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In Burlage v. Superior Court (Spencer) (August 31, 2009) 09 C.D.O.S.
11206, Division Six of the Second Appellate District held the
decision of a private arbitrator may properly be vacated by a trial
court when the arbitrator excludes material evidence that
substantially prejudices a party. In denying the Burlage’s petition
for a writ of mandate and affirming the order of the trial court
vacating the arbitration award, the appellate court said
“arbitrators have a great deal of power, but not absolute power.”
Petitioners Roger and Cheryl Burlage purchased a home in a gated
community next to a country club from Real Party in Interest Martha
Martinez Spencer. After close of escrow, the Burlages learned that
their newly acquired pool and fence encroached on land owned by the
club. The Burlages claimed Spencer knew about these encroachments at
the time of the sale, but fraudulently withheld information about
them. The parties agreed to arbitrate their property dispute
privately with a JAMS arbitrator.
Two years after the purchase of the home, but before the arbitration
was held, the title company paid the country club approximately
$10,000 in exchange for a lot-line adjustment that gave the Burlages
title to the land in question. In spite of this, the Burlages went
forward with their arbitration, claiming their damages were fixed at
the time of the close of escrow and the changed lot lines giving
them title to the land at issue made no difference to the fraud
cause of action. Indeed, they moved in limine to exclude evidence of
the lot-line adjustment so that Spencer could not show that the
Burlages were not damaged to the extent they claimed because the
encroachment issue had been resolved. Spencer argued that later
circumstances “can and should be considered in measuring damages.”
The arbitrator agreed with the Burlages and prevented Spencer from
submitting any evidence that the encroachment had been resolved. On
the other hand, the Burlages were allowed to offer expert opinion
testimony about how much it was going to cost them to move their
pool and their fence—two things that never happened and no longer
needed to happen since the lot-line adjustment. The arbitrator found
that Spencer knew about the lot line problem, did not disclose this
to the buyers and the encroachment “materially affected the
property’s value.” He then awarded the Burlage’s over $1.5 million
dollars in compensatory and punitive damages, and attorney fees.
When the Burlages moved to confirm the award in court, Spencer moved
to vacate it. She argued that CCP section 1286.2 required vacation
of the award because her interests were “‘substantially prejudiced’
by the arbitrator’s refusal to hear ‘evidence material to the
controversy.’” The trial court agreed and ruled the arbitrator’s
refusal to consider evidence of the lot-line adjustment
“substantially prejudiced Spencer’s ‘ability to dispute the amount
of damage suffered by’ the Burlages” and vacated the award. The
Burlages petitioned the court of appeal for a writ of mandate.
The appellate court noted that arbitration awards cannot be
disturbed for errors of law, “even when an error of law is apparent
on the face of the award and causes substantial injustice.” However,
an arbitrator’s power and “infallibility” have their limits. This is
so because CCP section 1286.2 states a court “‘shall’ vacate an
award when a party’s rights ‘were substantially prejudiced…by the
refusal of the arbitrator[] to hear evidence material to the
controversy….’ This section has been interpreted as a ‘safety valve
in private arbitration that permits a court to intercede when an
arbitrator has prevented a party from fairly presenting its case.’”
The court went on to explain that the private arbitrator’s
determination of what the proper date was for the fixing of damages
is not subject to judicial review; however, his exclusion of
evidence that the title company had solved the problem before
plaintiffs had actually suffered any damages “was more than a mere
erroneous evidentiary ruling. The ruling substantially prejudiced
Spencer and undermined the fundamental principle embodied in section
1286.2, subdivision (a)(5) that an arbitrator must consider material
evidence.” It went on to say an “arbitrator must consider this
evidence to make an informed decision” and that if the award in this
case were to be affirmed, “arbitration itself would be suspect.”
The dissenting justice he would have granted the petition and direct
confirmation of the award. He said the majority was wrong in that
the arbitrator’s decision was based on the legal issue of when
damages were fixed—something the majority said it would not and
could not disturb. “[C]orrect or not, the arbitrator had ruled both
at the time the motions in limine were made and in his ‘Amended
Final Award,’ that damages would be computed at the time of the
close of escrow. This was his legal conclusion. As such it is not
subject to judicial review.” The dissenting justice predicted that
this decision will be the beginning of “great mischief.” (Emphasis
added.)
On September 15, petitioners filed a petition for rehearing, and on
September 18, 2009, Real Party filed a request to answer the
petition which will be due 8 days from filing.
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