Tuesday, June 10, 2008
Court Upholds Arbitrator’s Application of Equitable Defense
By SHERRI M. OKAMOTO, Staff Writer
An arbitrator did not exceed his powers by declining, on equitable grounds, to enforce a contractual notice-and-cure provision despite a limitation prohibiting him from modifying or amending the terms of the agreement, the California Supreme Court held yesterday.
Unanimously reversing this district’s Court of Appeal, the state high count concluded that absent an express and unambiguous contractual limitation, an arbitrator has the authority to find facts, interpret contract provisions, and award any relief rationally related to his factual findings and contractual interpretation.
Celine Gueyffier entered into a franchise agreement with Ann Summers, Ltd., a British retailer of lingerie and sex toys, to operate a store in Los Angeles. The store opening failed, and gave rise to claims by each party that the other had breached the terms of the agreement.
Pursuant to the terms of the agreement, the disputes were submitted to arbitration, and the arbitrator found that Ann Summers had failed to provide Gueyffier with promised training, guidance and assistance. Finding these breaches incurable, the arbitrator determined that it would have been an idle act for Gueyffier to comply with the contractual notice requirements to inform Ann Summers of the breaches.
Los Angeles Superior Court Judge George H. Wu confirmed the arbitrator’s award, but Div. Five reversed the decision on appeal, holding that the arbitrator had violated the contract’s express provision that the arbitrator could not modify or change any term of the contract.
Writing for the Supreme Court, Justice Kathryn Mickle Werdegar explained that excusing the performance of a contract term in a specific factual setting did not modify or change the contract.
Although the no-modification clause could have been interpreted as precluding equitable excusal of a condition, Werdegar noted, the arbitrator did not adopt such an interpretation, as was within his authority for interpreting the contact’s provisions.
“The arbitrator was empowered to interpret and apply the parties’ agreement to the facts he found to exist,” Werdegar wrote. “[I]ncluded therein was the power to decide when particular clauses of the contract applied. In concluding the notice-and-cure provision was inapplicable on the facts as he found them, the arbitrator did no more than exercise this power.”
Chief Justice Ronald M. George, and Justices Joyce L. Kennard, Marvin R. Baxter, Ming W. Chin, Carlos R. Moreno, and Carol A. Corrigan joined Werdegar in her opinion
The case is Gueyffier v. Ann Summers, Ltd., 08 S.O.S 3371.
Copyright 2008, Metropolitan News Company