unlawful discrimination under FEHA, an arbitrator whose legal error has barred an employee subject to a mandatory arbitration agreement from obtaining a hearing on the merits of a claim based on such right has exceeded his or her powers within the meaning of Code of Civil Procedure section 1286.2, subdivision (a)(4), and the arbitrator's award may properly be vacated. (See Armendariz, supra, 24 Cal.4th at pp. 106-107.)