JETT v. HAYS (1991)

OPINION

In a contractual arbitration proceeding, we hold an arbitrator does not have the power to proceed with a hearing and make an award in the absence of a party unless the arbitration has been ordered by the court or such power has been conferred by the arbitration agreement.

Appellant T. Lawrence Jett et al. (Jett), the tenant, entered into a commercial lease with Jesse N. Hays et al. (Hays), the landlord, containing an arbitration clause.   When a dispute later arose involving the calculation of the rental payments, the parties agreed to submit the dispute to arbitration.   Negotiations to settle the dispute continued for several years.   Ultimately they failed and an arbitration hearing was scheduled, canceled, and then rescheduled.   Jett asked Hays to take the rescheduled hearing off calendar but Hays refused.   On the day before the hearing, Jett informed the arbitration service that it believed the hearing had been taken off calendar and it would neither attend, nor pay the arbitrator's fee.   The arbitrator proceeded with the hearing, although Jett failed to appear, and rendered an award.

Jett petitioned to vacate the arbitrator's award.  (Code Civ.Proc., § 1286.2, subd. (d).) ¹  However, the trial court denied the petition, without findings, and confirmed the award.   Jett appeals.

 Hays argues appellate review is restricted to a search for abuse of discretion.   It contends the trial court impliedly found Jett stipulated to arbitration, began the process, received notice of the hearing, and then unilaterally decided not to participate.   These factual findings, Hays alleges, are insulated from appellate review.

Jett insists the question presented, that is whether the arbitrator had the power to act, either by statute or contract, is an issue of law.   We agree.   The interpretation of statutes and contracts is a classic example of a legal issue ultimately decided by an appellate court.  (Sutco Const. Co. v. Modesto High School Dist. (1989) 208 Cal.App.3d 1220, 1228, 256 Cal.Rptr. 671;  Parsons v. Bristol Dev. Co. (1965) 62 Cal.2d 861, 866, 44 Cal.Rptr. 767, 402 P.2d 839.)   We are not bound, therefore, by the trial court's refusal to vacate the award.

 We first consider whether an arbitrator has statutory power to proceed with a hearing in the absence of one of the parties.   Section 1282.2 provides:  “Unless the arbitration agreement otherwise provides, or unless the parties to the arbitration otherwise provide by an agreement which is not contrary to the arbitration agreement as made or as modified by all the parties thereto:  ․ [¶]  If a court has ordered a person to arbitrate a controversy, the arbitrators may hear and determine the controversy upon the evidence produced notwithstanding the failure of a party ordered to arbitrate, who has been duly notified, to appear.”

Hays attempts to excise the first clause of subdivision (e) by arguing the clause does not apply when the parties stipulate to the arbitration process, and the clause creates an anomaly.   Its arguments are directed to the wrong forum.

The statute provides that parties ordered to participate in arbitration risk an adverse award if they fail to appear.   Hays insists those who have stipulated to arbitration should suffer the same result.   That is not, however, what the statute says.   Subdivision (e) is the only provision within section 1282.2 in which the Legislature differentiated arbitration hearings following a court order to compel arbitration from all other voluntary arbitrations.   It empowers the arbitrator to proceed without a party only after a court has become involved.   Presumably a court order to arbitrate increases the parties' awareness of the potential consequences of a failure to attend the hearing.

Next we must consider whether the contract granted the arbitrator the power to proceed in the absence of Jett.  “It is well accepted ‘ “[t]he powers of an arbitrator are limited and circumscribed by the agreement or stipulation of submission.” ’  [Citation.]   An arbitration award which purports to decide unsubmitted [sic ] issues is required to be vacated by the terms of section 1286.2(d) as in excess of the arbitrator's powers.”  (Cobler v. Stanley, Barber, Southard, Brown & Associates (1990) 217 Cal.App.3d 518, 530, 265 Cal.Rptr. 868.)   The arbitration clause included in the lease provided for the selection of the arbitrator but was silent as to the arbitrators' powers and did not incorporate the rules of procedure adopted by the appointed arbitration service.   Nevertheless, Hays contends that once Jett stipulated to arbitration and voluntarily participated in the pre-hearing process, the arbitrator had the power to act in Jett's absence.   Hays could have included this provision in its arbitration clause, insisted on an arbitration agreement specifically setting forth the arbitrator's powers, or incorporated the applicable rules and procedures of the arbitration service.   However, it did not and we are not at liberty to rewrite the contract.

Mitchum, Jones & Templeton, Inc. v. Chronis (1977) 72 Cal.App.3d 596, 140 Cal.Rptr. 160 provides an instructive contrast.   In Mitchum, the court found the arbitration provision in an employment agreement to be self-executing, and therefore, the arbitrators did not exceed their powers by commencing without an order compelling arbitration.  (Id. at p. 601, 140 Cal.Rptr. 160.)  “In so holding we are aware that the trial court found that the arbitration proceeding was conducted without participation therein by [the employee] and over his objection.   However, there is no finding that the arbitrators did not proceed in accordance with the constitution and rules of the New York Stock Exchange with respect to notice or otherwise.   The rules expressly provide in part, ‘ “If any of the parties, after due notice, fails to be present or represented at a hearing or any adjourned hearing, the Arbitrators may, nevertheless, in their own discretion, proceed with the adjudication of the controversy.” ’   Thus in doing so the arbitration board was not acting in excess of its powers.”  (Id. at pp. 601–602, 140 Cal.Rptr. 160.)

The opposite is true here.   Proceeding with the arbitration hearing in Jett's absence was an act in excess of the power of the arbitrator because, unlike Mitchum, there was no rule incorporated into the agreement nor any other contractual provision granting the power.  “The statutory procedure to compel arbitration by court order was designed to afford a remedy where the parties have not provided for the contingency that has arisen or where the contractual scheme has failed.”  (Brink v. Allegro Builders, Inc. (1962) 58 Cal.2d 577, 580, 25 Cal.Rptr. 556, 375 P.2d 436.)   Here the parties did not provide for the contingency which occurred:  one of the parties failed to attend the arbitration hearing.   Hays' remedy was to petition the court to compel arbitration, since the contractual scheme had failed.

 We recognize and support the strong public policy favoring contractual arbitration.  (Knass v. Blue Cross of California (1991) 228 Cal.App.3d 390, 393, 279 Cal.Rptr. 124.)   Admittedly there remains the potential for abuse of the process when a party voluntarily undertakes to participate in arbitration proceedings and then refuses.   In this case, however, Jett apparently believed the hearing had been taken off calendar as it requested and never anticipated the arbitrator would proceed in its absence.

 These factual disputes have been eliminated by statute when the parties are compelled by court order to arbitrate and can easily be eliminated by the arbitration agreement.   Lacking either a court order compelling arbitration or an arbitration agreement allowing it, the arbitrator does not have the power to proceed when a party is absent.   When Jett failed to appear for the hearing, or said it would not appear, Hays' remedy was to petition the court for an order compelling Jett to arbitrate.   Jett would then have been on notice, pursuant to section 1282.2, subdivision (e), that the arbitrator was empowered to act in its absence.

The order is reversed and the arbitration award is vacated.   Jett is awarded costs of appeal.

FOOTNOTES

1.   All statutory references are to the Code of Civil Procedure.*   *   *   *   *   *

WALLIN, Associate Justice.

SILLS, P.J., and MOORE, J., concur.