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.

Waive Appeal? No Appeal.

PG&E “San Bruno Fire” Cases, No. A152330 (D1d3 Dec. 18, 2019)

Various groups of stockholder plaintiffs sued members of PG&E management derivatively on behalf of the company for alleged misconduct in connection with  the San Bruno pipeline explosion. Plaintiffs collectively agreed to settle for $90 million and $25 million in attorneys’ fees. The trial court trial later adopted the recommendation of a three-member panel of special masters as to the allocation of the fee award between the various counsel involved. One plaintiff, however, filed a notice of appeal, challenging the award to his counsel.

But the settlement agreement, to which this plaintiff was a signatory, provided that the trial court’s determination on fee allocation would be “final and nonappealable.” California law generally recognizes that parties can waive the right to appeal, provided the waiver is express, sufficiently clear, and not coerced. Which the settlement agreement in this case was. 

Appeal dismissed.

Not Waiting for My Man.

Panoche Energy Ctr. v. Pac. Gas & Elec. Co., No A140000 (D1d4 Jul. 1, 2016)

This is a long opinion in a complicated contract dispute over whether an Energy Producer or a Utility should bear the costs of complying with California’s AB 32 greenhouse gas standards. The dispute went to arbitration. Producer said the arbitration needed to be stayed because various issues in the AB 32 regulatory scheme were still being hashed out by the Public Utilities Commission and the Air Resources Board. They included key decisions about whether the compliance burdens should fall on producers or utilities.

According to Producer, these issues could be dispositive to the arbitration, so the decision needed to await resolution by ARB and PUC. The arbitrator didn’t agree. But after the Utility won, a superior court granted the Producer’s motion to vacate under Code of Civil Procedure § 1286.2(a)(5), which permits the vacation of an arbitral award when the arbitrator refuses to postpone the hearing after good cause to do so has been shown. The superior court thought the Producer was prejudiced by the arbitrator’s refusal to await the completion of the rule-makings.

There’s a weird threshold issue here in that the Producer framed its arguments as going to ripeness, a justiciability issue that doesn’t conceptually apply in an arbitration. Indeed, some cases say an arbitrator can decide an unripe controversy, so long as the dispute is one foreseen by the parties’ agreement. The agreement in this case, however, had a somewhat unusual provision expressing the parties’ intent to “limit the power of the arbitrator to that of a Superior Court judge enforcing California Law.” So ripeness would apply to the dispute, as a matter of contract.

But in the end, that didn’t really matter because the dispute about the interpretation of the contract was ripe. While the PUC and ARB decisions would ultimately have an impact of allocation issues, by no means would these decisions result in the interpretation of the contract being meaningless. Indeed, the rule ultimately adopted takes into account whether the parties had clearly allocated the cost in their contract, so there was no reason for the trial court to treat the resolution of the contract interpretation questions as merely some kind of unripe advisory opinion. Under those circumstances there were no reasons to justify vacating the arbitration award under §1286.2(a)(5).

Reversed.