Court Highlights Limited Scope of Review of the Final Award Under the FAA – As Compared to Under California Law

     Appellant Biller worked as an in-house attorney for Toyota Motor Sales (TMS). In 2007, Biller presented TMS with a claim of constructive wrongful discharge related to TMS’s alleged unethical discovery practices. The dispute resulted in a settlement and a Severance Agreement requiring Biller to release claims and to protect Toyota’s “Confidential Information.” The Severance Agreement provided for Dispute Resolution in the form of arbitration of “all known and unknown” claims relating to the interpretation, application, or alleged breach of the Severance Agreement. Biller v. Toyota Motor Corporation, et al., No. 11-55587 (9^th Cir. Feb. 3, 2012) (opinion by Judge Gould). You probably know where this is going.

     Biller set up his own consulting business. TMS sued, claiming that he had misappropriated Confidential Information. Various claims and cross-claims were filed, and the parties ended up in arbitration before the Hon. Gary L. Taylor (ret.), himself a former federal judge. The arbitration provision was governed by the Federal Arbitration Act (FAA).

     “The Arbitrator awarded TMS $2.5 million in liquidated damages and $100,000 in punitive damages.” TMS was also awarded injunctive relief. The Arbitrator concluded Biller’s “unprecedented ethical violations” were unjustified. Ouch.

     The opinion holds an important lesson for practitioners. The FAA offers very limited review of the final award. Because the grounds on which a federal court may vacate, modify, or correct an arbitral award are very limited under the FAA, the parties do not have the ability, under the FAA, to contract to a broader scope of judicial review on the merits.

     And that is different from California law. Cable Connection, Inc. v. DirectTV, Inc., 44 Cal.4^th 1334 (2008). In Cable Connection, the California Supreme Court considered an arbitration agreement under the California Arbitration Act (CAA), and concluded that under the CAA, the parties may contract in the arbitration agreement for review of the merits of the final award. Id., 44 Cal.4^th at 1364. While the parties may choose to have review of the final award governed by the CAA rather than the FAA, if they chose the latter, they cannot then contractually enlarge the scope of review. That’s something to ponder when drafting arbitration clauses.

     Given the very limited scope of review under the FAA, the result was perhaps ordained: affirmance of the district court’s order affirming the arbitration award and permanent injunction against appellant Biller.