You may be able to convince a judge that an arbitrator’s award was wrong on the law. The judge thought so in E-Commerce Lighting, Inc. v. E-Commerce Trade LLC (D4d2 Dec. 9, 2022 No. E074525) --- Cal.Rptr.3d --- and so reversed the setoff awarded by the arbitrator in this lender-borrower dispute.
Basically, the lender and borrower both prevailed and got awards of about $2.5 million against each other, which the arbitrator then set off against each other. The intervening bank (not a party to the arbitration) then moved to “correct” the award to eliminate the setoff, arguing it had a superior right to recover, and that the setoff interfered with that right.
The trial court thought that seemed a pretty easy fix, and reversed the setoff.
But that was wrong, the Court of Appeal held, because the trial court’s power was limited under Code of Civil Procedure section 1286.6(b), in cases where “arbitrators exceeded their powers,” to “correct[ing] without affecting the merits of the decision upon the controversy submitted.”
Where is the line between “correcting” a decision and “affecting the merits”? The court noted that, when the parties have contested an issue in the arbitration, the arbitrator's resolution of that issue is a decision on the “merits.””
Here, the question of setoff was raised as an affirmative defense in the arbitration, and was a litigated issue. So the arbitrator’s decision on it was on the merits, and thus beyond the trial court’s jurisdiction to alter via “correction.”
