 Perhaps following some arm twisting by the settlement conference
judge, you have agreed to submit your case or some of the issues to alternative dispute
resolution. You and your opponent agree on a “referee” to conduct the
proceedings and agree the arbitration will take place at your opponent’s office. You
incorporate the terms of your agreement in a writing which then provides the proceedings
will be conducted before a designated “temporary judge” under the American
Arbitration Association’s rules for commercial arbitration.
What are the implications of what you have agreed to do with your
client’s case? As illustrated by a number of cases that have reached our appellate
courts in the last few years — some of them resulting in published opinions —
you have probably agreed to something other than what you intended. You and your opponent
have created a chimera, a monster that is neither fish nor fowl.
Parties may stipulate to contractual arbitration, judicial
arbitration, a reference under Code of Civil Procedure §638, or to the appointment of a
temporary judge under California Constitution, Article VI, §21. Each of these procedures
has distinct characteristics and the scope of judicial review of the decision rendered is
different for each of them.
Judicial review from an award following contractual arbitration has
been extremely limited since the California Supreme Court decided Moncharsh v. Heily &
Blase 3 Cal.4th 1 (1992). Arbitrators do not have to follow the law or the rules of
evidence. The only attacks available to a party dissatisfied with the arbitrator’s
decision are those authorized in Code of Civil Procedure §§1286.2 and 1286.6, involving
such issues as corruption of the arbitrator. An error of law, even if it appears on the
face of the award, does not entitle a party to a reversal. This is true even for errors
“causing substantial injustice,” a ground for reversal permitted by cases which
preceded the Moncharsh decision.
Judicial arbitration pursuant to Code of Civil Procedure §§1141.10
et seq., on the other hand, is never conclusive unless the parties expressly stipulate to
the contrary. Parties dissatisfied with the result of such arbitrations are entitled to
trials de novo, subject to certain penalties if they fail to obtain a better result at
trial. The judgment after trial is, of course, fully appealable.
Code of Civil Procedure §638 permits the court, upon a stipulation
by the parties, to order a reference. The parties are entitled to a statement of decision.
In a general reference, the decision of the referee is the decision of the court and
“may be excepted to and reviewed in like manner as if made by the court.” (Code
Civ. Proc., §645.) The trial court may grant a motion for a new trial and vacate the
award of the referee to the same extent as if the judge had heard the matter. In a special
reference, the referee merely makes a recommendation to the trial judge, which the latter
may accept, reject or modify. A judgment following either kind of reference is fully
appealable.
Finally, California Constitution, Article VI, §21 provides that
“[o]n stipulation of the parties litigant the court may order a cause to be tried by
a temporary judge who is a member of the State Bar, sworn and empowered to act until final
determination of the cause.” California Rules of Court, rules 244 and 532 spell out
the procedures to be followed before such a stipulation can be effective. They include
requirements that temporary judges take an oath of office and that the presiding judge of
the court or the supervising judge of a branch approves their appointment. Such judges act
in all respects under the same rules as constitutional trial judges and their judgments
are subject to the same level of appellate review as any others.
Thus, each of these procedures is different and an agreement for
alternative dispute resolution has different legal consequences depending on which is
selected. However, there is no precedent which permits courts to deal with hybrids. When
the agreement between the parties purports to combine the characteristics of two or more
alternative dispute resolution procedures, the court must select one of these and results
unintended by either side may obtain. Our district of the Court of Appeal has recently
encountered several cases where the parties’ agreement failed to clearly indicate
which form of alternative dispute resolution was intended. We were forced to choose
between the defined forms. This probably resulted in neither party obtaining what it
bargained for.
In Old Republic v. St. Paul Fire & Marine Ins. Co. 45 Cal.App.4th
631 (1996), two insurance companies disputing coverage for an accident involving a truck
and trailer, one carrier insuring the truck, the other the trailer, entered into a “Stipulation
for Binding Arbitration Before Special Master.” The stipulation specified that the
arbitration was to be governed by California Rules of Court for judicial arbitrations.
(Code Civ. Proc., §§1141.10-1141.31; Cal. Rules of Court, rules 1600-1618.) The decision
of the “special master,” including his findings of fact and conclusions of law,
were agreed to constitute the judgment, subject to trial court review under the statutes
dealing with contractual arbitration. (Code Civ. Proc., §§1280-1288.8.) Finally, the
stipulation provided that the judgment would be subject to appellate review to the same
extent as if it had been rendered after a bench trial. (Code Civ. Proc., §904.1, subd.
1.)
As is usually the case, one of the parties to the stipulation was
dissatisfied with the award issued by the “special master” and appealed from the
judgment entered in accordance with the stipulation. Although the stipulation clearly
contemplated plenary appellate review and neither party disputed the power of Court of
Appeal to hear the case, the court concluded it lacked jurisdiction to consider the
appeal.
Based on the language of the stipulation, the Old Republic court
concluded that, although some inconsistent terms had been used, the substance of the
agreement, and particularly the provision limiting the power of the trial court to review
the award under the statutes for contractual arbitration, constituted a stipulation for
contractual arbitration. By depriving the trial court of the full scope of review
permitted for the award of a special master, whose decision would have been appealable,
the parties, in effect, had sought to shift a task constitutionally assigned to the trial
court, to the Court of Appeal. This they could not do; where the appellate court lacked
jurisdiction, the parties could not confer such jurisdiction by their stipulation.
In Sy First Family Ltd. Partnership v. Cheung 70 Cal.App.4th 1334
(1999), the parties labeled their stipulation a “Reference to American Arbitration
Association” and referred to the section of the Code of Civil Procedure relating to
references by consent of the parties. (Code Civ. Proc., §638.) The stipulation further
provided that three “arbitrators” would conduct the “trial” in
accordance with “the Association’s Commercial Rules of Arbitration.”
During a preliminary hearing, the “arbitrators” inquired
what the nature of the proceedings was intended to be, a reference or an arbitration. The
parties then submitted an equally confusing supplemental stipulation. Finally, the “arbitrators”
announced that they would proceed with an arbitration; there was no objection and, after a
hearing, the “arbitrators” issued an “award.” The trial court
concluded the parties had engaged in a reference, denied the successful party’s
motion to confirm the award, ordered the “referees” to issue a statement of
decision, and subsequently entered judgment in accordance with this statement.
One of the parties appealed from this judgment. The appellate court
concluded that the stipulation in fact constituted an agreement to arbitrate, reversed the
trial court’s denial of a petition to confirm the award and limited the scope of
appeal to that single issue. One of the factors which motivated the appellate court was
that the stipulation provided that the hearing would be conducted under the “Association’s
Commercial Arbitration Rules.” The court noted: “Critical differences exist
between the evidentiary and procedural rules applicable to a judicial proceeding and a
hearing under the American Arbitration Association’s Commercial Arbitration Rules . .
. . It is inappropriate for a court to review an arbitration decision issued after a
hearing conducted under rules of evidence and procedure not applicable in courts of law.”
It is not possible to design an arbitration agreement so as to
preserve full appellate review. On the other hand, an agreement for a reference under Code
of Civil Procedure §638 or a judgment rendered by a temporary judge may, and, unless the
parties have stipulated to the contrary, does preserve such rights.
In National Union Fire Ins. Co. v. Nationwide Ins. Co. 69 Cal.App.4th
709 (1999), the parties had attempted to stipulate to a “binding arbitration . . . on
the record and with all parties retaining their right to appeal.” Later, realizing
that there was no such animal, they prevailed upon the trial court to modify their
stipulation “to constitute a reference by consent of the parties.” The resulting
judgment was held to be subject to appellate review.
Elliott & Ten Eyck Partnership v. City of Long Beach 57
Cal.App.4th 495 (1997) presents a situation where the parties discovered to their surprise
that their agreement to arbitrate actually resulted in a trial before a judge with all the
consequences which resulted from such a trial. There the parties had stipulated that a
sitting judge decide the case “as an arbitrator, rendering a final decision not
subject to appeal.” The judge issued a “decision of arbitrator” and signed
it as “arbitrator.” The parties followed the statutory procedure for
confirmation of an arbitrator’s award, and the losing party appealed in spite of the
contrary stipulation. The Court of Appeal decided that sitting judges cannot act in any
capacity which relieves them from their constitutional obligation to follow the law and
from acting as judges. The court concluded that, in spite of the parties’ stipulation
and the judge’s belief he was acting as an arbitrator rather than as a judge, they
had actually been engaged in a bench trial.
Before entering into any agreement for alternative dispute
resolution, counsel must understand the differences between the various procedures and the
differing scopes of judicial and appellate review available after the determination of the
decision-maker. Lawyers must advise their clients of these distinctions and the
consequences that flow from them. Finally, counsel must draft their stipulations with such
precision that no questions may arise as to the type of alternative dispute resolution
selected.
 The Hon. William F.
Rylaarsdam sits on the Fourth District Court of Appeal and is a member of the editorial
board of California Litigation, in which this article appeared (Vol. 12, No. 3, 1999).
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