Can A Merits Award In Arbitration That Affects Rights Of Third Party Who Did Not Participate In Arbitration Be Corrected?
The majority opinion in E-Commerce Lighting, Inc. v. E-Commerce Trade LLC, E074525 (4/1 12/9/22) (Raphael, Ramirez; dsst. Mentrez), answered the above question with a "no", reversing the trial judge. Judge Menetrez, dissenting, answered "yes," under circumstances where the he believed the award could be corrected without affecting the merits.
Trade purchased ECL's assets for $11.5, financing the asset sale with several loans.
After the sale, E-Commerce Lighting, Inc. (ECL) and E-Commerce Trade LLC (Trade) arbitrated competing claims. The arbitrator's award setoff the claims against each other: $2,756.635.66 in favor of ECL and $2,611,463.58, yielding an award in favor of ECL of $145,172.08.
Trade then convinced the trial court that the setoff needed to be corrected, because it affected the rights of third party lenders who did not participate in the arbitration. The trial court agreed.
The Court of Appeal reversed, explaining that while an award on the merits could be corrected if it did not affect the merits, here, correction would affect the merits award.
Judge Menetrez disagreed, agreeing with the trial court that the arbitrator had exceeded the arbitrator's powers by issuing an award that affected the rights of third party lenders, including their security interest. Also, he argued that the award could be corrected without affecting the merits by simply removing the setoff.
COMMENT: This is an interesting case, and given the dissent, we will monitor to see whether there is an appeal.
Comments