Although the advantages and disadvantages of arbitration will continue to be debated, the California Supreme Court has now provided parties with an option that makes arbitration more attractive. Previously, one of the chief disadvantages of arbitration was that there was only restricted appellate review of any factual or legal error the arbitrator may have made. However, on August 25, 2008, in Cable Connection, Inc., et al. v. DirecTV, Inc., the California Supreme Court held that parties to an arbitration agreement can agree to have an arbitrator's decision reviewed on the merits under California law if the parties provided for such review in advance in their agreement.
The contract between DirecTV, Inc. and the satellite equipment prohibited arbitrators from making errors of law. The Court ruled that this provision could be enforced under California's arbitration statutes. "If the parties constrain the arbitrators' authority by requiring a dispute to be decided according to the rule of law, and make plain their intention that the award is reviewable for legal error, the general rule of limited review has been displaced by the parties' agreement."
The agreement between DirecTV and the plaintiffs stated that "the arbitrator shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error." The Court concluded that the contract provision, when read in conjunction with a California statute that permits judicial review in cases where the arbitrators have exceeded their power, supported expanded judicial review as outlined in the parties' contract.
The Court commented that, "[t]he judicial system reaps little benefit from forcing parties to choose between the risk of an erroneous arbitration award and the burden of litigating their dispute entirely in court. Enforcing contract provisions for review of awards on the merits relieves pressure on congested trial court dockets." "Incorporating traditional judicial review by express agreement preserves the utility of arbitration as a way to obtain expert factual determinations without delay, while allowing the parties to protect themselves from perhaps the weakest aspect of the arbitral process, its handling of disputed rules of law."
This decision may make arbitration a more attractive option for many parties. However, in order to take advantage of this ruling, the parties must ensure that their arbitration agreement is clearly and properly drafted in advance.