Case Is A Reminder That Ordinary Constitutional Guarantees Of Due Process Do Not Automatically Exist In Private Arbitration.
The Court of Appeal's summary of the facts in our next case provides a clear sign that it is headed towards a reversal – the interesting part is how it arrives at its destination.
Defendant/appellant Stephen Kaplan appealed a judgment confirming a $30 million arbitration award. A substantial portion of the award consisted of punitive damages. The award was 30 times larger than the original arbitration claim, and $20 million larger than the claim in plaintiffs' original complaint. The notice of change in the arbitration claim to $30M came by email one day before the telephonic arbitration default hearing. The defendant Kaplan did not attend the hearing, and was not represented by an attorney. However, Kaplan did seek, unsuccessfully, to vacate the award, and appealed from the judgment confirming the award. Emerald Aero, LLC v. Kaplan, D070579 (4/1 2/28/17) (Haller, McConnell, Huffman).
The most familiar obstacle to a reversal of a judgment confirming an arbitration award is that mistakes of law or fact are not a basis for reversal. Furthermore, "federal due process restrictions applicable to punitive damages imposed by a jury or trial court . . . do not apply to an arbitrator's punitive damages award. . . . The courts reason that the constitutional due process clause applies only to state action, and arbitration is 'a private proceeding, arranged by contract, without legal compulsion.'" Slip op. at 17-18.
However, an arbitrator's award may be overturned if the arbitrator exceeds the arbitrator's powers. Here, the Court of Appeal looked to the arbitrator's powers, as derived from applicable AAA rule 6 requiring written notice before a party could materially change its claim – and this is the rule that the Court believed had been violated, believing that attaching a brief to an email less than 24 hours before the merits hearing "did not constitute notice calculated to apprise the opposing party of a new and substantially increased monetary claim, nor did it provide the opposing party with a fair opportunity to assert a challenge to the new punitive damage claim."
The Court of Appeal also relied on case law recognizing "the fundamental requirement that arbitrations be conducted in a fair and neutral manner." Royal Alliance Associates, Inc. v. Liebhaber, 2 Cal.App.5th 1092, 1108 (2016).
COMMENT: An element of due process -- meaningful notice and an opportunity to be heard -- is imported into the arbitration proceeding here by the Court's recognition that an arbitrator exceeds his powers under Cal. Code of Civ. Proc. Section 1286.2(a)(4) by conducting an unfair proceeding that lacked sufficient notice.