Arbitration

Arbitration agreements

What are the formal requirements for an enforceable arbitration agreement?

An agreement to arbitrate a dispute is typically embodied in a provision in a written contract between the parties. See CCP section 1281.

In this regard, the US Supreme Court decision in AT&T Mobility v Conception, 563 US 321, 131 S Ct 1740 (2011) held that the Federal Arbitration Act (the FAA) pre-empts state laws that prohibit outright the arbitration of a particular types of claims. Recent California appellate decisions have applied the Court’s ruling in Conception to enforce agreements to arbitrate. Iskanian v CLS Transportation Los Angeles, LLC, 59 Cal 4th 348 (2014) (FAA pre-empts prohibition of class action waivers in employment cases). But see McGill v Citibank, NA, 2 Cal 5th 945 (2017), declaring to be unenforceable predispute arbitration provisions that waive the right to seek to public injunctive relief (ie, injunctive relief that has the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public).

The appellate courts in California are also coming to grips with the enforceability of browserwrap agreements. These agreements are typically found on websites in the form of ‘terms and conditions’ for website use. In one recent case, the Court declined to compel a claimant to pursue his claim via arbitration where the arbitration provision was contained in such a browserwrap agreement. The Court held that the website at issue failed to put a reasonably prudent user on inquiry notice of the terms of the supposed contract. For this reason, the Court declined to compel arbitration of the claim. Long v Provide Commerce, 245 Cal App 4th 855 (2016). See also Norcia v Samsung Telecommunications, 845 F3d 1279 (9th Cir 2017) (consumer not bound by arbitration provision contained in warranty sheet accompanying product).

Another issue that the appellate courts in California dealt with in 2017 was whether non-signatories to an agreement containing an arbitration provision are bound by, or can themselves enforce, the agreement to arbitrate. The key cases in this area included Garcia v Pexco, LLC, 11 Cal App 5th 782 (2017) (agent may bind principal to terms of arbitration agreement); Hutcheson v Eskaton Fountainwood Lodge, 17 Cal App 5th 937 (2017) (relative holding healthcare power of attorney not authorised to bind principal to arbitration agreement); Jensen v U-Haul Co of California, 18 Cal App 5th 295 (2017) (employee was not third party beneficiary of rental contract and therefore arbitration provision contained therein could not be enforced). See also Vasquez v San Miguel Produce, 31 Cal App 5th 810 (2019), rehearing granted (28 February 2019) (an agency or similar relationship between a signatory and one of the parties to an arbitration agreement allows enforcement of the agreement by the non-signatory).

Finally, the California Legislature passed a law prohibiting mandatory pre-dispute arbitration provisions in contracts for goods or services in certain specified instances. Under the new law, which amends Civil Code sections 51.7, 52 and 52.1, any waiver of the right to seek judicial redress must be knowing, voluntary and expressly not made as a condition of entering into a contract or as a condition of providing or receiving goods or services. This new law applies to all agreements entered into, modified, renewed or extended on or after 1 January 2015. As the US Supreme Court has made it clear that courts applying the FAA will invalidate state laws that single out arbitration agreements for special burdens or scrutiny, it is uncertain whether this law will survive any future US Supreme Court challenge.

Arbitral procedure

Does the domestic law contain substantive requirements for the procedure to be followed?

As noted above, both the FAA and the California Arbitration Act address such matters as the enforcement of arbitration provisions found in the contract or agreement between the parties, and also the enforcement of awards rendered after arbitration. As the procedural outcomes under these two statutes may be quite different, practitioners should exercise care in drafting the language in the underlying agreement that contains the arbitration provision.

In this regard, there continue to be unresolved conflicts between state and federal courts concerning such issues as whether state or federal procedures govern the enforcement of arbitration agreements in State Court (Los Angeles Unified School District v Safety National Casualty Corporation, 13 Cal App 5th 471 (2017)) and whether state substantive law that disadvantages arbitration is trumped by the FAA (Kindred Nursing Centers Limited Partnership v Clark, 197 L Ed 2nd 806 (2017)).

Award

When and in what form must the award be delivered?

The rules of the arbitral organisation usually specify both the form and the timing of the arbitral award.

In the absence of such rules, CCP section 1283.4 provides that the award must be in writing and include a determination of all the questions submitted to the arbitrators for determination of the controversy. In addition, CCP section 1283.3 provides that the award shall be made within the time fixed in the parties’ agreement or, if not so fixed, within such time as the court orders on petition of a party to the arbitration.

Appeal

On what grounds can an award be appealed to the court?

Appellate review of an arbitration award is extremely limited. In the first instance, an arbitration award must be ‘confirmed’ by the superior court. This means that following the conclusion of the arbitration proceeding, the prevailing party must petition the superior court to ‘confirm’ the arbitration award, that is, enter it in the form of an enforceable judgment (see CCP section 1285).

In the overwhelming number of instances, the superior court will ‘confirm’ the arbitration award and enter it as an enforceable judgment. This is because the grounds for vacating (or declining to ‘confirm’) the award are extremely limited. See CCP section 1286.2. Thus, an arbitration award will not be vacated even where an arbitrator made errors of fact or errors of law. See Moncharsh v Heily & Blase (3 Cal 4th 1 (1992)). Put simply, the superior court does not engage in an evaluation of the merits of the controversy when making its determination to confirm an arbitration award. But see Aspic Engineering and Construction v EEC Centcom Constructors, 913 F3d 1162 (9th Cir 2019) (where arbitrator’s award fails to draw its essence from the parties’ underlying agreement, vacation of award is proper).

By contrast where an arbitration agreement provides that the arbitrator’s decision may be reviewed by the Superior Court for errors of fact or law, the scope of review will be broader than as otherwise provided under CCP 1286.2. See Harshad & Nasir Corporation v Global Sign Systems, Inc, 14 Cal App 5th 523 (2017).

As to whether an order granting or denying a petition to compel arbitration is appealable, the general rule in both state and federal court is that an order compelling arbitration is not appealable (Johnson v Consumerinfo.com, Inc, 745 F3d 1019 (9th Cir 2014); Bertero v Superior Court, 216 Cal App 2d 213 (1963)), while at least in state court an order denying a petition to compel arbitration is appealable (Smith v Superior Court, 202 Cal App 2d 128 (1962)). In a state court, an appeal from an order denying a petition to compel arbitration will also operate to stay the trial court proceedings as to the party who brought the petition without the appellant having to post a bond.

The role of an appellate court is even more limited. Once an arbitration award is confirmed by the superior court, the appellate court’s role is limited to determining whether such confirmation was appropriate. As with the trial court’s own confirmation process, the appellate court does not engage in an evaluation of the merits of the controversy when it is asked to review the appropriateness of the trial court’s action in confirming or vacating the award.

Enforcement

What procedures exist for enforcement of foreign and domestic awards?

Once the hearing has been completed, the arbitration culminates in the arbitrator’s issuance of an award in favour of one of the contracting parties.

If the loser pays the award, no further proceedings will presumably be necessary. However, in the event that the winner needs to enforce the award, it will have to file a court action to confirm the award; that is, convert it into an enforceable judgment. If the arbitration provision is governed by the Federal Arbitration Act, that provision should expressly provide that parties agree that any arbitration award shall be judicially confirmed.

At this stage of the proceedings, the loser has few options. As noted above, the grounds for challenging or setting aside an arbitration award are limited and extremely narrow. A court that is asked to confirm the award will not ordinarily review the merits or overturn the award even where there have been errors of law or fact.

Nor can the merits of the arbitration award be appealed, except where the arbitration agreement provides that the arbitrator’s decision can be reviewed for errors of fact or law. Harshad & Nasir, supra, 4 Cal App 5th 523. Thus, ordinarily once a judgment on the award has been entered, any appeal therefrom will normally be limited to the appropriateness of confirmation, not the underlying merits of the dispute itself.

The recent change in the political landscape in the US has not affected the enforcement procedures for foreign or domestic awards. Inasmuch as there is a separation of powers as between the executive and judicial branches of government, the enforcement of foreign and domestic awards is governed by the pertinent statutes, especially the New York Convention, and the judicial interpretations of those statutes.