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Another Erroneous California Arbitration Award is Binding, thanks to the CAR Form

Buyers bought a home in Southern California using the standard CAR purchase agreement, in which they initialed the requirement to arbitrate any disputes. Before they moved into the home, they learned it had extensive structural damage which was not disclosed. The buyers sued their broker, claiming that they knew about the damage. The brokers moved the lawsuit to arbitration, as the purchase Contract allowed them to do- big mistake for the broker.

The Arbitrator awarded the Buyer damages based on the benefit of the bargain” measure, which is applicable to damages not arising from a contract. The Brokers sought to set aside the award, claiming he should have used the “out of pocket” measure of damages (Civil Code 3343).

The Broker argued that the Arbitration provision requires the arbitrator to render an award in accordance with California substantive law; thus, this departs from the general rule of non-reviewability of arbitration awards. However, the court disagreed. Citing DirectTV, a provision requiring arbitrators to apply the law leaves open the possibility that they may apply it incorrectly.

Additionally, the CAR form provides that the arbitration provisions are to be governed by the Federal Arbitration Act (this was snuck in by CAR several years ago without noting it as a revised form). The FAA “does not permit parties to contract for judicial review for legal error.”

There you have it- use the CAR form, and, unless you delete the FAA language, there is nothing to you add to allow review of a bad Arbitration decision .

Gravillis v. Coldwell Banker (2010) 182 Cal App 4th 503.