Arbitration Award Reversed! What is Wrong With This Picture?
In a very unusual case, a California Court of Appeals overturned an arbitration award. Thanks to Victoria Pynchon for the heads up in her Settle It Now Blog. I haven't seen the case yet, but the report from Victoria is not encouraging. If courts are going to review Arbitration decisions, what good are arbitrations?
More later after I have reviewed the decision.
There's a statutory provision in California "which requires vacation of an arbitration award when a party's rights are 'substantially prejudiced' by the arbitrator's refusal to hear 'evidence material to the controversy.'" In the Burlage case, the arbitrator granted a motion in limine excluding evidence demonstrating that the Plaintiff was not damaged by the undisclosed encroachment but rather only by the out of pocket expenses to buy back the encroaching property. It's dangerous for an attorney to ask and for the arbitrator to grant a motion to exclude evidence because the arbitrator doesn't have to follow the law but he does have to let the parties present all of their "material" evidence. Here, because the arbitrator let the "law" control what evidence was deemed "material" (the law on the date damages are measured, which preceded the date the encroachment was bought back by the new property owner) one could conclude that the appellate court had no right to vacate the arbitration award because their decision was based upon a legal conclusion concerning the materiality of evidence. Here, the California statute builds that problem into California law by permitting the vacation of an arbitration award based upon the exclusion of evidence that is "legally" "material." This is also an example of the adage that hard facts make bad law. The landowner paid less than $25,000 to cure the problem -- evidence that the arbitrator excluded, leading to a six-figure damages award + attorneys' fees + punitives for a total award of $1.5 million. The appellate court followed its "gut" on this one as did the arbitrator, who was clearly convinced that the respondent intentionally defrauded the buyer and "stuck it to him" by excluding evidence that would have diminished the arbitrator's ability to "punish" the wrongdoer. The irony, of course, is that the arbitrator could have accomplished his goal by letting ALL of the evidence in and then deciding the issue based on his "gut" rather than on California damages law. This case is also a caution to litigators who arbitrate. Motions in limine may serve a good purpose in a Court trial and undoubtedly serve a great purpose in a jury trial. Asking an arbitrator to exclude evidence puts a favorable arbitration award at risk under California statutory law. A good lesson for arbitrators and arbitration advocates alike. Thanks for the link and for calling this case to your readers' attention. Always a pleasure to have the privilege of commenting in this great blog!