Crowell v. Dchf

• Decision Date: 28 January 2002
• Docket Number: No. B148291.,B148291.
• Citation: 95 Cal.App.4th 730,115 Cal.Rptr.2d 810
• Court: California Court of Appeals Court of Appeals
• Parties: Ronald CROWELL, Plaintiff and Appellant, v. DOWNEY COMMUNITY HOSPITAL FOUNDATION, Defendant and Respondent.

115 Cal.Rptr.2d 810

95 Cal.App.4th 730

Ronald CROWELL, Plaintiff and Appellant, v. DOWNEY COMMUNITY HOSPITAL FOUNDATION, Defendant and Respondent.

No. B148291.

Court of Appeal, Second District, Division 2.

January 28, 2002.

The Ford Law Firm, William H. Ford III and Paul C. Cook, Los Angeles, for Plaintiff and Appellant.

Dewey Ballantine, Jeffrey R. Witham, Matthew M. Walsh, Los Angeles, and Karen H. Shelton, for Defendant and Respondent.

DOI TODD, J.

This appeal presents an important question of first impression: Can parties to an arbitration agreement validly agree that an arbitration award is subject to judicial review to determine whether the award is supported by law and substantial evidence? We hold that parties cannot expand the jurisdiction of the court to review arbitration awards beyond that provided by statute and affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Ronald Crowell, M.D., a professional corporation, appeals from a judgment of dismissal pursuant to an order granting defendant Downey Community Hospital Foundation's (DCHF) general demurrer without leave to amend his complaint. The complaint sought a declaration of rights as to the enforceability of an arbitration provision which explicitly required that (1) the arbitrator make findings of fact and conclusions of law, (2) the award be supported by law and substantial evidence, and (3) the merits of the award be subject to court review.

Crowell and DCHF entered into an "Agreement to Provide Hospital Emergency Department Services" effective January 1, 1996 through December 31, 1997. The agreement required arbitration of certain disputes in accordance with the provisions of the California Arbitration Act (Act),¹ except that the arbitrator was required to prepare written findings of fact and conclusions of law which "shall be supported by law and substantial evidence." The parties agreed that the decision of the arbitrator was to be final and binding except that "upon the petition of any party to the arbitration, a court shall have the authority to review the transcript of the arbitration proceedings and the arbitrator's award and shall have the authority to vacate the arbitrator's award, in whole or in part, on the basis that the award is not supported by substantial evidence or is based upon an error of law...."²

In March 1998, DCHF notified Crowell to cease operations. Crowell demanded arbitration pursuant to the agreement. Although contending the agreement had expired, DCHF nonetheless expressly agreed in writing "to arbitrate the disputes identified in [Crowell's letters demanding arbitration] under the terms specified in the expired agreement."

The arbitration was not immediately initiated. Instead, after an unexplained lapse of more than two years, Crowell filed a complaint for declaratory relief seeking a judicial determination that the arbitration agreement was "valid and enforceable" and that the parties were "obligated, forthwith, to arbitrate in accordance with their agreement."

DCHF demurred to the complaint on the grounds that the arbitration agreement was "void and unenforceable as a matter of law" and because declaratory relief was "not necessary or proper under all the circumstances pursuant to [section] 1061." It argued that judicial review of private arbitration awards was limited to cases where statutory grounds existed to vacate or correct the award and that declaratory relief was unnecessary "to enforce an illegal contract."

The trial court sustained the demurrer without leave to amend issuing the following minute order: "Defendant contends that the parties agreed to do something that does not exist, conduct a Code of Civil Procedure Section 1280 et seq. arbitration with a guaranteed right of judicial review of the merits, making the arbitration clause at issue unenforceable. The relief requested by Plaintiff is neither `necessary nor proper' under Code of Civil Procedure 1061."

Judgment of dismissal of the complaint was subsequently entered and a timely notice of appeal from that judgment filed.

CONTENTIONS

Appellant contends that binding arbitration is essentially a matter of contract between the parties, and that while sections 1286.2 and 1286.6 specify grounds on which a court may vacate or correct an arbitration award, these are merely default provisions which control when the parties do not agree otherwise. Respondent contends that the arbitration agreement is void and unenforceable as a matter of law because jurisdiction to review arbitration awards is conferred by the Act, which provides the exclusive grounds on which courts are authorized to vacate or correct an award, and the parties cannot broaden review by agreement. Both parties find support for their claims in the Supreme Court's decision in Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 10 Cal.Rptr.2d 183, 832 P.2d 899 (Moncharsh).

DISCUSSION

A. The Agreement Provided for Court Review of the Arbitration Award on the Merits.

Private arbitration is a matter of agreement between the parties and is governed by contract law. (Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 24 Cal. Rptr.2d 597, 862 P.2d 158.) Arbitration agreements are to be construed like other contracts to give effect to the intention of the parties. (Straus v. North Hollywood Hosp., Inc. (1957) 150 Cal.App.2d 306, 310, 309 P.2d 541.) "In cases involving private arbitration, `[t]he scope of arbitration is ... a matter of agreement between the parties.' [Citation.]" (Moncharsh, supra, 3 Cal.4th at p. 8, 10 Cal.Rptr.2d 183, 832 P.2d 899.)

Here, there is no dispute that the parties agreed to an arbitration process that required findings of fact and conclusions of law and purported to authorize judicial review on the merits.

B. The Parties Cannot Expand the Trial Court's Jurisdiction to Review Arbitration Awards by Agreement.

Because the parties clearly agreed to the arbitration provision here, the issue we must decide is a narrow one: Can the parties expand the scope of judicial review of an arbitration award by agreement? We have found no California case deciding this issue, but there is substantial support in the Act and in cases interpreting the Act that they cannot.

Moncharsh

The Supreme Court's most expansive discussion of the scope of judicial review of arbitration awards is contained in Moncharsh. Although it does not specifically deal with an arbitration provision allowing judicial review of the merits of an award, Moncharsh provides guidance in resolving this issue.

In Moncharsh, Moncharsh, an attorney, was hired by a law firm and signed an employment agreement that provided for the allocation of legal fees in the event he left the firm. The agreement contained an arbitration clause that provided: "Any dispute arising out of this Agreement shall be subject to arbitration under the rules of the American Arbitration Association. No arbitrator shall have any power to alter, amend, modify or change the terms of this agreement. The decision of the arbitrator shall be final and binding on Firm and Employee-attorney." (Moncharsh, supra, 3 Cal.4th at p. 7, fn. 1, 10 Cal.Rptr.2d 183, 832 P.2d 899.) Moncharsh subsequently left the firm, and a dispute arose as to the allocation of fees he received from former firm clients who left the firm with him. The parties invoked the arbitration provision and submitted the matter to an arbitrator, who ruled in the firm's favor, stating his conclusions in the award.

Moncharsh petitioned the superior court to vacate the award, and the law firm petitioned to confirm it. The superior court ruled that "`[t]he arbitrator's findings on questions of both law and fact are conclusive. A court cannot set aside an arbitrator's error of law no matter how egregious.'" (Moncharsh, supra, 3 Cal.4th at p. 8, 10 Cal.Rptr.2d 183, 832 P.2d 899.) While the court acknowledged an exception for error appearing on the face of the award, it found no such error. (Ibid.) The Court of Appeal affirmed.

The Supreme Court recognized that the Act "represents a comprehensive statutory scheme regulating private arbitration in this state. [Citation.]" (Moncharsh, supra, 3 Cal.4th at p. 9, 10 Cal.Rptr.2d 183, 832 P.2d 899.) "`The policy of the law in recognizing arbitration agreements and in providing by statute for their enforcement is to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing.' [Citation.]" (Ibid.) "Expanding the availability of judicial review of such decisions `would tend to deprive the parties of the arbitration agreement of the very advantages the process is intended to produce.' [Citations.] [¶] Ensuring arbitral finality thus requires that judicial intervention in the arbitration process be minimized." (Id, at p. 10, 10 Cal.Rptr.2d 183, 832 P.2d 899.)

The court expressed a strong concern that judicial intervention in the arbitral process be minimized to ensure that the benefits of arbitration were not lost. It surveyed nearly 150 years of the legal history of arbitration in California. It observed that "because an arbitrator is not ordinarily constrained to decide according to the rule of law, it is the general rule that, `The merits of the controversy between the parties are not subject to judicial review.' [Citations.] More specifically, courts will not review the validity of the arbitrator's reasoning. [Citations.] Further, a court may not review the sufficiency of the evidence supporting an arbitrator's award. [Citations.]" (Moncharsh, supra, 3 Cal.4th at p. 11, 10 Cal.Rptr.2d 183, 832 P.2d 899.)

The court noted that at early common law, in the absence of statutes, courts sitting as courts of equity would set aside arbitration awards for mistakes of fact or law. After adoption of the first statute, which did not permit review, the courts "concluded the grounds for vacating an award were exclusively those set forth by statute" with a...