No. As more fully discussed below, a distinction needs to be made in the procedural law applicable to arbitration and the substantive law governing a claim that is in arbitration.
At the threshold, the applicable procedural law governs 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. In this regard, there are three primary sources for this procedural law in connection with arbitration proceedings taking place in California or governed by its law. First, there is a federal statute, the Federal Arbitration Act, 9 USC section 1 et seq, which in some cases will pre-empt contrary state procedural rules. Second, there is the California Arbitration Act, which is found at CCP sections 1280 et seq. Third, the arbitral organisation itself may have rules governing the appointment of arbitrators, the conduct of the hearing and similar issues.
As distinct from these procedural rules, the substantive law to be applied in an arbitration proceeding may be California law, federal law, the law of a foreign nation or some other form of substantive law. As arbitration is ordinarily a matter of contract, it is typical that the parties’ contract will specify the substantive law to be applied. In the absence of such an express election, the arbitrator may be obliged to apply conflicts of law principles to determine the substantive law to be applied.
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 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)). However, McGill v Citibank, NA, 2 Cal 5th 945 (2017), declared pre-dispute arbitration provisions that waive the right to seek public injunctive relief − namely injunctive relief that has the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public – to be unenforceable.
There is also an important decision from 2020. In Victrola 89, LLC v Jaman Properties 8, LLC, B295439 (Cal Ct App 2020), the court made clear that parties can provide that their agreement to arbitrate will be subject to the Federal Arbitration Act (FAA) in lieu of state court procedural rules. In that case, the pertinent agreement provided that ‘enforcement of this agreement to arbitrate shall be governed by the Federal Arbitration Act’. In these circumstances, the court concluded that the moving party’s motion to compel arbitration would be governed by the FAA instead of state procedural rules.
This decision is important because it sanctions the use of the arbitration-friendly FAA rules in lieu of state procedural rules where the parties expressly provide for that. In view of the perceived hostility on the part of California appellate courts toward the enforcement of pre-dispute arbitration provisions, this decision provides a basis for increasing the likelihood that such provisions will in fact be enforced.
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 have dealt with is 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); and 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, there have been two highly significant legislative developments in California affecting arbitration.
Assembly Bill 51, signed by California Governor Gavin Newsom in October 2019, prohibits employers from requiring mandatory arbitration agreements from employees. Although enforcement of this new law has been temporarily stayed, its enactment underscores the Californian government’s hostility to mandatory arbitration, especially in employment and consumer-related disputes.
Senate Bill 707, also signed by Governor Newsom in 2019, provides that in the context of employment disputes that are governed by arbitration, employees cannot be required to bear any type of legal costs or expenses incident to the arbitration process. This new law also provides that an employer’s failure to pay those arbitration costs or expenses will constitute a material breach of the arbitration agreement.
Choice of arbitrator
If the arbitration agreement and any relevant rules are silent on the matter, how many arbitrators will be appointed and how will they be appointed? Are there restrictions on the right to challenge the appointment of an arbitrator?
If the parties’ agreement is silent on this point, then the selection and number of arbitrators is ordinarily determined by reference to the arbitral organisation’s procedural rules on that subject. In the absence of such rules, CCP section 1282(a) provides for the appointment of a single neutral arbitrator.
As to the parties’ right to challenge the appointment of a particular arbitrator, the arbitral organisation’s procedural rules will likewise typically address both removal for cause and the right of either party to exercise a peremptory challenge. In the absence of such rules, CCP section 1281.91 sets forth the grounds for the disqualification of an arbitrator.
What are the options when choosing an arbitrator or arbitrators?
Selection of arbitrators can be governed in a particular case by at least two sets of rules.
First, the controlling arbitration clause may itself (and typically does) specify how many arbitrators are to be selected and the manner of their selection. In addition, the rules of the particular arbitral organisation (eg, JAMS, International Chamber of Commerce (ICC)) that the parties have selected may outline the manner in which arbitrators shall be selected.
In terms of the pool of candidates, there are some arbitral organisations that are focused on, or specialise in, the resolution of disputes in certain substantive areas of the law. For example, the ICC and the International Dispute Resolution division of the American Arbitration Association (AAA) specialise in international or cross-border disputes, and the arbitrators from these organisations generally come from a pool of practitioners, and in some cases former judges, with experience in that specific area.
Outside the international area, the private ADR organisations that have a large presence in California (AAA, ADR Services, JAMS) have a variety of individual neutrals, with each having a particular focus or emphasis on his or her area of practice. There is thus visibility and transparency to individual lawyers and their clients concerning who within these ADR organisations would be the ‘right fit’ in particular cases.
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 issues such 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 Ca 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)).
Importantly, California does not recognise or enforce pre-dispute jury trial waivers. Indeed, in a case in October 2019, the California Court of Appeal declined to enforce choice of law and choice of forum provisions in a commercial contract on the ground that such enforcement would lead to the forfeiture of a California resident’s right to a jury in connection with a civil dispute Handoush v Lease Finance Group, LLC, 41 Cal App 5th 729 (2019). The case highlights the sanctity of the right to jury trial, which is safeguarded in both the US and California state constitutions.
On what grounds can the court intervene during an arbitration?
Normally, once a matter has been sent to arbitration the role of the court is usually limited to proceedings to confirm or vacate an arbitration award. Resort to court process is allowed where a party to an arbitration seeks interim remedies, such as injunctive relief.
Do arbitrators have powers to grant interim relief?
Depending on the rules of the arbitral organisation, interim relief can be granted in arbitration. Interim relief can be requested from an emergency arbitrator (providing the arbitral organisation allows for such), the arbitral panel itself or the national courts of the country where the arbitration is held.
The key determinant as to the availability of such relief is the language of the arbitration agreement itself, namely, whether it confers power on the tribunal to grant interim measures.
In the absence of such a provision, the CCP contains a carve-out that allows a party to an arbitration proceeding to seek provisional relief in the Superior Court, including the proviso that an application in court for such provisional relief does not waive the applicant’s right of arbitration. (See CCP sections 1281.8(b) and (d).)
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.
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 courts 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.
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. 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 United States has not affected the enforcement procedures for foreign or domestic awards. Inasmuch as there is a separation of powers 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.
Can a successful party recover its costs?
As a general rule, under CCP section 1284.2, each party to the arbitration is required to pay his or her pro rata share of the expenses and fees of the neutral arbitrator unless the parties’ agreement otherwise provides.
There have been two recent developments concerning the recovery of costs, particularly as they relate to ESI.
CCP section 1033.5 was recently amended to allow for the recovery (as part of the costs awarded to a prevailing party) of fees ‘for the hosting of electronic documents if a court requires or orders a party to have documents hosted by an electronic filing service provider’.
In addition, CCP section 1985.8, which applies to subpoenas seeking ESI, allows the court in particular circumstances to allocate the cost of the retrieval and production of ESI from a third-party custodian of the ESI to the party who serves the subpoena seeking those records.
There are no California statutes or judicial decisions that allow for the recovery of the costs incident to third-party litigation funding.
