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Reversing three state appellate rulings and possibly running afoul of the U.S. Supreme Court, California’s high court on Monday expanded trial court judges’ power to review arbitration decisions. The 5-2 ruling — which says judicial review for legal error is allowed if all parties contractually agree to it beforehand — shocked New York attorney Daniel Osborn, who represented the losing litigant. The Beatie and Osborn partner said the ruling will change the face of arbitration in California and completely misinterprets a 5-month-old U.S. Supreme Court ruling that said parties to an arbitration aren’t allowed to expand the scope of judicial review by agreement. He also had a few choice words for Justice Carol Corrigan, who authored Monday’s ruling. “She’s got an agenda, and come hell or high water, she’s going to get that agenda through. And that’s tragic,” Osborn said. “She had to reject lots of traditional principles to get to the place she got in this opinion.” Monday’s ruling arose from a suit filed by retailers who had contracted with DIRECTV Inc. to provide customers with equipment needed to receive the broadcast company’s satellite signal. The retailers claimed DIRECTV withheld commissions and assessed improper charges. After the case went into arbitration, a panel of arbiters ruled that the contract between the two sides permitted class arbitration. Los Angeles County Superior Court Judge Judith Chirlin later reversed, finding that the arbitrators had exceeded their authority by substituting their discretion for the parties’ intent on class arbitration. L.A.’s 2nd District Court of Appeal reversed again, however, saying Chirlin had exceeded her jurisdiction by reviewing the “merits” of the arbitrators’ decision. On Monday, Corrigan said the 2nd District got it wrong, even though the California high court’s watermark 1992 ruling in Moncharsh v. Heily & Blase, 3 Cal.4th 1, held that an arbitrator’s decision “is not ordinarily reviewable for error” by the state’s trial or appellate courts. Monday’s ruling backed off on that slightly. “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,” Corrigan wrote, “the general rule of limited review has been displaced by the parties’ agreement. Their expectation is not that the result of the arbitration will be final and conclusive, but rather that it will be reviewed on the merits at the request of either party.” That doesn’t mean, Corrigan wrote, that parties to an arbitration could be so flippant as to agree that a judge could review a decision “by flipping a coin or studying the entrails of a dead fowl.” Surprisingly, the majority also held that it wasn’t constrained by the U.S. Supreme Court’s March ruling in Hall Street Associates L.L.C. v. Mattel Inc., 128 S.Ct. 1396 (.pdf). Even though that decision said the Federal Arbitration Act doesn’t permit parties to expand judicial review by agreement, Corrigan and four of her colleagues pointed to a line in Hall Street that said federal law doesn’t preclude “more searching review based on authority outside the [federal] statute,” including “state statutory or common law.” “Had the [U.S. Supreme Court] meant to impose a uniform national policy requiring judicial review solely on the grounds stated in the FAA,” Corrigan wrote, “it would not have left open the possibility of trial court review under” state rules. Justice Carlos Moreno issued a dissent that was joined by Chief Justice Ronald George. “The majority decision would allow parties to fundamentally refashion arbitration from being a means of binding dispute resolution to being essentially a preliminary fact-finding procedure, with trial and appellate courts required to settle decisive legal questions,” Moreno wrote. “The majority believes this change to be for the good. Whether or not this is so is open to question. Arguably this rule will burden the courts with the minutiae of arbitration disputes, thereby negating whatever benefits arbitration may have had in conserving judicial resources.” Michael Baumann, a partner in Kirkland & Ellis’ Los Angeles office who represented DIRECTV, said the ruling is a “pretty big deal.” “It allows parties to be certain that the California courts will enforce their agreed-upon rules of arbitration,” he said. “It’s neutral. It is equally protective of plaintiffs and defendants.” Osborn, who represented Cable Connection Inc., said he couldn’t believe Corrigan dismissed the U.S. Supreme Court’s ruling in Hall Street based on “a couple of throwaway lines.” If a hundred lawyers were asked what Hall Street held, he said, none would say it allowed an expansion of judicial review. The ruling is Cable Connection Inc. v. DIRECTV Inc., 08 C.D.O.S. 11291.

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