Richey Revisited: Vacating an Arbitration Award Due to Error
| Publication year | 2016 |
| Author | By Joel M. Grossman |
By Joel M. Grossman
Joel M. Grossman is a mediator and arbitrator with JAMS in Los Angeles. He has been selected five times as one of the Top Neutrals in California by the Daily Journal. For more information, please visit www.grossmanmediation.com.
Three years ago, my article in this Law Review1 summarized the court of appeal decision in Richey v. AutoNation, Inc.2 This article updates the earlier one, as the California Supreme Court reversed the court of appeal's decision in Richey, and a more recent court of appeal case further clarifies the limited circumstances in which a court may vacate an arbitration award due to the arbitrator's error.
The California Supreme Court's decision in Moncharsh v. Heily & Blasé provides that an arbitration award may not generally be vacated due to the arbitrator's error of law.3 As the California Supreme Court said in Moncharsh, and as quoted in Richey, "Because the decision to arbitrate grievances evinces the parties' intent to bypass the judicial system and thus avoid potential delays at the trial and appellate levels, arbitral finality is a core component of the parties' agreement to submit to arbitration."4 Although an arbitration award may be set aside due to fraud or other limited grounds set forth in the Code of Civil Procedure,5 an arbitrator's ruling will usually stand even if a reviewing court believes the arbitrator was wrong on the law.
The Moncharsh court recognized that a court would review an award in some limited circumstances, such as when an arbitrator enforces an illegal contract or transaction, or when enforcement of an arbitration award "would be inconsistent with the protection of a party's statutory rights."6 This narrow exception to the general rule was recognized by the court in Pearson Dental Supplies, Inc. v. Superior Court,7 a case in which the arbitrator's erroneous ruling on the statute of limitations resulted in an employee losing the opportunity for a hearing on the merits of his Fair Employment and Housing Act (FEHA) claim. The scope of Moncharsh and Pearson is not yet clear.
That brings us to the court of appeal decision in Richey and its reversal by the California Supreme Court. While Plaintiff Richey was on an approved California Family Rights Act (CFRA) leave, he was seen working at a restaurant he owned. The employee handbook stated that an employee could not work for an outside business while on CFRA leave, and Richey was let go by his employer for violating that policy. Richey filed a lawsuit for violation of the CFRA, which the court ordered to arbitration. Following an eleven-day hearing, the arbitrator ruled for the employer. The arbitrator asserted that under California law, so long as the employer has an "honest belief" that the employee violated company policy - in this case, by working while on CFRA leave - the employer cannot be held liable. The arbitrator found that the employer did indeed have an honest belief that Richey violated company policy, and therefore ruled for the company. Richey moved to vacate the arbitrator's award, seeking reinstatement under the CFRA. The trial court denied the motion to vacate, but the court of appeal reversed.
The court of appeal held that the arbitrator made a clear error of law by invoking the "honest belief" rule, which it said misstates California law...
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