Nevertheless, when the issue has been squarely presented, no Court of Appeal has enforced a contract clause calling for judicial review of an arbitration award on its merits. Two divided Courts of Appeal have treated arbitration proceedings as other forms of alternative dispute resolution, so as to permit review of the merits. In National Union Fire Ins. Co. v. Nationwide Ins. Co. (1999) 69 Cal.App.4th 709, 715 [82 Cal. Rptr. 2d 16] (National Union), a stipulation for arbitration was deemed "a reference by consent of the parties" under section 638. In City of Shasta Lake v. County of Shasta (1999) 75 Cal.App.4th 1, 10-13 [88 Cal. Rptr. 2d 863], the court construed an agreement for binding arbitration before a retired judge as a stipulation for trial before a temporary judge under article VI, section 21 of the California Constitution.

The federal circuits were split on whether the FAA grounds for judicial review are exclusive. The First, Third, Fourth, Fifth, and Sixth Circuits held or indicated that contract provisions for expanded review of arbitration awards were enforceable. The Seventh, Eighth, Ninth, and Tenth Circuits took the opposite view. In the years before the passage of the FAA, arbitration awards were subject to thorough and broad judicial review. See Cohen & Dayton, The New Federal Arbitration Law, 12 Va. L.Rev. 265, 270-271 (1926); Cullinan, Contracting for an Expanded Scope of Judicial Review in Arbitration Agreements, 51 Vand. L.Rev. 395, 409 (1998). In §§ 10 and 11 of the FAA, Congress significantly limited the grounds for judicial vacatur or modification of such awards in order to protect arbitration awards from hostile and meddlesome courts.

Section 2 of the FAA, declaring the enforceability of arbitration agreements, "create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." (Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24 [74 L. Ed. 2d 765, 103 S. Ct. 927].) The FAA governs agreements in contracts involving interstate commerce, like those in Cable Connection. (Southland Corp. v. Keating, supra, 465 U.S. at pp. 10-11; Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 383-384 [25 Cal. Rptr. 3d 540, 107 P.3d 217] (Cronus).) The United States Supreme Court has frequently held that state laws invalidating arbitration agreements on grounds applicable only to arbitration provisions contravene the policy of enforceability established by section 2 of the FAA, and are therefore preempted. (E.g., Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 686-688 [134 L. Ed. 2d 902, 116 S. Ct. 1652]; Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 272-273 [130 L. Ed. 2d 753, 115 S. Ct. 834]; Perry v. Thomas (1987) 482 U.S. 483, 490-491 [96 L. Ed. 2d 426, 107 S. Ct. 2520]; Southland Corp. v. Keating, supra, 465 U.S. at p. 16; see Cronus, at p. 385.)

In several cases, California Courts of Appeal have rejected claims that the FAA grounds for reviewing arbitration awards preempt their CAA counterparts. (SWAB Financial v. E*Trade Securities (2007) 150 Cal.App.4th 1181, 1195 [58 Cal. Rptr. 3d 904]; Ovitz v. Schulman (2005) 133 Cal.App.4th 830, 851 [35 Cal. Rptr. 3d 117]; Siegel v. Prudential Ins. Co. of America (1998) 67 Cal.App.4th 1270, 1290 [79 Cal. Rptr. 2d 726]; see also Muao v. Grosvenor Properties (2002) 99 Cal.App.4th 1085, 1091-1092 [122 Cal. Rptr. 2d 131] [FAA does not displace CAA provisions governing appealable orders].) The Siegel court, after reviewing the legislative history of the FAA, noted that "[n]othing in the legislative reports and debates evidences a congressional intention that postaward and state court litigation rules be preempted so long as the basic policy upholding the enforceability of arbitration agreements remained in full force and effect." (Siegel, at p. 1289.)

The Supreme Court has repeatedly ruled that the terms of the parties' agreement are controlling over considerations of expediency in the dispute resolution process. "After all, the basic objective in this area is not to resolve disputes in the quickest manner possible, no matter what the parties' wishes [citation], but to ensure that commercial arbitration agreements, like other contracts, ' "are enforced according to their terms," ' [citations], and according to the intentions of the parties [citations]." (First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 947 [131 L. Ed. 2d 985, 115 S. Ct. 1920]; see also Volt, supra, 489 U.S. at p. 479; Dean Witter Reynolds Inc. v. Byrd (1985) 470 U.S. 213, 220-221 [84 L. Ed. 2d 158, 105 S. Ct. 1238].) The court has viewed the federal policy served by the FAA as "at bottom a policy guaranteeing the enforcement of private contractual arrangements." (Mitsubishi Motors v. Soler Chrysler-Plymouth, supra, 473 U.S. at p. 625; see also, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52, 58 [131 L. Ed. 2d 76, 115 S. Ct. 1212].)

The California Supreme Court has consistently recognized that "[a]n exception to the general rule assigning broad powers to the arbitrators arises when the parties have, in either the contract or an agreed submission to arbitration, explicitly and unambiguously limited those powers. (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th [362,] 375-376 [36 Cal. Rptr. 2d 581, 885 P.2d 994].) 'The powers of an arbitrator derive from, and are limited by, the agreement to arbitrate. [Citation.] Awards in excess of those powers may, under sections 1286.2 and 1286.6, be corrected or vacated by the court.' (Id. at p. 375.)" (Gueyffier v. Ann Summers, Ltd. (2008) 43 Cal.4th 1179, 1185 [184 P.3d 739] (Gueyffier).) The California Supreme Court’s review in Moncharsh of the CAA's legislative history confirms that while the statutory grounds for correction and vacation of arbitration awards do not ordinarily include errors of law, contractual limitations on the arbitrators' powers can alter the usual scope of review.

In California, the policy favoring arbitration without the complications of traditional judicial review is based on the parties' expectations as embodied in their agreement, and the CAA rests on the same foundation. "Accordingly, policies favoring the efficiency of private arbitration as a means of dispute resolution must sometimes yield to its fundamentally contractual nature, and to the attendant requirement that arbitration shall proceed as the parties themselves have agreed." (Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 831 [88 Cal. Rptr. 2d 366, 982 P.2d 229].) The scope of judicial review is not invariably limited by statute; rather, "the parties, simply by agreeing to arbitrate, are deemed to accept limited judicial review by implication." (Ibid.) It follows that they may expressly agree to accept a broader scope of review. ¹⁷

Law review commentary has tended to support this view. (Goldman, Contractually Expanded Review of Arbitration Awards (2003) 8 Harv. Negot. L.Rev. 171, 183-184 (Goldman); Hulea, Contracting to Expand the Scope of Review of Foreign Arbitral Awards: An American Perspective (2003) 29 Brook. J. Int'l L. 313, 351 (Hulea); Moses, Can Parties Tell Courts What to Do? Expanded Judicial Review of Arbitral Awards (2004) 52 U.Kan. L.Rev. 429, 430-431 (Moses); Rau, Contracting Out of the Arbitration Act (1997) 8 Am. Rev. Int'l Arb. 225, 230-231 (Rau); but see Schmitz, Ending a Mud Bowl: Defining Arbitration's Finality Through Functional Analysis (2002) 37 Ga. L.Rev. 123, 189-190; Smit, Contractual Modification of the Scope of Judicial Review of Arbitral Awards (1997) 8 Am. Rev. Int'l Arb. 147, 150.)

The benefits of enforcing agreements like the one in Cable Connection are considerable, for both the parties and the courts. The development of alternative dispute resolution is advanced by enabling private parties to choose procedures with which they are comfortable. Commentators have observed that provisions for expanded judicial review are a product of market forces operating in an increasingly "judicialized" arbitration setting, with many of the attributes of court proceedings. The desire for the protection afforded by review for legal error has evidently developed from the experience of sophisticated parties in high stakes cases, where the arbitrators' awards deviated from the parties' expectations in startling ways.

The judicial system reaps little benefit from forcing parties to choose between the risk of an erroneous arbitration award and the burden of litigating their dispute entirely in court. Incorporating traditional judicial review by express agreement preserves the utility of arbitration as a way to obtain expert factual determinations without delay, while allowing the parties to protect themselves from perhaps the weakest aspect of the arbitral process, its handling of disputed rules. (See Rau, supra, 8 Am. Rev. Int'l Arb. at p. 233; Hulea, supra, 29 Brook. J. Int'l L. at p. 354.)

There are also significant benefits to the development of the common law when arbitration awards are made subject to merits review by the parties' agreement. "[I]f courts are reduced to the function of merely enforcing or denying arbitral awards, without an opportunity to discuss the reasoning for the arbitral decision, the advancement of the law is stalled, as arbitral decisions carry no precedential value. Thus, expansion of judicial review gives the courts of first instance the opportunity to establish a record, and to include the reasoning of expert arbitrators into the body of the law in the form of written decisions. This procedure better advances the state of the law and facilitates the necessary beneficial input from experts in the field." (Hulea, supra, 29 Brook. J. Int'l L. at pp. 354-355.)

Peter A. Kleinbrodt