Opinion ID: 1182211
Heading Depth: 1
Heading Rank: 8

Heading: Development of the Law After 1927

Text: By 1926, the popularity of private arbitration as a viable alternate to resolving disputes outside court was in decline. [W]idespread dissatisfaction with our laws respecting arbitration [had] been often expressed by chambers of commerce, mercantile associations and business men generally. (First Rep. of the Judicial Council of Cal. (1926) exhibit B, p. 57 [hereafter First Report].) In addition, there were indications that the organized bar also opposed private arbitration. (See Proceedings of the Fifteenth Annual Meeting Cal. State Bar Assn. (1924) pp. 70-73, quoted in Feldman, Arbitration Law in California: Private Tribunals for Private Government, supra, 30 So.Cal.L.Rev. at p. 388, fn. 42.) In 1926, Los Angeles County reported its clerk filed only three submissions to arbitrate; Alameda County reported no petitions were filed that year. (First Report, supra, p. 57.) The reason for the dearth of submissions to arbitration could be traced to two factors. First, private arbitration was no more efficient than regular judicial adjudication due to the statutory rule permitting a disputant to revoke his or her submission to arbitrate at any time before the award is made. (Former § 1283; see also First Report, supra, p. 58.) Second, private arbitration was not viewed as a particularly valuable method of dispute resolution because courts would not enforce contractual provisions agreeing to submit future disputes to arbitration. ( Blodgett Co. v. Bebe Co., supra, 190 Cal. at p. 667.) These perceived flaws were remedied when, in 1927, the Legislature amended the statutes governing private arbitration. (Stats. 1927, ch. 225, p. 403 et seq.) We may infer that by amending the existing statutes in response to the report to the Judicial Council of California, the Legislature intended to encourage the use of private arbitration. The 1927 amendments thus represent a clear legislative expression of public policy in favor of private arbitration as an alternate method of dispute resolution. In addition to those changes, former section 1287  setting forth the grounds for vacating an arbitration award  was recodified and renumbered as new section 1288. That section provided in pertinent part: In either of the following cases the superior court of the county or city and county in which said arbitration was had must make an order vacating the award, upon the application of any party to the arbitration: [¶] ( a ) Where the award was procured by corruption, fraud or undue means. [¶] ( b ) Where there was corruption in the arbitrators, or either of them. [¶] ( c ) 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 misbehaviors, by which the rights of any party have been prejudiced. [¶] ( d ) 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. (Stats. 1927, ch. 225, § 9, pp. 406-407.) The major changes in the new statute were: (i) the addition in subdivision (a) permitting vacation when the award was procured by undue means; and (ii) the addition to subdivision (d) permitting vacation when the arbitrators so imperfectly executed [their powers] that a mutual, final and definite award ... was not made. (Former § 1288, Stats. 1927, ch. 225, § 9, p. 407.) The limits of judicial review of an arbitration award under the 1927 amendments were addressed in Pacific Vegetable, supra, 29 Cal.2d 228. In that case, the seller claimed its contract with a buyer to ship copra from the Fiji Islands to San Diego, California, was cancelled due to the outbreak of World War II. The matter was submitted to an arbitration panel, which found in favor of the seller. The buyer moved in superior court to vacate the award, claiming it was not given an adequate opportunity to address the seller's arguments. The Pacific Vegetable court stated that, The merits of the controversy between the parties are not subject to judicial review. By section 1288 of the Code of Civil Procedure the superior court has power to vacate an award [quoting the terms of section 1288]. ( Pacific Vegetable, supra, 29 Cal.2d at p. 233.) Later, the court explained, The form and sufficiency of the evidence, and the credibility and good faith of the parties, in the absence of corruption, fraud or undue means in obtaining an award, are not matters for judicial review. ( Id. at p. 238.) It is significant that the court twice emphasized the statutory grounds for vacating an award, but never reiterated the old common law based rule permitting review for an error on the face of the award that causes substantial injustice. In this way, the Pacific Vegetable court suggested that former section 1288  and not the common law  established the limits of judicial review of arbitration awards. [6] A few years after Pacific Vegetable, supra, 29 Cal.2d 228, the murky issue of the scope of judicial review of arbitration awards gained some muchneeded clarity. In Crofoot v. Blair Holdings Corp., supra, 119 Cal. App.2d 156 [hereafter Crofoot ], Justice Raymond Peters, then the Presiding Justice of the Court of Appeal for the First Appellate District, Division One, confronted a case involving alleged fraud in a complex stock deal. After numerous lawsuits were filed in California and New York, the interested parties agreed to submit the entire matter to arbitration. Following presentation of evidence to the arbitrator, he rendered a five-page award accompanied by findings and opinions covering two hundred fifteen pages. The overall result was a judgment in favor of Blair Holdings Corporation (Blair) and against Crofoot. Blair successfully moved in superior court to correct and confirm the award, and Crofoot appealed. At the outset, the Court of Appeal explained that after the 1927 amendments to the Code of Civil Procedure, written agreements to arbitrate were governed exclusively by statute and there was no field for a common law arbitration to operate.... ( Crofoot, supra, 119 Cal. App.2d at p. 181.) The appellate court therefore rejected Crofoot's argument that the arbitrator lacked jurisdiction because Blair never secured a court order submitting the cases to arbitration. Prior to [1927], it was undoubtedly the law that both common law and statutory arbitrations existed in this state, that in the absence of [a court] order of submission the arbitration was deemed to be a common law arbitration, and that in such common law arbitration the award could only be enforced by an independent action and could not be entered as a judgment.... [¶] Since 1927, however, these limitations on statutory arbitration no longer exist. ( Id. at pp. 180-181.) After noting some of the differences between common law and statutory arbitration, the appellate court concluded, that by the adoption of the 1927 statute, the Legislature intended to adopt a comprehensive all-inclusive statutory scheme applicable to all written agreements to arbitrate, and that in such cases the doctrines applicable to a common law arbitration were abolished. ( Id. at p. 182.) [7] On the question of arbitral finality, the Crofoot court was more circumspect, admitting The law is not quite so clear as to a court's powers of review over questions of law. The earlier cases held that the court had the power to review errors of law, at least where they appeared upon the face of the award. [8] ( In re Frick, 130 Cal. App. 290 [19 P.2d 836]; Utah Const. Co. v. Western Pac. Ry. Co., 174 Cal. 156 [162 P. 631].) The later cases have gone much farther in granting finality to the award even as to questions of law. In Pacific Vegetable Oil Corp. v. C.S.T., Ltd., [ supra , ] 29 Cal.2d 228, 233, it was bluntly held that `The merits of the controversy between the parties are not subject to judicial review.' ( Crofoot, supra, 119 Cal. App.2d at p. 185.) After surveying cases that note an arbitrator need not rule in conformity with the law, the Crofoot court made a dramatic conclusion: Under these cases it must be held 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, italics added.) This bold statement reflected the end result of many years of evolution in the law, from the common law roots of Muldrow, supra, 2 Cal. 74, through the growth of the rule permitting review of errors on the face of the award ( Utah Const., supra, 174 Cal. at pp. 160-161), and through the important changes occasioned by the 1927 amendments as interpreted first by Pacific Vegetable, supra, 29 Cal.2d 228, and then definitively by Crofoot, supra, 119 Cal. App.2d 156. Later opinions of this court relied heavily on the reasoning and conclusion of the Crofoot opinion to declare that the sole grounds for vacating an arbitration award were those set forth by statute. (See O'Malley, supra, 48 Cal.2d at pp. 111-112; Griffith Co. v. San Diego Col. for Women, supra, 45 Cal.2d at pp. 515-516.) In the years following Crofoot, supra, 119 Cal. App.2d 156, a large majority of appellate decisions also adopted the Crofoot conclusion that former section 1288 set forth the exclusive means for vacating an arbitration award. ( Cecil v. Bank of America (1956) 142 Cal. App.2d 249, 251 [298 P.2d 24] [the merits of the award ... may not be reviewed except as provided in the statute]; Downer Corp. v. Union Paving Co. (1956) 146 Cal. App.2d 708, 715 [304 P.2d 756] [same]; Wetsel v. Garibaldi (1958) 159 Cal. App.2d 4, 13 [323 P.2d 524], disapproved on other grounds, Posner v. Grunwald-Marx, Inc., supra, 56 Cal.2d at p. 183 [same]; Ulene v. Murray Millman of California (1959) 175 Cal. App.2d 655, 660 [346 P.2d 494] [same]; Meat Cutters Local No. 439 v. Olson Bros. (1960) 186 Cal. App.2d 200, 203-204 [8 Cal. Rptr. 789] [same]; Government Employees Ins. Co. v. Brunner (1961) 191 Cal. App.2d 334, 340-341 [12 Cal. Rptr. 547] [same]; but see, U.S. Plywood Corp. v. Hudson Lumber Co. (1954) 124 Cal. App.2d 527, 532 [269 P.2d 93] [reiterating the error on face of award standard].) Some cases did not expressly recognize the exclusiveness of the statutory grounds, but implied that point by flatly stating the merits of an arbitration award were not subject to judicial review. ( Atlas Floor Covering v. Crescent House & Garden, Inc. (1958) 166 Cal. App.2d 211, 216 [333 P.2d 194]; Gerard v. Salter (1956) 146 Cal. App.2d 840, 846 [304 P.2d 237].) In 1956, the Legislature authorized the California Law Revision Commission to study and determine whether the statutory arbitration scheme should be revised. (Assem. Conc. Res. No. 10, Stats. 1957 (1956 Reg. Sess.) res. ch. 42, Topic 14, p. 264.) The commission's report was transmitted to the Governor in December 1960. (Recommendation and Study Pertaining to Arbitration (Dec. 1960) 3 Cal. Law Revision Com. Rep. (1960) [hereafter Arbitration Study].) 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. [¶] ... [9] [¶] (5) Statutory provisions for a review of arbitration proceedings are for the sole purpose of preventing misuse of the proceedings where corruption, fraud, misconduct, gross error or mistake [10] has been carried into the award to the substantial prejudice of a party to the proceedings. (Arbitration Study, supra, pp. G-53 to G-54, italics added.) 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, p. G-54.) 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.) The report of the California Law Revision Commission thus concluded that the state of the law, as represented by Crofoot, supra, 119 Cal. App.2d 156, and its progeny, should not be altered by any statutory amendments. The California Legislature thereafter enacted a revision of the arbitration statutes. (Stats. 1961, ch. 461, p. 1540 et seq.) Former section 1288, which had set forth the grounds on which an award could be vacated, was slightly altered and renumbered as new section 1286.2, and this section still controls today. [11] The new grounds are substantially a restatement of the grounds set out in a bit more archaic form in the 1927 statute. (Feldman, Arbitration Modernized  The New California Arbitration Act, supra, 34 So.Cal.L.Rev. at p. 433.) It is significant that there is no mention of the rule permitting judicial review for errors apparent on the face of the arbitration award causing substantial injustice. (6a) We may infer from this omission that the Legislature intended to reject that rule, and instead 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. ( Crofoot, supra, 119 Cal. App.2d at p. 186.) The Legislature's intent is further revealed by an examination of other statutes. For example, in providing for arbitrating disputes arising from public construction contracts, section 1296 directs that a court shall ... 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. (7) By specifically providing in that provision for judicial review and correction of error, but not in section 1286.2, we may infer that the Legislature did not intend to confer traditional judicial review in private arbitration cases. `Where a statute, with reference to one subject contains a given provision, the omission of such provision from a similar statute concerning a related subject ... is significant to show that a different intention existed.' [Citation.] ( People v. Drake (1977) 19 Cal.3d 749, 755 [139 Cal. Rptr. 720, 566 P.2d 622].) The law has thus evolved from its common law origins and moved towards a more clearly delineated scheme rooted in statute. (6b) A majority of California appellate decisions have followed the modern rule, established by Pacific Vegetable, supra, 29 Cal.2d 228, and Crofoot, supra, 119 Cal. App.2d 156, and generally limit judicial review of private arbitration awards to those grounds specified in sections 1286.2 and 1286.6. (See, e.g., Severtson v. Williams Construction Co. (1985) 173 Cal. App.3d 86, 92-93 [220 Cal. Rptr. 400]; Lindholm v. Galvin, supra, 95 Cal. App.3d at pp. 450-451; Baseball Players, supra, 59 Cal. App.3d at p. 498; Santa Clara-San Benito etc. Elec. Contractors' Assn. v. Local Union No. 332 (1974) 40 Cal. App.3d 431, 437 [114 Cal. Rptr. 909]; State Farm Mut. Auto. Ins. Co. v. Guleserian (1972) 28 Cal. App.3d 397, 402 [104 Cal. Rptr. 683]; Jones v. Kvistad (1971) 19 Cal. App.3d 836, 840-843 [97 Cal. Rptr. 100]; Allen v. Interinsurance Exchange (1969) 275 Cal. App.2d 636, 641 [80 Cal. Rptr. 247]; Durand v. Wilshire Ins. Co. (1969) 270 Cal. App.2d 58, 61 [75 Cal. Rptr. 415].) This view is consistent with a large majority of decisions in other states. Although California has not adopted the Uniform Arbitration Act, more than half the states have done so. (See 7 West's U. Laws Ann. (1985) U. Arbitration Act, 1991 Cum. Ann. Pocket Pt., p. 1.) The statutory grounds to vacate a private arbitration award set forth in the uniform law largely mirror those codified in section 1286.2, however, [12] and most states have concluded that these grounds are exclusive. (See, e.g., Verdex Steel and Const. Co. v. Board of Supervisors (1973) 19 Ariz. App. 547 [509 P.2d 240]; Affiliated Marketing, Inc. v. Dyco Chem. & Coatings, Inc. (Fla. Dist. Ct. App. 1976) 340 So.2d 1240, 1242, cert. den. (Fla. 1977) 353 So.2d 675; Morrison-Knudson v. Makahuena Corp. (1983) 66 Hawaii 663, 668 [675 P.2d 760]; Bingham County Com'n v. Interstate Elec. Co. (1983) 105 Idaho 36, 42 [665 P.2d 1046, 1052]; Konicki v. Oak Brook Racquet Club, Inc. (1982) 110 Ill. App.3d 217, 223 [441 N.E.2d 1333, 1337]; State, Dept. of Admin., Per. Div. v. Sightes (Ind. Ct. App. 1981) 416 N.E.2d 445, 450; City of Sulphur v. Southern Builders (La. Ct. App. 1991) 579 So.2d 1207, 1210, cert. den. 587 So.2d 629; Plymouth-Carver School Dist. v. J. Farmer (1990) 407 Mass. 1006, 1007 [553 N.E.2d 1284, 1285] [rescript opinion]; AFSCME Council 96 v. Arrowhead Reg. Corr. Bd. (Minn. 1984) 356 N.W.2d 295, 299; Savage Educ. Ass'n v. Trustees of Richland Cty. (1984) 214 Mont. 289, 295-296 [692 P.2d 1237, 1240]; New Shy Clown Casino, Inc. v. Baldwin (1987) 103 Nev. 269, 271 [737 P.2d 524, 525] [ per curiam ]; Kearny PBA No. 21 v. Town of Kearny (1979) 81 N.J. 208, 220-221 [405 A.2d 393, 399]; Cyclone Roofing Co. v. David M. LaFave Co. (1984) 312 N.C. 224, 233-234 [321 S.E.2d 872, 879]; Aamot v. Eneboe (S.D. 1984) 352 N.W.2d 647, 649; Util. Trailer Sales of Salt Lake v. Fake (Utah 1987) 740 P.2d 1327, 1329; Milwaukee Police Ass'n v. City of Milwaukee (1979) 92 Wis.2d 175, 181-182 [285 N.W.2d 133, 136-137]; but see Texas West Oil & Gas Corp. v. Fitzgerald (Wyo. 1986) 726 P.2d 1056, 1060-1061 [finding statutory grounds to vacate an arbitration award not exclusive].) Although the matter would seem to have been put to rest, several California decisions rendered since the 1961 statutory amendments have inexplicably resurrected the view in Utah Const., supra, 174 Cal. 156, that an arbitration award may be vacated when an error appears on the face of the award and causes substantial injustice. (See, e.g., Schneider v. Kaiser Foundation Hospitals (1989) 215 Cal. App.3d 1311, 1317 [264 Cal. Rptr. 227]; Park Plaza, Ltd. v. Pietz, supra, 193 Cal. App.3d at p. 1420; Ray Wilson Co. v. Anaheim Memorial Hospital Assn., supra, 166 Cal. App.3d at p. 1091; Hirsch v. Ensign (1981) 122 Cal. App.3d 521, 529 [176 Cal. Rptr. 17]; Abbott v. California State Auto Assn., supra, 68 Cal. App.3d at p. 771; Campbell v. Farmer's Ins. Exch. (1968) 260 Cal. App.2d 105, 111-112 [67 Cal. Rptr. 175]; see generally, 6 Cal.Jur.3d, Arbitration and Award, § 83, pp. 145-147.) In light of the development of decisional law embracing as exclusive the statutory grounds to vacate an arbitration award, as well as the apparent intent of the Legislature to generally exclude nonstatutory grounds to vacate an award, we adhere to the Pacific Vegetable/Crofoot line of cases that limit judicial review of private arbitration awards to those cases in which there exists a statutory ground to vacate or correct the award. Those decisions permitting review of an award where an error of law appears on the face of the award causing substantial injustice have perpetuated a point of view that is inconsistent with the modern view of private arbitration and are therefore disapproved.