State Justices Uphold Power of Private Judges

SAN FRANCISCO — The California Supreme Court on Monday reaffirmed the power of private arbitrators, ruling that courts have no authority to correct the legal mistakes of private judges.

The rulings in two cases underscore the finality of arbitration awards at a time when the private judging system is under growing attack.

Arbitration has exploded in the last 10 years, with consumers regularly signing contracts that require disputes to be decided in arbitration instead of court.

The practice became popular in part because overburdened courts several years ago required litigants to wait years for a trial date.

Many litigants now complain that arbitrators, who are lawyers or former judges paid by the parties in the dispute, make mistakes or show bias that no court can correct.

Monday’s decisions represent “a strong statement by the Supreme Court that judicial review, which already has been declared to be exceedingly narrow, is not going to open up in any substantial fashion,” said Clark Rivera, a Pasadena lawyer who represented the litigants in one of Monday’s cases.

San Francisco lawyer Thomas J. LaLanne, whose clients lost before the court Monday, said more and more lawyers may now advise clients against signing arbitration clauses whenever possible.

“In a court of law, judges are required to follow the law,” he said. “In arbitration, they are not. There is nobody looking over their shoulder. Power corrupts.”

Both arbitration cases before the high court involved disputes over awards for attorney fees.

In Moore vs. First Bank of San Luis Obispo, SO76239, a privately held real estate development corporation gave a bank deeds of trust to the shareholders’ private homes in return for a loan. When the bank tried to foreclose on the homes, the shareholders sued.

The arbitrator ruled for the homeowners on the merits of the case but declined to make the bank pay the homeowners’ attorney fees.

The other arbitration case, Moshonov vs. Walsh, SO76103, also arose out of a real estate dispute. Although the arbitrator ruled for the seller, there was no award for recovery of attorney fees.

Justice Kathryn Mickle Werdegar, who wrote the majority decision in both cases, said that in the Moore case, the arbitrator did not specifically identify the prevailing party--the winner--in the dispute.

“Even if legally erroneous, such an arbitral decision as to who, if anyone, prevailed in the contractual dispute would not ordinarily be reviewable,” Werdegar wrote.

Justices Stanley Mosk and Joyce Kennard offered a joint, concurring opinion in both cases. They said courts should review arbitrators’ decisions if they were erroneous and caused substantial injustice.

But they said the arbitration decisions in both cases before the court did not meet that standard, and they joined the majority in refusing to alter the arbitrators’ decisions.

Tony J. Tanke, a lawyer in one of the cases, said arbitrators’ decisions will be reviewed by courts only if they involved corruption or fraud or if the arbitrator ruled on issues that the litigants had not placed before him or her.

“If the arbitrator makes a mistake, that is part of arbitration,” said Tanke. “. . . You live with the mistake.”

He said the court was “very concerned that the viability” of arbitration be preserved. “There is no mistake or fact or law that the arbitrator makes that would be reviewed,” Tanke said.