# Moncharsh v. Heily & Blase

> California Supreme Court · July 30, 1992 · 3 Cal. 4th 1

URL: https://www.frixlaw.com/law-library/cases/9550746

## Case

- **Full name:** PHILIP I. MONCHARSH, Plaintiff and Appellant, v. HEILY & BLASE Et Al., Defendants and Respondents
- **Court:** California Supreme Court
- **Decided:** July 30, 1992
- **Citations:** 3 Cal. 4th 1; 10 Cal. Rptr. 2d 183; 92 Daily Journal DAR 10607; 832 P.2d 899; 92 Cal. Daily Op. Serv. 6647; 1992 Cal. LEXIS 3490
- **Precedential status:** Published
- **Opinion:** Concurring in part by Kennard
- **Judges:** Lucas, Kennard
- **Cited by:** 699 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9550746

## How later opinions describe it (automated extraction)

- holding that sufficiency of evidence is beyond scope of judicial review
- noting that the “very essence” of arbitration connotes a binding award

## Opinion text

KENNARD, J., Concurring and Dissenting.
The majority holds that when a trial court is presented with an arbitration award that is erroneous on its face and will cause substantial injustice, the court has no choice but to confirm it. (Maj. opn., ante, at pp. 6, 33.) Because an order confirming an arbitration award results in the entry of a judgment with the same force and effect as a judgment in a civil action (Code Civ. Proc., § 1287.4), the majority’s holding requires our trial courts not only to tolerate substantial injustice, but to become its active agent.
I cannot join the majority opinion. I will not agree to a decision inflicting upon this state’s trial courts a duty to promote injustice by confirming arbitration awards they know to be manifestly wrong and substantially *34 unjust. Nor can I accept the proposition, necessarily implied although never directly stated in the majority opinion, that the general policy in favor of arbitration is more important than the judiciary’s solemn obligation to do justice.
Nothing in this state’s statutory or decisional law compels the rule the majority announces. On the contrary, the majority has misperceived legislative intent, misconstrued the relevant statute, and misunderstood the decisional law establishing the scope of review for arbitration decisions. Worst of all, the majority has forsaken the goal that has defined and legitimized the judiciary’s role in society—to strive always for justice.
I
The object of government is justice. “Justice is the end of government. It is the end of civil society. It ever has been, and ever will be pursued, until it be obtained, or until liberty be lost in the pursuit.” (James Madison, The Federalist, No. 51.) As the preamble to the United States Constitution affirms, our country was founded to “establish justice.”
Justice is a special obligation of the judiciary. Every court has the power and the duty to “amend and control its process and orders so as to make them conform to law and justice.” (Code Civ. Proc., § 128, subd. (a)(8).) When they construe statutes, courts are enjoined to do so in a way that will promote justice. (E.g., Civ. Code, § 4; Code Civ. Proc., § 4; Ed. Code, § 2; Pen. Code, § 4.) And, because the very purpose of our legal system is to do justice between the parties (Sand v. Concrete Service Co. (1959) 176 Cal,.App.2d 169, 172 [ 1 Cal.Rptr. 257 ]), the interests of justice are paramount in all legal proceedings (Travis v. Southern Pacific Co. (1962) 210 Cal.App.2d 410, 425 [ 26 Cal.Rptr. 700 ]). In short, justice is the “sole justification of our law and courts.” (Gitelson & Gitelson, A Trial Judge’s Credo Must Include His Affirmative Duty to be an Instrumentality of Justice (1966) 7 Santa Clara Law. 7, 8.)
The majority never mentions the judiciary’s paramount obligation to do justice, and the rule it announces—which requires trial courts to endorse decisions known to be substantially unjust—is its very antithesis. By filling its discussion with references to the expectations of the parties, the development of decisional law over the course of a century, and legislative intent as evidenced in our statute, the majority implies both that these considerations support its holding and that they are more important than doing justice.
The majority is wrong on both counts. For the judiciary, nothing can be more important than justice. This proposition is so self-evident that no *35 further elaboration is necessary. Moreover, as we shall see, respect for parties’ freedom to contract, the development of decisional law, the relevant statute, and ascertainable legislative intent belie rather than support the majority’s holding.
II
As a method of dispute resolution, arbitration is generally faster and cheaper than judicial proceedings, but it has fewer safeguards against error. For this reason, parties who agree to binding arbitration must be deemed to have accepted the increased risk of error inherent in their chosen system. The majority takes this proposition, unobjectionable in itself, and from it jumps to the conclusion that parties who agree to arbitration thereby agree also to be bound by an award that on its face is manifestly erroneous and results in substantial injustice. But the conclusion defies both logic and experience. Reasonable contracting parties would never assume a risk that is so unnecessary and self-destructive.
The majority goes astray when it equates substantial injustice with a mere mistake. The two are not the same. Mistakes commonly occur in the course of dispute resolution proceedings without producing substantial injustice. As our state Constitution recognizes, determining whether a mistake has been made, and determining whether an injustice has occurred, are separate and distinct inquiries. (Cal. Const., art. VI, § 13 [court cannot set aside a judgment for error unless the error resulted in a miscarriage of justice].)
Parties who agree to resolve their disputes by arbitration should not and do not expect busy trial courts to comb the records of arbitration proceedings to determine whether any error has occurred and, if so, the effect of the error. But they no doubt do expect, and ought to be able to expect, that if the award on its face is erroneous and results in substantial injustice, a court asked to confirm the award will not turn a blind eye to the consequences of its action, but will instead take the only course consistent with its fundamental mandate, and will vacate the award.
Moreover, even if the parties were to do what is virtually inconceivable by expressly agreeing that the arbitrator’s award would be binding even if substantially unjust, the agreement would not bind the judiciary. The exercise of judicial power cannot be controlled or compelled by private agreement or stipulation. (See California State Auto. Assn. Inter-Ins. Bureau v. Superior Court (1990) 50 Cal.3d 658, 664 [ 268 Cal.Rptr. 284 , 788 P.2d 1156 ]; Clarendon Ltd. v. Nu-West Industries, Inc. (3d Cir. 1991) 936 F.2d 127, 129 [“action by the court can be neither purchased nor parleyed by the *36 parties”].) As the United States Supreme Court has remarked, a court should refuse to be “the abettor of iniquity.” (Precision Co. v. Automotive Co. (1945) 324 U.S. 806, 814 [ 89 L.Ed. 1381, 1386 , 65 S.Ct. 993 ].)
Ill
To support its holding radically curtailing judicial review of arbitration awards, the majority surveys the decisional law of California since 1850. Undeterred by the plain language of the decisions, which is almost uniformly contrary to the majority’s holding, the majority attempts to penetrate the surface of the opinions in order to trace the ebb and flow of more than a century’s dark currents of judicial thought. Thus, the majority relies on what it terms “subtle shifts” in the decisions, “transmogrification” of principles, and citations in one opinion that on “close scrutiny” are alleged to be at odds with a clear statement of law in the opinion’s text. (Maj. opn., ante, at pp. 17-18, 18-19, 19.) As an exercise in divination or telepathy, the majority’s discussion is fascinating. But as sober legal analysis, the majority’s discussion is simply wrong. From the outset, this court has consistently—until now—acknowledged that courts should refuse to permit use of the judiciary’s awesome coercive power to perpetrate a substantial injustice.
In the first decision cited by the majority, Muldrow v. Norris (1852) 2 Cal.74, this court held that it would not enforce an erroneous arbitration award when the error was on a “palpable and material point.” (Id. at p. 77.) Although this court used a verbal formulation—“palpable and material point”—different from the term “substantial injustice” that became the standard expression in later cases (e.g., Utah Const. Co. v. Western Pac. Ry. Co. (1916) 174 Cal. 156, 160-161 [ 162 P. 631 ]), the concept is the same. To be on a “palpable and material point,” an error must be of real importance or great consequence (Webster’s Ninth New Collegiate Dict. (1988) p. 733), or, in other words, an error that causes substantial injustice.
Other early decisions used the term “gross error” to describe the very same ground for vacating an arbitration award. (E.g., Headley v. Reed (1852) 2 Cal. 322, 325 ; In re Connor (1900) 128 Cal. 279, 282 [ 60 P. 862 ].) An error is “gross” if it is glaringly noticeable “because of inexcusable badness or objectionableness.” (Webster’s Ninth New Collegiate Dict., supra, p. 538.) Thus, the term “gross error,” like the “palpable and material point” formulation, represents an early articulation of what has subsequently become known as error causing substantial injustice.
Fairly read, the decisions of this court, although varying semantically, uniformly and firmly support the proposition that the judiciary will not *37 knowingly perpetuate and enforce an arbitration award that is substantially unjust. This court has adopted the same standard for determining when a court should decline to follow the rule known as law of the case. (See People v. Shuey (1975) 13 Cal.3d 835, 846 [ 120 Cal.Rptr. 83 , 533 P.2d 211 ] [“a manifest misapplication of existing principles resulting in substantial injustice”]; accord, George Arakelian Farms, Inc. v. Agricultural Labor Relations Bd. (1989) 49 Cal.3d 1279, 1291 [ 265 Cal.Rptr. 162 , 783 P.2d 749 ].)
The Courts of Appeal have correctly interpreted our decisions. In case after case, they have reaffirmed the rule that a court will vacate an arbitration award when error appears on the face of the award and causes substantial injustice. (E.g., Cobler v. Stanley, Barber, Southard, Brown & Associates (1990) 217 Cd.App.3d 518, 526 [ 265 Cal.Rptr. 868 ]; All Points Traders, Inc. v. Barrington Associates (1989) 211 Cal.App.3d 723, 736 [ 259 Cal.Rptr. 780 ]; National Football League Players’ Assn. v. National Football League Management Council (1986) 188 Cal.App.3d 192, 199 [ 233 Cal.Rptr. 147 ]; Ray Wilson Co. v. Anaheim Memorial Hospital Assn. (1985) 166 Cal.App.3d 1081, 1090 [ 213 Cal.Rptr. 62 ]; Abbott v. California State Auto. Assn. (1977) 68 Cal.App.3d 763, 771 [ 137 Cal.Rptr. 580 ]; Campbell v. Farmers Ins. Exch. (1968) 260 Cal.App.2d 105, 112 [ 67 Cal.Rptr. 175 ].)
Searching for some departure from this prominent line of authority, the majority relies heavily on the Court of Appeal decision in Crofoot v. Blair Holdings Corp. (1953) 119 Cal.App.2d 156 [ 260 P.2d 156 ] (disapproved on another ground in Posner v. Grunwald-Marx, Inc. (1961) 56 Cal.2d 169, 183 [ 14 Cal.Rptr. 297 , 363 P.2d 313 ]), but its reliance is misplaced. Crofoot cites this court’s opinion in Pacific Vegetable Oil Corp. v. C.S.T., Ltd. (1946) 29 Cal.2d 228 [ 174 P.2d 441 ] for the proposition that courts had recently narrowed somewhat the judicial review of arbitration awards for legal error. (Crofoot, supra, at p. 185 .) But neither Crofoot nor Pacific Vegetable suggests that review had become so narrow that courts were obliged to confirm awards containing obvious error causing substantial injustice. Indeed, Pacific Vegetable affirms that courts review arbitration awards to prevent “ ‘misuse of the proceeding, where corruption, fraud, misconduct, gross error, or mistake has been carried into the award to the substantial prejudice of a party to the proceeding.’ ” (Pacific Vegetable, supra, at p. 240 , quoting Utah Const. Co. v. Western Pac. Ry. Co., supra, 174 Cal. 156, 159 , italics added.) Thus, legal error is a proper basis on which to challenge an arbitration award, provided that “the error appears on its face and causes substantial injustice.” (Utah Const. Co. v. Western Pac. Ry. Co., supra, at p. 161.)
As the majority notes, the Crofoot opinion does state that the merits of an arbitration award may not be judicially reviewed except as provided in the *38 statute. (Crofoot v. Blair Holdings Corp., supra, 119 Cal.App.2d 156, 186 .) Because the relevant statute, Code of Civil Procedure section 1286.2, does not say in so many words that an arbitration award may be challenged for obvious error causing substantial injustice, the majority concludes that a court may not vacate an award on this ground. But this conclusion is wrong. Our statute does not, by negative implication or otherwise, mandate injustice.
IV
Code of Civil Procedure section 1286.2 lists five grounds for vacating an arbitration award. This statutory list is reproduced in the margin. 1 Although the statute states only that a court “shall vacate the award” if any of these grounds is present, the majority construes the statute as precluding a court from vacating an arbitration award on any ground not specifically defined in the statute. In thus construing the statutory list, the majority ignores the statute’s legislative history.
Code of Civil Procedure section 1286.2 is essentially unchanged from its 1927 predecessor (Stats. 1927, ch. 225, § 9, p. 406), and materially the same as the original provision enacted in 1851 (Stats. 1851, second sess., tit. X, ch. IV, § 386, pp. 112-113). (See maj. opn., ante, at pp. 12, 16, 20-21.) The Legislature enacted section 1286.2 in its present form in 1961 (Stats. 1961, ch. 461, § 2, p. 1540) following a recommendation and study of the California Law Revision Commission. (Recommendation and Study Relating to Arbitration (Dec. 1960) 3 Cal. Law Revision Com. Rep. (1961), p. G-1 et seq.) In its report to the Legislature, the commission separately and expressly addressed the subject of judicial review of arbitration awards. Because the commission accurately stated California law on this subject, and because its statement belies the majority’s reading of the statute, the commission’s comment is worth quoting in some detail:
“Nothing in the California statute defines the permissible scope of review by the courts. Numerous court rulings have, however, developed the following basic principles which set the limits for any court review: . . . [<¡[] (5) Statutory provisions for a review of arbitration proceedings are for the sole *39 purpose of preventing misuse of the proceedings where corruption, fraud, misconduct, gross error or mistake has been carried into the award to the substantial prejudice of a party to the proceedings. . . . H] Neither the Uniform Arbitration Act nor other state statutes attempt to express the exact limits of court review of arbitration awards. And no good reason exists to codify into the California statute the case law as it presently exists.” (Recommendation and Study Relating to Arbitration, supra, 3 Cal. Law Revision Com. Rep., pp. G-53-G-54, fns. omitted, italics added.)
The commission, in other words, did not intend to either alter or codify the judicially established grounds for challenging an arbitration award. Contrary to the majority’s view, Code of Civil Procedure section 1286.2 was never meant to define the “permissible scope of review by the courts” or to “express the exact limits of court review of arbitration awards." Thus, the statute does not preclude a court from vacating an arbitration award on a ground well established by decisional law.
In words that closely track the language this court used in Pacific Vegetable Oil Corp. v. C.S.T., Ltd., supra, 29 Cal.2d 228, 240 , the commission acknowledged that one purpose of judicial review is to prevent gross errors or mistakes from being carried into an award to the substantial prejudice of a party, that is, substantial injustice. (Recommendation and Study Relating to Arbitration, supra, 3 Cal. Law Revision Com. Rep. (1961), p. G-55.) Code of Civil Procedure section 1286.2 may not be read as barring a court from vacating an arbitration award when these conditions are present.
The majority attempts to evade the obvious import of the commission’s statement by referring to language in another part of the report that “[ejven a gross error or mistake in an arbitrator’s judgment is not sufficient grounds for vacation unless the error amounts to actual or constructive fraud.” (Maj. opn., ante, at p. 25, fn. 10.) But this statement is not in the portion of the commission’s report setting forth the basic principles governing judicial review. Moreover, it is derived from a federal district court case expressly recognizing that “Gross error or mistake prejudicing substantially the rights of a party” is a ground for vacating an arbitration award under California law. (Lundblade v. Continential Ins. Co. (N.D.Cal. 1947) 74 F.Supp. 795, 797 .) Finally, the word “fraud” as used in the commission’s statement includes a mistake that prevents the fair exercise of judgment (California Sugar Etc. Agency v. Penoyar (1914) 167 Cal. 274, 279 [ 139 P. 671 ]), and thus includes gross errors or mistakes that result in substantial injustice.
Even if one were to conclude, contrary to the report of the Law Revision Commission, that Code of Civil Procedure section 1286.2 defines the permissible scope of review by the courts, it still would not follow that a court *40 cannot vacate an award for error appearing on the award’s face and resulting in substantial injustice. Under the statute, a court must vacate an award if it determines that “[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.” (Code Civ. Proc., § 1286.2, subd. (d).) As the Courts of Appeal have recognized time and again, arbitrators exceed their statutory powers when they make an award that is erroneous on its face and results in substantial injustice. (E.g., Cobler v. Stanley, Barber, Southard, Brown & Associates, supra, 217 Cal.App.3d 518, 526 ; All Points Traders, Inc. v. Barrington Associates, supra, 211 Cal.App.3d 723, 736 ; Greenfield v. Mosley (1988) 201 Cal.App.3d 735, 744-745 [ 247 Cal.Rptr. 314 ]; Ray Wilson Co. v. Anaheim Memorial Hospital Assn., supra, 166 Cal.App.3d 1081, 1090 ; Abbott v. California State Auto. Assn., supra, 68 Cal.App.3d 763, 771 ; see also Times Mirror Co. v. Superior Court (1991) 53 Cal.3d 1325, 1333 [ 283 Cal.Rptr. 893 , 813 P.2d 240 ] [excess of jurisdiction not confined to subject-matter jurisdiction, but includes acts in excess of authority as defined in the Constitution, statutes, or judicial decisions]; Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 288 [ 109 P.2d 942 , 132 A.L.R. 715 ] [same].)
V
Despite my disagreement with the reasoning of the majority opinion, I agree with the result it reaches. This is not a case in which error appearing on the face of an arbitration award would cause a substantial injustice.
The agreement was negotiated between sophisticated parties; the disparity in bargaining power between the parties was not substantial; there is no indication of harm to the clients or other third parties; and there is no basis in the arbitrator’s award for finding that the fees were wholly disproportionate to the services rendered. Therefore, the award was not substantially unjust.
Conclusion
Although I concur in the result, I cannot join the majority to support judicially sanctioned and enforced substantial injustice. The majority’s holding violates the most basic obligation of the judiciary, and is inconsistent with both our well-established decisional law and our statute.
Mosk, J., concurred.
Appellant’s petition for a rehearing was denied September 24, 1992. Mosk, J., and Kennard, J., were of the opinion that the petition should be granted.
“(a) The award was procured by corruption, fraud or other undue means; [5] (b) There was corruption in any of the arbitrators; [ft] (c) The rights of such party were substantially prejudiced by misconduct of a neutral arbitrator; [ft] (d) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted; or [ft] (e) The rights of such party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title.”

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9550746. Public record. Not legal advice.