Contract Interpretation, in Law and in Fact

Oakland-Alameda Colosseum Auth. v. Golden State Wariors, No. A157688 (D1d5 Aug. 18, 2020)

The parties’ arbitration agreement in this case says the arbitrator exceeds her authority by making errors of law. That effectively means that legal questions in the arbitration are subject to de novo review. But fact questions are essentially unreviewable. 

The main issue in the arbitration was whether a party “terminates” a contact by declining to exercise an option to renew. Following the two step parol evidence rubric in Pacific Gas & E. Co. v. G.W. Thomas Drayage Co., 69 Cal. 2d 33, 37–40 (1968), the arbitrator first provisionally considered some extrinsic evidence to decide whether the agreement was susceptible to more than one reading. After doing so, the arbitrator determined that the word “terminates” was, in fact, susceptible to both parties’ construction. That is a question of law, and the Court of Appeal holds it was a correct one.

In the second step of the PG&E analysis, the court decides which party has the better reading, in light of both the text and the extrinsic evidence. If the extrinsic evidence is not in conflict, this second step is a question of law. That’s the case even if there are competing inferences that can be drawn. On the other hand, if the evidence is in dispute, such as when credibility is at issue, the second step is a question of fact. This case presented the latter. It follows that, because the arbitrator in this case was required to resolve fact disputes, the arbitrator’s ruling in this case is unreviewable.

Affirmed.