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Arbitrator Has Authority to Act on Demurrer—C.A.
By a MetNews Staff Writer
An arbitrator is authorized to conduct a “demurrer-type hearing,” Div. Three of the Fourth District Court of Appeal has declared in three opinions, each upholding a judgment affirming an arbitration award in favor of the defendants on the ground that the complaint fails to state a cause of action because, on its face, the action is time-barred.
The author, Justice Raymond J. Ikola, did not explain why the three cases, which spawned near-copycat opinions—brought by different sets of investors, represented by the same Anaheim law firm, against Asset Management Consultants, Inc. and five other defendants, each represented by the same Irvine firm—were not consolidated on appeal. Each of the opinions affirms a judgment of Orange Superior Court Judge William D. Claster granted on July 31, 2019.
The plaintiffs sued Asset Management and others—described by Ikola as “middlemen” in real estate transactions—for alleged fraud. Ikola said that “the basic structure of the real estate transaction at issue here has been detailed in no fewer than 19 appellate court opinions,” noting that the untimeliness of complaints was declared in two published cases, and said:
“Appellants in this case were hoping for a different result in arbitration. Unsurprisingly, they did not get it.” As to the power of an arbitrator to cast aside a complaint, as if to grant a demurrer without leave to amend, Ikola rejected the appellants’ contention that Code of Civil Procedure §1282.2(d) precludes a demurrer in an arbitration proceeding. That section says:
“The parties to the arbitration are entitled to be heard, to present evidence and to cross-examine witnesses appearing at the hearing, but rules of evidence and rules of judicial procedure need not be observed. On request of any party to the arbitration, the testimony of witnesses shall be given under oath.”
Demurrers Not Barred
Ikola wrote:
“[T]hat provision, in context, is simply prescribing the minimum due process for an evidentiary hearing, not prohibiting a demurrer.”
The jurist added that, “[i]n any event, that provision only applies subject to the proviso” in §1282.2 that its rules govern “[u]nless the arbitration agreement otherwise provides.”
The agreement provided for arbitration by the Judicial Arbitration and Mediation Services (“JAMS”); its rules, Ikola said, “implicitly permitted a demurrer proceeding.”
He pointed to JAMS’s rule 22 which sets forth: “The Arbitrator may vary these procedures if it is determined to be reasonable and appropriate to do so.”
From that, Ikola concluded:
“So it does not matter that the JAMS rules do not explicitly permit a demurrer. Plainly a demurrer, firmly rooted in tradition and statutory law, is a ‘reasonable and appropriate’ procedure for resolving a case.”
Unconventional Approach
The jurist went on to address the appellants’ novel argument that statutes of limitations have no force or effect in arbitrations. “Under appellants’ theory, apparently, a party could bring an arbitration 50 years after the statute has run,” Ikola noted. “Unsurprisingly, appellants cite no authority supporting this remarkable conclusion.”
The appellants reasoned that Code of Civil Procedure §335.1 establishes time bars relating to an “action”; §22 of that code defines an “action” in terms of “an ordinary proceeding in a court of justice” and an arbitration is not a “proceeding in a court of justice.”
The appellants “engage in a bit of semantics,” in putting forth that reasoning, Ikola said, scoffing:
“That is a cute argument, but it flies in the face of common sense, and it furnishes no basis for us to disturb the arbitration award.”
“The contract specifies that California law applies. We interpret that to mean California law applies in the arbitration in the same manner it would in court—i.e., statutes of limitations apply. Moreover, even assuming appellants are correct, at most the arbitrator was guilty of legal error. We cannot vacate an award for mere legal error.”
Illegality Alleged
In each of the cases, illegality of the arbitration agreement was alleged by the appellants, asserting that the arbitrator, accordingly, lacked jurisdiction. Ikola said:
“Appellants…contend the contract containing the arbitration provision was unenforceable because it was illegal. As a result, appellants contend, the arbitrator lacked subject matter jurisdiction over appellants’ claims. The court ruled against appellants, finding the agreement was, at most, only partially infected by illegality, and thus it was the arbitrator’s task to decide that issue. We agree with the trial court’s analysis.”
The cases are Asset Management Consultants v. McCready, G058408; Asset Management Consultants v. Kornievsky, G058399; and Asset Management Consultants v. Barrons, G058398.
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