Propriety of Expanded Judicial Review
The California Court of Appeal held that arbitral provisions purporting to expand judicial review for errors of law are void and unenforceable, and must be severed from the agreement.
DIRECTV dealers were required to enter into two agreements containing an arbitration clause. One clause called for arbitration under the rules of the American Arbitration Association, with the following modifications: "The arbitrators shall apply California substantive law to the proceeding, except to the extent Federal substantive law would apply to any claim. The arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error." The agreement also provided that the decision of the arbitrator shall be final and binding without appeal or review except as permitted by California law, "provided ... that either party may file an application ... for de novo review on all questions of law based on the arbitrator's finding [sic] of fact (which are deemed for such purpose to be stipulated by the parties)...."
The dealers filed a demand for class arbitration with the AAA alleging that DIRECTV unilaterally reduced commissions, assessed "chargebacks," and other claims. DIRECT TV answered and counterclaimed.
After a preliminary conference, briefing of the class arbitration issue, and oral argument, the panel issued a "first amended clause construction award" under the AAA's Supplementary Rules for Class Arbitration. A majority of the panel ruled that since the arbitration clause was silent on the right to bring a class action, and California substantive law applied, the agreement permitted class arbitration. The majority further noted: "The determination of whether this action is maintainable as a class arbitration will be the subject of a further hearing to determine if the prerequisites to a class arbitration as set forth in Rule 4 of the AAA's Supplementary Rules for Class Arbitration are met."
The trial court granted DIRECTV's petition to vacate the interim award. …