Sequoia Education v. Super. Ct.

 

 

 

 

Filed 10/15/13  Sequoia Education v. Super. Ct. CA1/1

>NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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California Rules of Court, rule 8.1115(a), prohibits
courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b).  This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115.

 

 

IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

 

FIRST
APPELLATE DISTRICT

 

DIVISION
ONE

 

 
>

SEQUOIA EDUCATION, INC., et al.,             Petitioners, v. THE SUPERIOR COURT OF ALAMEDA COUNTY,             Respondent; DAVID RIVERA et al.,             Real Parties in Interest.

A134411         (Alameda County       Super. Ct. No. RG11597698)

 

            David
Rivera and eight other plaintiffs commenced a putative class href="http://www.fearnotlaw.com/">arbitration under an agreement subject to
the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.).  After the arbitrator rendered an award
applying the FAA to find class arbitration unavailable, defendants Sequoia
Education, Inc. and Corinthian Colleges filed a petition to confirm the
award.  Concluding the arbitrator
violated public policy by
failing to apply California law
in interpreting the arbitration agreement, the href="http://www.fearnotlaw.com/">trial court vacated the award and ordered
rehearing by the arbitrator.  We reverse
and remand for confirmation of the award.

>I. 
BACKGROUND

            On
September 29, 2011,
defendants filed a petition to confirm an arbitration award (petition).  The petition alleged plaintiffs are former
students of schools operated by defendant Sequoia Education, Inc. and its
parent company, defendant Corinthian Colleges, Inc.  In enrolling in the schools, each plaintiff
executed an arbitration agreement requiring “any dispute” to be “resolved by
binding arbitration under the Federal Arbitration Act conducted by the
American Arbitration Association (‘AAA’) under its Commercial Rules.”  The provision does not mention class
arbitration.

            On
May 28, 2008, plaintiffs
commenced an arbitration challenging the quality of their educations, asserting
their claims on behalf of a putative class.  Pursuant to AAA rules, the arbitrator
initially considered whether the arbitration clause permitted resolution of
disputes by class arbitration.  In a
“Clause Construction Award” issued September
11, 2009, the arbitrator elected to apply California
law in finding class arbitration to be available when an arbitration clause is
silent.href="#_ftn1" name="_ftnref1" title="">[1]  Although he recognized the same issue under
the FAA was before the United States Supreme
Court, the arbitrator declined to stay the arbitration pending the court’s
decision. 

            Following
the submission of periodic briefing by the parties over the next two years, the
arbitrator reversed himself in an “Award on Motion to Reconsider Clause Construction
Award,” issued September 22, 2011.  In this award, the arbitrator concluded that
the Supreme Court’s intervening decisions in Stolt-Nielsen S.A. v. AnimalFeeeds International Corp. (2010) 559
U.S. 662 [130 S.Ct. 1758] (Stolt-Nielsen)> and AT&T
Mobility LLC v. Concepcion (2011) 563 U.S. ___ [131 S.Ct. 1740] (>Concepcion) compelled the conclusion “where an arbitration agreement that is
subject to the Federal Arbitration Act does not explicitly contain language
permitting class arbitration, class arbitration is not permitted.  This is so even if applicable state law would
dictate otherwise.”  The petition sought
confirmation of this award.

            In
opposition to the petition, plaintiffs argued the arbitrator’s award should be
vacated because it was “contrary to California
statutory and public policy.”   They
contended that, in addition to violating various doctrines of contract
interpretation, the decision violated the “public policy of California courts
to refusal [sic] enforcement of
adhesion provisions not within the reasonable expectations of the weaker or
adhering party” and “California public policy encouraging ‘the use of the class
action device.’ â€

            In
a written order, the trial court denied the petition, vacated the award, and
directed rehearing by the arbitrator. 
Applying the purported principle that an arbitrator exceeds his or her
authority when the award “ â€˜violates a statutory right or otherwise
violates a well-defined public policy,’ â€ the court found the arbitrator
“violated the well-defined public policy that the agreement was to be
interpreted under California
law.”  The court also found the
arbitrator violated the “well-defined public policy that under California
law the arbitrator must interpret the agreement to give effect to the intentions
of the parties.”  The court directed a
“rehearing by the arbitrator” in which the arbitrator was directed to apply “California
law of contract interpretation to determine whether the parties intended to
include or exclude class arbitration.” 
No judgment has been entered.

>II. 
DISCUSSION

            Defendants
contend the trial court erred in refusing to confirm the arbitrator’s
award.  We review de novo a trial court’s
decision confirming or vacating an arbitration award.  (California Statewide Law Enforcement Assn. v. Department of Personnel
Administration (2011) 192 Cal.App.4th 1, 13.)

A.  Appealability

            Plaintiffs
have moved to dismiss the appeal, correctly arguing an order vacating an
arbitration award is appealable only if no rehearing is ordered.  (Code Civ. Proc., § 1294, subd. (c); >Haworth v. Superior Court (2010) 50 Cal.4th 372, 379, fn. 3.)  We deny the motion because we find “unusual
circumstances” that persuade us to exercise our discretion to treat the
improper appeal as a petition for a writ of mandate.  (Olson
v. Cory (1983) 35 Cal.3d 390, 401.) 
The arbitrator’s award was a preliminary legal ruling, rather than a
ruling on the merits of the dispute rendered after an evidentiary hearing.  In vacating the award and directing a
rehearing, the trial court was, in effect, ordering the arbitrator to adopt a
different legal rule.  If, upon
rehearing, the arbitrator acceded to the trial court’s instructions, this issue
will be presented to us following entry of judgment on an additional petition
to confirm or vacate.  On the other hand,
if the arbitrator declined to follow the court’s instructions, the parties
could be caught in an endless round of petitions and orders for rehearing,
without producing an appealable judgment. 
Either way, there is nothing to be gained in requiring the parties to
take these additional procedural steps before allowing appellate review of the
trial court’s order.

B.  The Trial Court’s Ruling

            Before addressing
the trial court’s order, we provide a brief legal background for its ruling.  The United States Supreme Court has, in the
past three years, rendered two significant decisions addressing the
availability of class arbitration.  In
the first, Stolt-Nielsen, the court
held that “a party may not be compelled under the FAA to submit to class
arbitration unless there is a contractual basis for concluding that the party agreed
to do so.”  (Stolt-Nielsen, supra, 559 U.S.
662, 684.)  The decision accordingly reversed an order of class
arbitration because the parties “concurred that they had reached ‘no agreement’
on that issue.”  (Ibid.)  The second, >Concepcion, overruled as preempted by
the FAA a California Supreme Court doctrine holding unconscionable any
provision barring class arbitration in a contract of adhesion.  (Concepcion,
supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1750].)  As the latter holding suggests, the United
States Supreme Court’s approach to certain aspects of arbitration law has been
at odds with that of our own Supreme Court. 
(See, e.g., Nelsen v. Legacy
Partners Residential, Inc. (2012) 207 Cal.App.4th 1115, 1131.)

            With
that background, we examine the trial court’s decision to vacate the
arbitrator’s award.  Coincidentally, the
United States Supreme Court rendered a decision under the FAA in its
just-concluded term, Oxford Health Plans
LLC v. Sutter (2013) ___ U.S. ___ [133 S.Ct. 2064] (Oxford), that is materially indistinguishable from the present
dispute.  Prior to the decision in >Stolt-Nielsen, the parties in >Oxford> submitted to their arbitrator the issue
of the availability of class arbitration under their contract.  (133 S.Ct. at p. 2067.)  Interpreting the clause in a written
decision, the arbitrator found class arbitration available, although the
arbitration clause made no express reference to class arbitration.  When asked to reconsider his decision after >Stolt-Nielsen, the arbitrator reaffirmed
his original reasoning.  (>Oxford, at pp. 2067–2068.)  Reviewing an unsuccessful petition to vacate
based on the argument the award was directly contrary to Stolt-Nielsen, the Supreme Court held any legal error immune from
judicial review.  The court explained,
“Under the FAA, courts may vacate an arbitrator’s decision ‘only in very
unusual circumstances.’  [Citation.]  That limited judicial review, we have
explained, ‘maintain[s] arbitration’s essential virtue of resolving disputes
straightaway.’  [Citation.]  If parties could take ‘full-bore legal and
evidentiary appeals,’ arbitration would become ‘merely a prelude to a more
cumbersome and time-consuming judicial review process.’  [Citation.] [¶] . . . ‘It is not
enough . . . to show that the [arbitrator] committed an error—or even a serious
error.’  [Citation.]  Because the parties ‘bargained for the
arbitrator’s construction of their agreement,’ an arbitral decision ‘even
arguably construing or applying the contract’ must stand, regardless of a
court’s view of its (de)merits. 
[Citations.] . . . So the sole question for us is whether the
arbitrator (even arguably) interpreted the parties’ contract, not whether he
got its meaning right or wrong.”  (>Oxford, at p. 2068, fn.
omitted.)  Because the arbitrator quite
clearly made a good faith effort to interpret the parties’ contract, the court
held, it did not matter whether he “misconstrued” it.  That issue was “not properly addressed to a
court,” since “ â€˜[i]t is the arbitrator’s construction [of the contract]
which was bargained for; and so far as the arbitrator’s decision concerns
construction of the contract, the courts have no business overruling him
because their interpretation of the contract is different from his.’  [Citation.] 
The arbitrator’s construction holds, however good, bad, or ugly.”  (Id.
at pp. 2070–2071.)

            Because
the parties’ arbitration clause is governed by the FAA, >Oxford> is arguably controlling>.  As
in Oxford>, the parties here submitted to the
arbitrator the issue of the availability of class arbitration under the
arbitration clause in their agreement. 
In a thoughtful written award, the arbitrator interpreted the contract
and found class arbitration unavailable.href="#_ftn2" name="_ftnref2" title="">[2]  Because “the arbitrator . . .
interpreted the parties’ contract,” the trial court was required to confirm the
award, without asking “whether he got its meaning right or wrong.”  (Oxford,
supra, ___ U.S. at p. ___ [133 S.Ct. at p. 2068, fn. omitted].)  Instead, the trial court reviewed the merits
of the arbitrator’s legal reasoning, found it wanting, and entered an order
essentially directing the arbitrator to adopt a different view.  This far exceeded the proper scope of
judicial review.  As the Supreme Court
noted in Oxford,
“[t]he arbitrator’s construction holds, however good, bad, or ugly.”  (Id.
at pp. 2070–2071.)

            We
need not decide whether the trial court should have been guided by >Oxford> or by California
law in reviewing the arbitrator’s award because both lead to the same
conclusion.  Under California
law, “[a]n arbitration award is final and conclusive because the parties—as
here—‘have agreed that it be so.’ 
[Citation.]  Only limited judicial
review is available; courts may not review the merits of the controversy, the
validity of the arbitrator’s reasoning, or the sufficiency of the evidence
supporting the award.  [Citation.]  Thus, with ‘narrow exceptions,’ an arbitrator’s
decision is not reviewable for errors of fact or law.  [Citation.] 
This is so even if the error appears on the face of the award and causes
substantial injustice.”  (>Shahinian v. >Cedars-Sinai> Medical >Center
(2011) 194 Cal.App.4th 987, 999–1000; see similarly Haworth v. Superior Court (2010) 50 Cal.4th 372, 380.)  This restricted scope of review is reflected
in the Code of Civil Procedure, which permits a trial court to vacate an
arbitrator’s award only on specific grounds: 
fraud, corruption, or misconduct by the arbitrator, serious procedural
unfairness, or a decision in excess of the arbitrator’s power.  (Code Civ. Proc., § 1286.2, subd.
(a).) 

            The
trial court purported to find that the arbitrator exceeded his powers because
he violated “public policy,” a ground derived from our Supreme Court’s decision
in Moncharsh v. Heily & Blase
(1992) 3 Cal.4th 1 (Moncharsh).)  In that decision, the court considered the
appellant’s argument that the arbitration award should be vacated because a
provision of the parties’ contract was contrary to attorney ethical rules.  The court rejected the argument, explaining,
“[Two prior decisions] permitted judicial review of an arbitrator’s ruling
where a party claimed the entire contract or transaction was illegal.  By contrast, Moncharsh challenges but a
single provision of the overall employment contract.  Accordingly, neither [prior decision]
authorizes judicial review of his claim. [¶] We recognize that there may
be some limited and exceptional circumstances justifying judicial review of an
arbitrator’s decision when a party claims illegality affects only a portion of
the underlying contract.  Such cases
would include those in which granting finality to an arbitrator’s decision
would be inconsistent with the protection of a party’s statutory rights.  [Citation.] [¶] Without an explicit legislative
expression of public policy, however, courts should be reluctant to invalidate
an arbitrator’s award on this ground. 
The reason is clear:  the
Legislature has already expressed its strong support for private arbitration
and the finality of arbitral awards in title 9 of the Code of Civil
Procedure.  [Citation.]  Absent a clear expression of illegality or
public policy undermining this strong presumption in favor of private
arbitration, an arbitral award should ordinarily stand immune from judicial scrutiny.”  (Id.
at p. 32, fn. omitted.)

            As
the above quotation suggests, Moncharsh did
not create a general exception to the limited scope of judicial review of
arbitration awards when the award is claimed to violate public policy.  Instead, the court’s pronouncement related
only to the claim that an arbitrator’s award should be reversed because the
provision of the contract enforced by the award was illegal.  Even in those circumstances, the court held,
the award should be enforced “[a]bsent a clear expression of illegality or
public policy.”  (Moncharsh, supra, 3 Cal.4th at p. 32.)  Although subsequent Supreme Court decisions
have expanded the scope of this exception somewhat, holding an arbitration
award can be vacated if “granting finality to an award would be inconsistent
with a party’s statutory rights” (Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th
269, 276), none has acknowledged a general public policy exception.  Plaintiffs made no claim of contractual
illegality, nor did they contend the arbitrator’s award violated a specific
statutory right.

            Yet
even if there were some general public policy exception,href="#_ftn3" name="_ftnref3" title="">[3]
it would not encompass the trial court’s approach:  to engage in independent judicial review,
identify the rules of contract interpretation purportedly violated by the
arbitrator’s award, and label those rules “public policy” to justify imposition
of the court’s interpretation on the arbitrator.  To enshrine ordinary rules of contract interpretation
as “public policy” adequate to justify the refusal to enforce an otherwise
valid arbitration award would entirely undo the restraints placed on judicial
review of arbitration awards.




> 

>III. 
DISPOSITION

            The
order of the trial court is vacated.  The
matter is remanded to the trial court for entry of a judgment confirming the
arbitration award.

 

 


 

 

                                                                                    _________________________

                                                                                    Margulies,
Acting P.J.

 

 

We concur:

 

 

_________________________

Dondero, J.

 

 

_________________________

Banke, J.