Court Opinion

ID: 1085315
Source: CourtListenerOpinion
Date Created: 2013-10-15 20:51:05.368531+00
Date Added: 2024-06-11T10:15:34.270626
License: Public Domain

Filed 10/15/13 Sequoia Education v. Super. Ct. CA1/1
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                       FIRST APPELLATE DISTRICT

                                                  DIVISION ONE

SEQUOIA EDUCATION, INC., et al.,
         Petitioners,
                                                                     A134411
v.
THE SUPERIOR COURT OF ALAMEDA                                        (Alameda County
COUNTY,                                                              Super. Ct. No. RG11597698)
         Respondent;
DAVID RIVERA et al.,
         Real Parties in Interest.

         David Rivera and eight other plaintiffs commenced a putative class arbitration
under an agreement subject to the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.).
After the arbitrator rendered an award applying the FAA to find class arbitration
unavailable, defendants Sequoia Education, Inc. and Corinthian Colleges filed a petition
to confirm the award. Concluding the arbitrator violated public policy by failing to apply
California law in interpreting the arbitration agreement, the trial court vacated the award
and ordered rehearing by the arbitrator. We reverse and remand for confirmation of the
award.
                                               I. BACKGROUND
         On September 29, 2011, defendants filed a petition to confirm an arbitration award
(petition). The petition alleged plaintiffs are former students of schools operated by
defendant Sequoia Education, Inc. and its parent company, defendant Corinthian
Colleges, Inc. In enrolling in the schools, each plaintiff executed an arbitration
agreement requiring “any dispute” to be “resolved by binding arbitration under the
Federal Arbitration Act conducted by the American Arbitration Association (‘AAA’)
under its Commercial Rules.” The provision does not mention class arbitration.
       On May 28, 2008, plaintiffs commenced an arbitration challenging the quality of
their educations, asserting their claims on behalf of a putative class. Pursuant to AAA
rules, the arbitrator initially considered whether the arbitration clause permitted
resolution of disputes by class arbitration. In a “Clause Construction Award” issued
September 11, 2009, the arbitrator elected to apply California law in finding class
arbitration to be available when an arbitration clause is silent.1 Although he recognized
the same issue under the FAA was before the United States Supreme Court, the arbitrator
declined to stay the arbitration pending the court’s decision.
       Following the submission of periodic briefing by the parties over the next two
years, the arbitrator reversed himself in an “Award on Motion to Reconsider Clause
Construction Award,” issued September 22, 2011. In this award, the arbitrator concluded
that the Supreme Court’s intervening decisions in Stolt-Nielsen S.A. v. AnimalFeeeds
International Corp. (2010) 559 U.S. 662 [130 S.Ct. 1758] (Stolt-Nielsen) and AT&T
Mobility LLC v. Concepcion (2011) 563 U.S. ___ [131 S.Ct. 1740] (Concepcion)
compelled the conclusion “where an arbitration agreement that is subject to the Federal
Arbitration Act does not explicitly contain language permitting class arbitration, class
arbitration is not permitted. This is so even if applicable state law would dictate
otherwise.” The petition sought confirmation of this award.
       In opposition to the petition, plaintiffs argued the arbitrator’s award should be
vacated because it was “contrary to California statutory and public policy.” They

       1
         While it was expressly subject to the FAA, the arbitration provision did not
require the application of any particular state’s substantive law, stating only that “[t]he
arbitrator’s decision shall be set forth in writing and shall set forth the essential findings
and conclusions upon which the decision is based. Any remedy available from a court
under the law shall be available in the arbitration.”

                                               2
contended that, in addition to violating various doctrines of contract interpretation, the
decision violated the “public policy of California courts to refusal [sic] enforcement of
adhesion provisions not within the reasonable expectations of the weaker or adhering
party” and “California public policy encouraging ‘the use of the class action device.’ ”
       In a written order, the trial court denied the petition, vacated the award, and
directed rehearing by the arbitrator. Applying the purported principle that an arbitrator
exceeds his or her authority when the award “ ‘violates a statutory right or otherwise
violates a well-defined public policy,’ ” the court found the arbitrator “violated the well-
defined public policy that the agreement was to be interpreted under California law.”
The court also found the arbitrator violated the “well-defined public policy that under
California law the arbitrator must interpret the agreement to give effect to the intentions
of the parties.” The court directed a “rehearing by the arbitrator” in which the arbitrator
was directed to apply “California law of contract interpretation to determine whether the
parties intended to include or exclude class arbitration.” No judgment has been entered.
                                     II. DISCUSSION
       Defendants contend the trial court erred in refusing to confirm the arbitrator’s
award. We review de novo a trial court’s decision confirming or vacating an arbitration
award. (California Statewide Law Enforcement Assn. v. Department of Personnel
Administration (2011) 192 Cal.App.4th 1, 13.)
A. Appealability
       Plaintiffs have moved to dismiss the appeal, correctly arguing an order vacating an
arbitration award is appealable only if no rehearing is ordered. (Code Civ. Proc., § 1294,
subd. (c); Haworth v. Superior Court (2010) 50 Cal.4th 372, 379, fn. 3.) We deny the
motion because we find “unusual circumstances” that persuade us to exercise our
discretion to treat the improper appeal as a petition for a writ of mandate. (Olson v. Cory
(1983) 35 Cal.3d 390, 401.) The arbitrator’s award was a preliminary legal ruling, rather
than a ruling on the merits of the dispute rendered after an evidentiary hearing. In
vacating the award and directing a rehearing, the trial court was, in effect, ordering the
arbitrator to adopt a different legal rule. If, upon rehearing, the arbitrator acceded to the

                                              3
trial court’s instructions, this issue will be presented to us following entry of judgment on
an additional petition to confirm or vacate. On the other hand, if the arbitrator declined to
follow the court’s instructions, the parties could be caught in an endless round of
petitions and orders for rehearing, without producing an appealable judgment. Either
way, there is nothing to be gained in requiring the parties to take these additional
procedural steps before allowing appellate review of the trial court’s order.
B. The Trial Court’s Ruling
       Before addressing the trial court’s order, we provide a brief legal background for
its ruling. The United States Supreme Court has, in the past three years, rendered two
significant decisions addressing the availability of class arbitration. In the first, Stolt-
Nielsen, the court held that “a party may not be compelled under the FAA to submit to
class arbitration unless there is a contractual basis for concluding that the party agreed to
do so.” (Stolt-Nielsen, supra, 559 U.S. 662, 684.) The decision accordingly reversed an
order of class arbitration because the parties “concurred that they had reached ‘no
agreement’ on that issue.” (Ibid.) The second, Concepcion, overruled as preempted by
the FAA a California Supreme Court doctrine holding unconscionable any provision
barring class arbitration in a contract of adhesion. (Concepcion, supra, 563 U.S. at p. ___
[131 S.Ct. at p. 1750].) As the latter holding suggests, the United States Supreme Court’s
approach to certain aspects of arbitration law has been at odds with that of our own
Supreme Court. (See, e.g., Nelsen v. Legacy Partners Residential, Inc. (2012)
207 Cal.App.4th 1115, 1131.)
       With that background, we examine the trial court’s decision to vacate the
arbitrator’s award. Coincidentally, the United States Supreme Court rendered a decision
under the FAA in its just-concluded term, Oxford Health Plans LLC v. Sutter (2013) ___
U.S. ___ [133 S.Ct. 2064] (Oxford), that is materially indistinguishable from the present
dispute. Prior to the decision in Stolt-Nielsen, the parties in Oxford submitted to their
arbitrator the issue of the availability of class arbitration under their contract. (133 S.Ct.
at p. 2067.) Interpreting the clause in a written decision, the arbitrator found class
arbitration available, although the arbitration clause made no express reference to class

                                               4
arbitration. When asked to reconsider his decision after Stolt-Nielsen, the arbitrator
reaffirmed his original reasoning. (Oxford, at pp. 2067–2068.) Reviewing an
unsuccessful petition to vacate based on the argument the award was directly contrary to
Stolt-Nielsen, the Supreme Court held any legal error immune from judicial review. The
court explained, “Under the FAA, courts may vacate an arbitrator’s decision ‘only in very
unusual circumstances.’ [Citation.] That limited judicial review, we have explained,
‘maintain[s] arbitration’s essential virtue of resolving disputes straightaway.’ [Citation.]
If parties could take ‘full-bore legal and evidentiary appeals,’ arbitration would become
‘merely a prelude to a more cumbersome and time-consuming judicial review process.’
[Citation.] [¶] . . . ‘It is not enough . . . to show that the [arbitrator] committed an error—
or even a serious error.’ [Citation.] Because the parties ‘bargained for the arbitrator’s
construction of their agreement,’ an arbitral decision ‘even arguably construing or
applying the contract’ must stand, regardless of a court’s view of its (de)merits.
[Citations.] . . . So the sole question for us is whether the arbitrator (even arguably)
interpreted the parties’ contract, not whether he got its meaning right or wrong.”
(Oxford, at p. 2068, fn. omitted.) Because the arbitrator quite clearly made a good faith
effort to interpret the parties’ contract, the court held, it did not matter whether he
“misconstrued” it. That issue was “not properly addressed to a court,” since “ ‘[i]t is the
arbitrator’s construction [of the contract] which was bargained for; and so far as the
arbitrator’s decision concerns construction of the contract, the courts have no business
overruling him because their interpretation of the contract is different from his.’
[Citation.] The arbitrator’s construction holds, however good, bad, or ugly.” (Id. at
pp. 2070–2071.)
       Because the parties’ arbitration clause is governed by the FAA, Oxford is arguably
controlling. As in Oxford, the parties here submitted to the arbitrator the issue of the
availability of class arbitration under the arbitration clause in their agreement. In a
thoughtful written award, the arbitrator interpreted the contract and found class

                                               5
arbitration unavailable.2 Because “the arbitrator . . . interpreted the parties’ contract,” the
trial court was required to confirm the award, without asking “whether he got its meaning
right or wrong.” (Oxford, supra, ___ U.S. at p. ___ [133 S.Ct. at p. 2068, fn. omitted].)
Instead, the trial court reviewed the merits of the arbitrator’s legal reasoning, found it
wanting, and entered an order essentially directing the arbitrator to adopt a different view.
This far exceeded the proper scope of judicial review. As the Supreme Court noted in
Oxford, “[t]he arbitrator’s construction holds, however good, bad, or ugly.” (Id. at
pp. 2070–2071.)
       We need not decide whether the trial court should have been guided by Oxford or
by California law in reviewing the arbitrator’s award because both lead to the same
conclusion. Under California law, “[a]n arbitration award is final and conclusive because
the parties—as here—‘have agreed that it be so.’ [Citation.] Only limited judicial review
is available; courts may not review the merits of the controversy, the validity of the
arbitrator’s reasoning, or the sufficiency of the evidence supporting the award.
[Citation.] Thus, with ‘narrow exceptions,’ an arbitrator’s decision is not reviewable for
errors of fact or law. [Citation.] This is so even if the error appears on the face of the
award and causes substantial injustice.” (Shahinian v. Cedars-Sinai Medical Center
(2011) 194 Cal.App.4th 987, 999–1000; see similarly Haworth v. Superior Court (2010)
50 Cal.4th 372, 380.) This restricted scope of review is reflected in the Code of Civil
Procedure, which permits a trial court to vacate an arbitrator’s award only on specific
grounds: fraud, corruption, or misconduct by the arbitrator, serious procedural

       2
         At oral argument, plaintiffs’ counsel contended repeatedly that the arbitrator had
not interpreted the contract. The record convincingly refutes the contention. The
arbitrator issued a five-page decision that skillfully applies the governing legal authority
to the language of the parties’ contract to determine the availability of class arbitration.
That is the very definition of “contract interpretation.” Plaintiffs’ counsel appears to have
meant merely that the arbitrator did not interpret the contract in the manner plaintiffs
believe it should have been interpreted. As the court indicated in Oxford, the manner in
which an arbitrator interprets a contract is immaterial, so long as the arbitrator undertook
some form of interpretation. (Oxford, supra, ___ U.S. at p. ___ [133 S.Ct. at pp. 2070–
2071].) That unquestionably occurred here.

                                               6
unfairness, or a decision in excess of the arbitrator’s power. (Code Civ. Proc., § 1286.2,
subd. (a).)
       The trial court purported to find that the arbitrator exceeded his powers because he
violated “public policy,” a ground derived from our Supreme Court’s decision in
Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1 (Moncharsh).) In that decision, the court
considered the appellant’s argument that the arbitration award should be vacated because
a provision of the parties’ contract was contrary to attorney ethical rules. The court
rejected the argument, explaining, “[Two prior decisions] 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 [prior decision] authorizes judicial review of his claim.
[¶] 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. [Citation.] [¶] 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. [Citation.] 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.” (Id. at p. 32, fn. omitted.)
       As the above quotation suggests, Moncharsh did not create a general exception to
the limited scope of judicial review of arbitration awards when the award is claimed to
violate public policy. Instead, the court’s pronouncement related only to the claim that an
arbitrator’s award should be reversed because the provision of the contract enforced by
the award was illegal. Even in those circumstances, the court held, the award should be
enforced “[a]bsent a clear expression of illegality or public policy.” (Moncharsh, supra,
3 Cal.4th at p. 32.) Although subsequent Supreme Court decisions have expanded the

                                               7
scope of this exception somewhat, holding an arbitration award can be vacated if
“granting finality to an award would be inconsistent with a party’s statutory rights”
(Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269, 276), none
has acknowledged a general public policy exception. Plaintiffs made no claim of
contractual illegality, nor did they contend the arbitrator’s award violated a specific
statutory right.
       Yet even if there were some general public policy exception,3 it would not
encompass the trial court’s approach: to engage in independent judicial review, identify
the rules of contract interpretation purportedly violated by the arbitrator’s award, and
label those rules “public policy” to justify imposition of the court’s interpretation on the
arbitrator. To enshrine ordinary rules of contract interpretation as “public policy”
adequate to justify the refusal to enforce an otherwise valid arbitration award would
entirely undo the restraints placed on judicial review of arbitration awards.

       3
         There are Court of Appeal decisions suggesting, in dictum, that an arbitration
award violating a “ ‘well-defined public policy’ ” is invalid. (E.g., California Statewide
Law Enforcement Assn. v. Department of Personnel Administration (2011)
192 Cal.App.4th 1, 13.) These uniformly cite authority other than the decisions of our
Supreme Court, which has never approved such a rule. In any event, whatever their
statements in dictum, none of these Court of Appeal decisions would have sanctioned the
trial court’s conduct here.

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                                  III. DISPOSITION
      The order of the trial court is vacated. The matter is remanded to the trial court for
entry of a judgment confirming the arbitration award.

                                                 _________________________
                                                 Margulies, Acting P.J.

We concur:

_________________________
Dondero, J.

_________________________
Banke, J.

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