New CA Arbitration Case

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Are There Limits on a Trial Court's Ability to Correct an Arbitration Award?

Arbitration awards are generally not subject to appeal, but they can be corrected by the trial court. Are there limits on the trial court's ability to correct an arbitration award? Last month, the Fourth District Court of Appeal published a new decision addressing this issue. To find out what they decided, watch the video and read my case summary below.

New CA Arbitration Decision  

E-Commerce Lighting, Inc. v. E-Commerce Trade LLC (2022) _ Cal.App.5th _ , 2022 WL 17547124:[1] The Court of Appeal reversed the trial court’s order denying plaintiff’s motion to confirm an arbitration award, and granting defendant’s petition (supported by intervenor Banc of California, National Association’s (the bank)) to correct the arbitration award to eliminate the setoff awarded by the arbitrator. In 2015, defendant purchased plaintiff’s assets for $11.5 million. As part of the purchase defendant gave plaintiff a promissory note for $2.5 million. Defendant also obtained two loans from the bank, one for $5 million and the other for approximately $1.25 million. Plaintiff, defendant and the bank agreed that the promissory note to plaintiff would be subordinated to the bank loans. Plaintiff later sued defendant, defendant moved to compel arbitration, and the parties stipulated to arbitrate. The bank was not a party to the arbitration. Plaintiff claimed breach of the promissory note and defendant claimed breach of the asset purchase agreement. The arbitrator find in favor of both parties, concluding that defendant owed plaintiff $2,756,635.66 and plaintiff owed defendant $2,611,463.58. The arbitrator concluded that an offset was allowable, and issued a single final award of the difference of $145,172.08 to plaintiff. The trial court granted the motion to correct the award, and denied the petition to confirm it, because it concluded that the arbitrator’s setoff effectively allowed plaintiff to circumvent the subordination agreement with the bank. The Court of Appeal reversed. Per Code of Civil Procedure section 1286.6(b), the trial court could correct the award only without affecting the merits of the decision upon the controversy submitted. A party cannot use a petition to correct an arbitration award as an appeal of an arbitrator’s considered decision. Based on the facts presented, including that the arbitration parties had disputed whether a setoff was available, the Court of Appeal concluded that the correction affected the merits of the arbitrator’s decision and was therefore improper. (C.A. 4th, December 9, 2022.)  

[1] There is a dissenting opinion in this case.  

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Mediation, Arbitration & Referee Services

I help attorneys and their clients settle cases as a mediator, and decide cases or issues as an arbitrator or referee at ADR Services, Inc. I handle cases in the areas of business, employment, insurance bad faith, insurance coverage, legal malpractice, medical malpractice, personal injury, real property and wrongful death. I conduct Zoom and in-person hearings throughout California.
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