Cable Connection, Inc. v. DirecTV, Inc.

190 P.3d 586, 44 Cal. 4th 1334, 82 Cal. Rptr. 3d 229, 2008 Cal. LEXIS 10354

• Court: California Supreme Court
• Decided: August 25, 2008
• Docket: S147767
• Status: Published

Opinions

Opinion

CORRIGAN, J.

This case presents two questions regarding arbitration agreements. (1) May the parties structure their agreement to allow for judicial review of legal error in the arbitration award? (2) Is classwide arbitration available under an agreement that is silent on the matter?

On the first question, the United States Supreme Court has held that the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) does not permit the parties to expand the scope of review by agreement. (Hall Street Associates, L.L.C. v. Mattel, Inc. (2008) 552 U.S. 576, _-_ [170 L.Ed.2d 254, 128 S.Ct. 1396, 1404-1405] (Hall Street).) However, the high court went on to say that federal law does not preclude “more searching review based on authority outside the [federal] statute,” including “state statutory or common law.” (Id. at p. ___ [170 L.Ed.2d 254, 128 S.Ct. at p. 1406].) In Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1 [10 Cal.Rptr.2d 183, 832 P.2d 899] (Moncharsh), this court reviewed the history of the California Arbitration Act (CAA; Code Civ. Proc., § 1280 et seq.).¹ We concluded that the California Legislature “adopt[ed] the position taken in case law . . . that is, ‘that in the absence of some limiting clause in the arbitration agreement, the merits of the award, either on questions of fact or of law, may not be reviewed except as provided in the statute.’ ” (Moncharsh, at p. 25, quoting Crofoot v. Blair Holdings Corp. (1953) 119 Cal.App.2d 156, 186 [260 P.2d 156] (Crofoot).)

We adhere to our holding in Moncharsh, recognizing that contractual limitations may alter the usual scope of review. The California rule is that the parties may obtain judicial review of the merits by express agreement. There is a statutory as well as a contractual basis for this rule; one of the grounds for review of an arbitration award is that “[t]he arbitrators exceeded their powers.” (§§ 1286.2, subd. (a)(4), 1286.6, subd. (b).) Here, the parties agreed that “[t]he arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.” This contract provision is enforceable under state law, and we reverse the contrary ruling of the Court of Appeal.

Regarding the classwide arbitration issue, we remand for redetermination by the arbitrators. The contract directs the arbitrators to apply California substantive law, but specifies that the arbitration proceedings are to be governed by federal law and the rules of the American Arbitration Association (AAA).² The arbitration panel, in a split decision, decided that classwide arbitration is a substantive right under California case law, and that AAA rules allow classwide arbitration unless the arbitration clause forbids it. We conclude that the majority arbitrators misapplied both California law and AAA rules, and that it is proper to return the matter to them for reconsideration under the proper legal standards.

I. BACKGROUND

Defendant DIRECTV, Inc., broadcasts television programming nationwide, via satellite. It contracts with retail dealers to provide customers with equipment needed to receive its satellite signal. In 1996, DIRECTV employed a “residential dealer agreement” for this purpose. A new “sales agency agreement” was used in 1998. Both agreements included arbitration clauses; neither mentioned classwide arbitration.

In 2001, dealers from four states filed suit in Oklahoma, asserting on behalf of a nationwide class that DIRECTV had wrongfully withheld commissions and assessed improper charges. DIRECTV moved to compel arbitration. As the Oklahoma court was considering whether the arbitration could be conducted on a classwide basis, the United States Supreme Court decided Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444 [156 L.Ed.2d 414, 123 S.Ct. 2402] (Bazzle). A plurality in Bazzle held that the arbitrator must decide whether class arbitration is authorized by the parties’ contract. (Id. at pp. 451-452 (plur. opn. of Breyer, J.); see Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 169-171 [30 Cal.Rptr.3d 76, 113 P.3d 1100].) Accordingly, the Oklahoma court directed the parties to submit the matter to arbitration in Los Angeles as provided in the sales agency agreement.³

After the dealers presented a statement of claim and demand for class arbitration in March 2004, a panel of three AAA arbitrators was selected. Following the procedure adopted by the AAA in response to Bazzle, the panel first addressed whether the parties’ agreement permitted the arbitration to proceed on a classwide basis.

After briefing and argument, a majority of the panel decided that even though “the contract is silent and manifests no intent on this issue,” arbitration on a classwide basis was authorized under Blue Cross of California v. Superior Court (1998) 67 Cal.App.4th 42 [78 Cal.Rptr.2d 779] (Blue Cross), and Keating v. Superior Court (1982) 31 Cal.3d 584 [183 Cal.Rptr. 360, 645 P.2d 1192] (Keating), overruled on other grounds in Southland Corp. v. Keating (1984) 465 U.S. 1, 11 [79 L.Ed.2d 1, 104 S.Ct. 852], The majority deemed the question one of substantive California law, though it also relied on AAA rules and policy governing class arbitration. The award emphasized that class arbitration was not necessarily required in this case; it was merely permitted by the contract. Whether the arbitration would actually be maintained on a classwide basis would be the subject of a future hearing.

The dissenting arbitrator found that the sales agency agreement provided “ample indication” the parties had contemplated arbitration only on an individual basis. He reasoned that Blue Cross and Keating did not apply because they addressed the discretion of a court to permit classwide arbitration, based not on contractual intent but on policy considerations reflected in the CAA. Under Bazzle, on the other hand, this determination is for arbitrators to make based on the terms of the contract. The dissent considered the availability of classwide arbitration to be a procedural issue subject to the FAA and AAA rules, under the terms of the arbitration clause.

DIRECTV petitioned to vacate the award, contending (1) the majority had exceeded its authority by substituting its discretion for the parties’ intent regarding class arbitration; (2) the majority had improperly ignored extrinsic evidence of contractual intent; and (3) even if the majority had not exceeded the authority generally granted to arbitrators, the award reflected errors of law that the arbitration clause placed beyond their powers and made subject to judicial review. The dealers responded that the majority had properly applied California law and had not refused to receive extrinsic evidence. The trial court vacated the award, essentially accepting all of DIRECTV’s arguments.

The Court of Appeal reversed, holding that the trial court exceeded its jurisdiction by reviewing the merits of the arbitrators’ decision. Although in the trial court the dealers did not question whether a contract may provide for an expanded scope of judicial review, the Court of Appeal deemed it an important matter of public policy, suitable for consideration for the first time on appeal. The court agreed with two previous Court of Appeal decisions holding such provisions unenforceable. (Oakland-Alameda County Coliseum Authority v. CC Partners (2002) 101 Cal.App.4th 635, 645 [124 Cal.Rptr.2d 363]; Crowell v. Downey Community Hospital Foundation (2002) 95 Cal.App.4th 730, 735-737 [115 Cal.Rptr.2d 810] (Crowell).) It concluded that the provision for judicial review in this case was severable from the remainder of the arbitration agreement, and directed the trial court to confirm the award.

We granted DIRECTV’s petition for review.

II. DISCUSSION

A. Contract Provisions for Judicial Review of Arbitration Awards

1. The CAA, the FAA, and Prior Case Law

“In most important respects, the California statutory scheme on enforcement of private arbitration agreements is similar to the [FAA]; the similarity is not surprising, as the two share origins in the earlier statutes of New York and New Jersey. (See Recommendation and Study relating to Arbitration (Dec. 1960) 3 Cal. Law Revision Com. Rep. (1961) p. G-28 . . . ; Feldman, Arbitration Law in California: Private Tribunals for Private Government (1957) 30 So.Cal.L.Rev. 375, 388, fn. 45.)” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 406 [58 Cal.Rptr.2d 875, 926 P.2d 1061] (Rosenthal).) The CAA, like the FAA, provides that arbitration agreements are “valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (§ 1281; see 9 U.S.C. § 2.) This provision was intended “to overcome an anachronistic judicial hostility to agreements to arbitrate, which American courts had borrowed from English common law.” (Mitsubishi Motors v. Soler Chrysler-Plymouth (1985) 473 U.S. 614, 626, fn. 14 [87 L.Ed.2d 444, 105 S.Ct. 3346]; see also, e.g., Shearson/American Express Inc. v. McMahon (1987) 482 U.S. 220, 226 [96 L.Ed.2d 185, 107 S.Ct. 2332]; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97-98 [99 Cal.Rptr.2d 745, 6 P.3d 669]; Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1073-1074 [90 Cal.Rptr.2d 334, 988 P.2d 67].)

Consistent with that purpose, the CAA and the FAA provide only limited grounds for judicial review of an arbitration award. Under both statutes, courts are authorized to vacate an award if it was (1) procured by corruption, fraud, or undue means; (2) issued by corrupt arbitrators; (3) affected by prejudicial misconduct on the part of the arbitrators; or (4) in excess of the arbitrators’ powers. (§ 1286.2, subd. (a)⁴; 9 U.S.C. § 10(a).⁵) An award may be corrected for (1) evident miscalculation or mistake; (2) excess of the arbitrators’ powers; or (3) imperfection in form. (§ 1286.6⁶; 9 U.S.C. § ll.⁷)

As noted at the outset, and discussed further below, in Moncharsh we declared that “ ‘in the absence of some limiting clause in the arbitration agreement, the merits of the award, either on questions of fact or of law, may. not be reviewed except as provided in the statute.’ (Crofoot, supra, 119 Cal.App.2d at p. 186.)” (Moncharsh, supra, 3 Cal.4th at p. 25.) In the years following the Moncharsh decision, our Courts of Appeal have rejected claims that review of the merits was authorized inferentially, by contract clauses stating that “ ‘[t]he award will be in the form of a statement of decision’ ” (Pacific Gas & Electric Co. v. Superior Court (1993) 15 Cal.App.4th 576, 585 [19 Cal.Rptr.2d 295]), or that California law “ ‘shall govern [the] interpretation and effect’ ” of the contract (Marsch v. Williams (1994) 23 Cal.App.4th 238, 245 [28 Cal.Rptr.2d 402]), or that the arbitrator “ ‘shall apply California law’ ” and “ ‘shall be constrained by the rule of law’ ” (Baize v. Eastridge Companies, LLC (2006) 142 Cal.App.4th 293, 297 [47 Cal.Rptr.3d 763] (Baize)). In each of these cases, however, the courts noted that an expanded scope of review would be available under a clause specifically tailored for that purpose. (Baize, at p. 301; Marsch, at pp. 244-245; Pacific Gas & Electric Co., at p. 588.)

Nevertheless, when the issue has been squarely presented, no Court of Appeal has enforced a contract clause calling for judicial review of an arbitration award on its merits.⁸ In Old Republic Ins. Co. v. St. Paul Fire & Marine Ins. Co. (1996) 45 Cal.App.4th 631 [53 Cal.Rptr.2d 50] (Old Republic), a stipulation for binding arbitration provided that a special master would enter findings of fact and conclusions of law, which would be reviewed by the trial court under the CAA, entered as a judgment, and “ ‘treated as a judgment of the Superior Court for all purposes, including, without limitation, the right of any party adversely affected by said judgment to seek review of the findings of fact, conclusions of law, or judgment as if this matter had been tried to the Court without a jury and judgment entered thereon.’ ” (45 Cal.App.4th at pp. 634-635.) The Court of Appeal refused to review the merits, because the stipulation was “inconsistent with some of the primary purposes of arbitration, quicker results and early finality.” (Id. at p. 638.) Moreover, “the flexibility in the consideration of both evidence and law afforded to arbitrators” made plenary review on appeal problematic. (Ibid.) The court also held that the limitations on the scope of the trial court’s review precluded more extensive appellate review, and that the parties could not create appellate jurisdiction by consent. (Id. at pp. 638-639.)

In Crowell, supra, 95 Cal.App.4th 730, the parties’ contract included an arbitration clause requiring the arbitrator to make written findings and conclusions “ ‘supported by law and substantial evidence.’ ” (Id. at p. 733, fn. 2.) The award was to be “ ‘final, binding and enforceable . . . , except that upon the petition of any party to the arbitration, a court shall have the authority to review the transcript of the arbitration proceedings and the arbitrator’s award and shall have the authority to vacate the arbitrator’s award, in whole or in part, on the basis that the award is not supported by substantial evidence or is based upon an error of law.’ ” (Ibid.)

The Crowell court, in a split decision, decided that the statutory bases for vacating and correcting arbitration awards are exclusive, and that permitting the parties to expand those grounds by agreement would undermine the purpose of reducing expense and delay. (Crowell, supra, 95 Cal.App.4th at p. 735.) Noting that section 1296 authorizes review of the merits following a public contract arbitration, the majority reasoned that the absence of such a provision for other forms of arbitration “suggests the legislative intent that parties cannot agree to a review on the merits.” (Crowell, at pp. 737-738.) “Because the Legislature clearly set forth the trial court’s jurisdiction to review arbitration awards when it specified grounds for vacating or correcting awards in sections 1286.2 and 1286.6, we hold that the parties cannot expand that jurisdiction by contract to include a review on the merits.” (Crowell, at p. 739.) The majority deemed the provision for judicial review “so central to the arbitration agreement that it could not be severed,” and thus held the entire agreement unenforceable. (Id. at pp. 739-740.)

A lengthy dissent in Crowell argued that the arbitration statutes do not prohibit judicial review of the merits. The dissenting justice saw section 1296 as a demonstration of the courts’ suitability to provide substantive review of arbitration awards, and noted that Moncharsh only bars such review in the absence of a limiting clause in the arbitration agreement. (Crowell, supra, 95 Cal.App.4th at pp. 743-745 (dis. opn. of Nott, J.).) The dissent took the position that courts have fundamental jurisdiction to review arbitration awards, and parties may consent to a scope of review broader than that provided by the CAA. It also contended that the policies favoring arbitration would be best served by honoring the parties’ freedom to contract for the resolution of disputes under rules of their own choosing. The most costly and time-consuming aspects of litigation could be handled by an arbitrator, with the courts merely providing an oversight function. Parties who fear that the benefits of speed and reduced expense may be obtained at the expense of a capricious arbitration award would be encouraged to select arbitration, with the assurance provided by judicial review. (95 Cal.App.4th at pp. 748-753.) Here, the dissent said, the majority had “throw[n] ‘the baby out with the bathwater’ ” by forcing parties who had agreed to arbitration to go through “full court litigation.” (Id. at p. 753.)

The Crowell dissent has found support in dicta. One Court of Appeal has deemed it “strong,” and criticized the majority opinion as inconsistent with Moncharsh. (Baize, supra, 142 Cal.App.4th at p. 301, fn. 5.) However, the views of the Crowell majority were followed in Oakland-Alameda County Coliseum Authority v. CC Partners, supra, 101 Cal.App.4th 635. There the arbitration agreement included the following provision: “ ‘[E]ither party may file an application to correct or vacate the arbitration award or an application for de novo review on all questions of law based on the arbitrator’s finding[s] of fact (which are deemed for such purpose to be stipulated by the parties), in either case under California Code of Civil Procedure Section 1285 et seq. . . .’ ” (CC Partners, at p. 645, fn. 3.) The Court of Appeal agreed with the “primary holding in Crowell,” that the scope of review could not be expanded by contract. (Id. at p. 645.) But rather than invalidating the entire arbitration agreement, the court severed the provision for judicial review and affirmed the judgment confirming the award. Unlike the agreement in Crowell, the CC Partners contract included a severance clause. (CC Partners, at pp. 646-647.)

Before the Hall Street decision was handed down, the federal circuits were split on whether the FAA grounds for judicial review are exclusive. The First, Third, Fourth, Fifth, and Sixth Circuits held or indicated that contract provisions for expanded review of arbitration awards were enforceable.⁹ The Seventh, Eighth, Ninth, and Tenth Circuits took the opposite view.¹⁰ As we discuss next, a majority of the Supreme Court in Hall Street decided the FAA was intended to provide exclusive criteria for review of arbitration awards.

2. Hall Street and the Question of Preemption

The Hall Street case arose from an arbitration agreement negotiated during litigation, to resolve an indemnification claim. The agreement was approved and entered as an order by the trial court. It provided: “ ‘The Court shall vacate, modify or correct any award: (i) where the arbitrator’s findings of facts are not supported by substantial evidence, or (ii) where the arbitrator’s conclusions of law are erroneous.’ ” (Hall Street, supra, 552 U.S. at pp. _-_ [128 S.Ct. at pp. 1400-1401].) The trial court vacated the arbitrator’s award and remanded for further consideration; at the time, the Ninth Circuit approved of contract provisions for expanded judicial review. (Hall Street, at p._[128 S.Ct. at p. 1401]; see LaPine, supra, 130 F.3d at p. 888.) After the arbitrator ruled a second time, both parties sought modification, and both appealed from the trial court’s judgment modifying the award. By that time, the Ninth Circuit had changed its view on the enforceability of judicial review provisions. (See Kyocera, supra, 341 F.3d at p. 1000.) It reversed the judgment. (Hall Street, at p. _ [128 S.Ct. at p. 1401].)

After another ruling by the trial court modifying the award, and another reversal by the Ninth Circuit, the Supreme Court granted certiorari. A majority of the court agreed with the Ninth Circuit that the grounds for vacatur and modification provided by sections 10 and 11 of the FAA are exclusive. (Hall Street, supra, 552 U.S. at p. _ [128 S.Ct. at p. 1401].) First, the majority rejected the argument that the nonstatutory “manifest disregard of the law” standard of review recognized by some federal courts supports the enforceability of contract provisions for additional grounds to vacate or modify an arbitration award. (Id. at p._[128 S.Ct. at p. 1403].) It reasoned that the “manifest disregard” exception presumes a rule against general review for legal error, and should not be seen as a “camel’s nose” under the arbitration tent. (Id. at pp. - [128 S.Ct. at pp. 1403-1404]; on “manifest disregard,” see, e.g., McCarthy v. Citigroup Global Markets Inc. (1st Cir. 2006) 463 F.3d 87, 91-92.)

Next, the Hall Street majority disposed of the contention that allowing parties to contract for an expanded scope of review is consistent with the FAA’s primary goal of ensuring the enforcement of arbitration agreements. “[T]o rest this case on the general policy of treating arbitration agreements as enforceable as such would be to beg the question, which is whether the FAA has textual features at odds with enforcing a contract to expand judicial review following the arbitration.” (Hall Street, supra, 552 U.S. at p. _ [128 S.Ct. at p. 1404].) The majority decided that, indeed, those textual features exist. It characterized the statutory grounds for review as remedies for “egregious departures from the parties’ agreed-upon arbitration,” such as corruption and fraud. (Ibid.) It viewed the directive in section 9 of the FAA, that the court “ ‘must grant’ ” confirmation “ ‘unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11,’ ” as a mandatory provision leaving no room for the parties to agree otherwise. (Hall Street, at p._[128 S.Ct. at p. 1405].)

“Instead of fighting the text, it makes more sense to see the three provisions, §§ 9-11, as substantiating a national policy favoring arbitration with just the limited review needed to maintain arbitration’s essential virtue of resolving disputes straightaway. Any other reading opens the door to the full-bore legal and evidentiary appeals that can ‘rende[r] informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process,’ Kyocera, [supra,] 341 F.3d, at 998; cf. Ethyl Corp. v. United Steelworkers of America, 768 F.2d 180, 184 (CA7 1985), and bring arbitration theory to grief in post-arbitration process.” (Hall Street, supra, 552 U.S. at p._[128 S.Ct. at p. 1405].)

Despite this strict reading of the FAA, the Hall Street majority left the door ajar for alternate routes to an expanded scope of review. “In holding that §§ 10 and 11 provide exclusive regimes for the review provided by the statute, we do not purport to say that they exclude more searching review based on authority outside the statute as well. The FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable. But here we speak only to the scope of the expeditious judicial review under §§ 9, 10, and 11, deciding nothing about other possible avenues for judicial enforcement of arbitration awards.” (Hall Street, supra, 552 U.S. at p._[128 S.Ct. at p. 1406].)

Furthermore, the Hall Street majority recognized that the trial court’s case management authority under rule 16 of the Federal Rules of Civil Procedure might support its order adopting the parties’ agreement to review of the merits. However, it remanded for further proceedings on this point, concluding that it was “in no position to address the question now, beyond noting the claim of relevant case management authority independent of the FAA.” (Hall Street, supra, 552 U.S. at p._[128 S.Ct. at p. 1407].)

In dissent, Justice Stevens, joined by Justice Kennedy, took issue with the majority’s view of the policy served by the FAA. He argued that “in light of the historical context and the broader purpose of the FAA, §§10 and 11 are best understood as a shield meant to protect parties from hostile courts, not a sword with which to cut down parties’ ‘valid, irrevocable and enforceable’ agreements to arbitrate their disputes subject to judicial review for errors of law.[¹¹] § 2.” (Hall Street, supra, 552 U.S. at p._ [128 S.Ct. at p. 1409] (dis. opn. of Stevens, J.).) Justice Stevens agreed that “there may be additional avenues available for judicial enforcement of parties’ fairly negotiated review provisions” (id. at p._[128 S.Ct. at p. 1410]), but he would have resolved the conflict among the federal circuits in favor of the parties’ freedom to supplement by contract the statutory grounds for vacatur and modification, “an agreement that does not even arguably offend any public policy whatsoever” (id. at p._[128 S.Ct. at p. 1409]).

Justice Breyer also dissented. He too agreed with the majority that the FAA “ ‘is not the only way into court for parties wanting review of arbitration awards.’ ” (Hall Street, supra, 552 U.S. at p._[128 S.Ct. at p. 1410] (dis. opn. of Breyer, J.), quoting maj. opn. at p._[128 S.Ct. at p. 1406].) Justice Breyer, however, would have remanded with instructions to affirm the trial court’s judgment, apparently on the basis that the FAA had no effect on the court’s independent authority to approve the parties’ agreement as a matter of case management. (552 U.S. at p._[128 S.Ct. at p. 1410].)

The dealers in this case urge us to follow the rationale of the Hall Street majority. They contend that any other construction of the CAA would result in its preemption by the FAA. Alternatively, they argue that Hall Street provides a persuasive analysis of the FAA that should be applied to the similar CAA provisions governing judicial review. We consider first the question of preemption, because if the dealers are correct on that point, it would be fruitless to consider alternate interpretations of state law.¹²

Section 2 of the FAA, declaring the enforceability of arbitration agreements, “create[s] a body of federal substantive law of arbitrability,

applicable to any arbitration agreement within the coverage of the Act.” (Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24 [74 L.Ed.2d 765, 103 S.Ct. 927].) The FAA governs agreements in contracts involving interstate commerce, like those in this case. (Southland Corp. v. Keating, supra, 465 U.S. at pp. 10-11; Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 383-384 [25 Cal.Rptr.3d 540, 107 P.3d 217] (Cronus).) The United States Supreme Court has frequently held that state laws invalidating arbitration agreements on grounds applicable only to arbitration provisions contravene the policy of enforceability established by section 2 of the FAA, and are therefore preempted. (E.g., Doctor’s Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 686-688 [134 L.Ed.2d 902, 116 S.Ct. 1652]; Allied-Bruce Terminix Cos. v. Dobson (1995) 513 U.S. 265, 272-273 [130 L.Ed.2d 753, 115 S.Ct. 834]; Perry v. Thomas (1987) 482 U.S. 483, 490-491 [96 L.Ed.2d 426, 107 S.Ct. 2520]; Southland Corp. v. Keating, supra, 465 U.S. at p. 16; see Cronus, at p. 385.)

However, “the United States Supreme Court does not read the FAA’s procedural provisions to apply to state court proceedings.” (Cronus, supra, 35 Cal.4th at p. 389.) Sections 3 and 4 of the FAA, governing stays of litigation and petitions to enforce arbitration agreements, do not apply in state court. (Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 477, fn. 6 [103 L.Ed.2d 488, 109 S.Ct. 1248] (Volt); Southland Corp. v. Keating, supra, 465 U.S. at p. 16, fn. 10; Cronus, at pp. 389-390; Rosenthal, supra, 14 Cal.4th at pp. 407-408.) As we have noted, the provisions for judicial review of arbitration awards in sections 10 and 11 of the FAA are directed to “the United States court in and for the district wherein the award was made.” (Fn. 12, ante.) We have held that similar language in sections 3 and 4 of the FAA reflects Congress’s intent to limit the application of those provisions to federal courts. (Cronus, at pp. 388-389.)

In several cases, California Courts of Appeal have rejected claims that the FAA grounds for reviewing arbitration awards preempt their CAA counterparts. (SWAB Financial, LLC v. E*Trade Securities, LLC (2007) 150 Cal.App.4th 1181, 1195 [58 Cal.Rptr.3d 904]; Ovitz v. Schulman (2005) 133 Cal.App.4th 830, 851 [35 Cal.Rptr.3d 117]; Siegel v. Prudential Ins. Co. (1998) 67 Cal.App.4th 1270, 1290 [79 Cal.Rptr.2d 726]; see also Muao v. Grosvenor Properties, Ltd. (2002) 99 Cal.App.4th 1085, 1091-1092 [122 Cal.Rptr.2d 131] [FAA does not displace CAA provisions governing appeal-able orders].)¹³ The Siegel court, after reviewing the legislative history of the FAA, noted that “[n]othing in the legislative reports and debates evidences a congressional intention that postaward and state court litigation rules be preempted so long as the basic policy upholding the enforceability of arbitration agreements remained in full force and effect.” (Siegel, at p. 1289.)

Thus, as in Cronus and Rosenthal, the FAA’s procedural provisions are not controlling, and the determinative question is whether CAA procedures conflict with the FAA policy favoring the enforcement of arbitration agreements. (Cronus, supra, 35 Cal.4th at pp. 390-391; Rosenthal, supra, 14 Cal.4th at pp. 408-410.)

Before Hall Street, we would have had no difficulty concluding that enforcing agreements for judicial review on the merits is consistent with the fundamental purpose of the FAA. The high court has made it clear that the FAA does not “prevents the enforcement of agreements to arbitrate under different rules than those set forth in the Act itself. Indeed, such a result would be quite inimical to the FAA’s primary purpose of ensuring that private agreements to arbitrate are enforced according to their terms. Arbitration under the Act is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate [citation], so too may they specify by contract the rules under which that arbitration will be conducted. Where ... the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA .... By permitting the courts to ‘rigorously enforce’ such agreements according to their terms [citation], we give effect to the contractual rights and expectations of the parties, without doing violence to the policies behind by the FAA.” (Volt, supra, 489 U.S. at p. 479.)

The court has repeatedly ruled that the terms of the parties’ agreement are controlling over considerations of expediency in the dispute resolution process. “After all, the basic objective in this area is not to resolve disputes in the quickest manner possible, no matter what the parties’ wishes [citation], but to ensure that commercial arbitration agreements, like other contracts, ‘ “are enforced according to their terms,” ’ [citation], and according to the intentions of the parties [citation].” (First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 947 [131 L.Ed.2d 985, 115 S.Ct. 1920]; see also Volt, supra, 489 U.S. at p. 479; Dean Witter Reynolds Inc. v. Byrd (1985) 470 U.S. 213, 220-221 [84 L.Ed.2d 158, 105 S.Ct. 1238].) The court has viewed the federal policy served by the FAA as “at bottom a policy guaranteeing the enforcement of private contractual arrangements.” (Mitsubishi Motors v. Soler Chrysler-Plymouth, supra, 473 U.S. at p. 625; see also, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52, 58 [131 L.Ed.2d 76, 115 S.Ct. 1212].)

The Hall Street majority, however, brushed aside policy considerations favoring the enforcement of contractual arbitration arrangements, concentrating instead on whether “the FAA has textual features at odds with enforcing a contract to expand judicial review following the arbitration.” (Hall Street, supra, 552 U.S. at p. _ [128 S.Ct. at p. 1404].) Underlying the FAA provisions governing judicial review, it discerned “a national policy favoring arbitration with just the limited review needed to maintain arbitration’s essential virtue of resolving disputes straightaway.” (552 U.S. at p. _ [128 S.Ct. at p. 1405].)

Nevertheless, we do not believe the Hall Street majority intended to declare a policy with preemptive effect in all cases involving interstate commerce.¹⁴ Hall Street was a federal case governed by federal law; the court considered no question of competing state law. It reviewed the application of FAA provisions for judicial review that speak only to the federal courts. The court unanimously left open other avenues for judicial review, including those provided by state statutory or common law. (Hall Street, supra, 552 U.S. at p._[128 S.Ct. at p. 1406], and p._ [128 S.Ct. at p. 1410] (dis. opns. of Stevens, J., and Breyer, J.).) While the court, of course, decided nothing about the viability of these alternatives, their mention in the majority opinion indicates that Hall Street’s holding on the effect of the FAA is a limited one.

Moreover, the Hall Street majority’s disposition of the case before it suggests that its interpretation of sections 10 and 11 of the FAA does not preclude other grounds for review. Rather than simply affirming the reversal of the judgment modifying the arbitrator’s award, the majority vacated and remanded for consideration of the trial court’s authority to approve the parties’ agreement as a matter of case management under the Federal Rules of Civil Procedure. Had the majority meant to impose a uniform national policy requiring judicial review solely on the grounds stated in the FAA, it would not have left open the possibility of trial court review under its “case management authority independent of the FAA.” (Hall Street, supra, 552 U.S. at p._[128 S.Ct. at p. 1407].)

We conclude that the Hall Street holding is restricted to proceedings to review arbitration awards under the FAA, and does not require state law to conform with its limitations. Furthermore, a reading of the CAA that permits the enforcement of agreements for merits review is fully consistent with the FAA “policy guaranteeing the enforcement of private contractual arrangements.” (Mitsubishi Motors v. Soler Chrysler-Plymouth, supra, 473 U.S. at p. 625; see 9 U.S.C. § 2.)

3. Moncharsh and the California Rule

In Moncharsh, the parties’ arbitration clause included no provision for an expanded scope of judicial review. (Moncharsh, supra, 3 Cal.4th at p. 7, fh. 1.) We considered and rejected the appellant’s claim that the award was nevertheless reviewable for error of law on its face causing substantial injustice, a proposition which had some support in case law. (Id. at p. 28.) We reaffirmed “the general rule that an arbitrator’s decision is not ordinarily reviewable for error by either the trial or appellate courts” (id. at p. 13), and held that the statutory grounds for review were intended to implement that rule (id. at pp. 27-28). To that extent, our conclusions were consistent with those of the Hall Street majority. However, in several respects Moncharsh reflects a very different view of arbitration agreements and the arbitration statutes, as applied to the scope of judicial review. Therefore, we disagree with the dealers’ argument that Hall Street is persuasive authority for a restrictive interpretation of the review provisions in the CAA.

Moncharsh began from the premise that “ ‘[t]he scope of arbitration is ... a matter of agreement between the parties’ [citation], and ‘ “[t]he powers of an arbitrator are limited and circumscribed by the agreement or stipulation of submission.” ’ [Citation.]” (Moncharsh, supra, 3 Cal.4th at p. 8.) “ ‘The policy of the law in recognizing arbitration agreements and in providing by statute for their enforcement is to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing.’ [Citation.]” (Id. at p. 9.) “Because the decision to arbitrate grievances evinces the parties’ intent to bypass the judicial system and thus avoid potential delays at the trial and appellate levels, arbitral finality is a core component of the parties’ agreement to submit to arbitration. Thus, an arbitration decision is final and conclusive because the parties have agreed that it be so. By ensuring that an arbitrator’s decision is final and binding, courts simply assure that the parties receive the benefit of their bargain.” (Id. at p. 10.)

“Moreover, ‘[arbitrators, unless specifically required to act in conformity with rules of law, may base their decision upon broad principles of justice and equity, and in doing so may expressly or impliedly reject a claim that a party might successfully have asserted in a judicial action.’ [Citations.]” (Moncharsh, supra, 3 Cal.4th at pp. 10-11.) “Thus, both because it vindicates the intentions of the parties that the award be final, and because an arbitrator is not ordinarily constrained to decide according to the rule of law, it is the general rule that, ‘The merits of the controversy between the parties are not subject to judicial review.’ [Citations.]” (Id. at p. 11.)

Our reasoning in Moncharsh centered not on statutory restriction of the parties’ contractual options, but on the parties’ intent and the powers of the arbitrators as defined in the agreement. These factors support the enforcement of agreements for an expanded scope of review. If the parties constrain the arbitrators’ authority by requiring a dispute to be decided according to the rule of law, and make plain their intention that the award is reviewable for legal error, the general rule of limited review has been displaced by the parties’ agreement. Their expectation is not that the result of the arbitration will be final and conclusive, but rather that it will be reviewed on the merits at the request of either party. That expectation has a foundation in the statutes governing judicial review, which include the ground that “[t]he arbitrators exceeded their powers.” (§§ 1286.2, subd. (a)(4), 1286.6, subd. (b).)

We have consistently recognized that “[a]n exception to the general rale assigning broad powers to the arbitrators arises when the parties have, in either the contract or an agreed submission to arbitration, explicitly and unambiguously limited those powers. (Advanced Micro Devices, Inc. v. Intel Corp. [(1994)] 9 Cal.4th [362,] 375-376, 383 [36 Cal.Rptr.2d 581, 885 P.2d 994].) ‘The powers of an arbitrator derive from, and are limited by, the agreement to arbitrate. [Citation.] Awards in excess of those powers may, under sections 1286.2 and 1286.6, be corrected or vacated by the court.’ (Id. at p. 375.)” (Gueyffier v. Ann Summers, Ltd. (2008) 43 Cal.4th 1179, 1185 [77 Cal.Rptr.3d 613, 184 P.3d 739] (Gueyffier).) Our review in Moncharsh of the CAA’s legislative history confirms that while the statutory grounds for correction and vacation of arbitration awards do not ordinarily include errors of law, contractual limitations on the arbitrators’ powers can alter the usual scope of review.

The current version of the CAA was enacted following a study by the California Law Revision Commission, undertaken at the Legislature’s direction. (Moncharsh, supra, 3 Cal.4th at p. 24.) “The commission’s report was transmitted to the Governor in December 1960. (Recommendation and Study Pertaining to Arbitration, [supra, 3 Cal. Law Revision Com. Rep.].) On the subject of the scope of judicial review, the report explained that, ‘Nothing in the California statute defines the permissible scope of review by the courts. Numerous court rulings have, however, developed the following basic principles which set the limits for any court review: [f] . . . [f] (2) Merits of an arbitration award either on questions of fact or of law may not be reviewed except as provided for in the statute in the absence of some limiting clause in the arbitration agreement.’ ” (Moncharsh, at p. 24, quoting Recommendation and Study Pertaining to Arbitration, supra, p. G-53 (Arbitration Study).)

“The Arbitration Study emphasized that arbitration should be the end of the dispute and that ‘the ordinary concepts of judicial appeal and review are not applicable to arbitration awards. Settled case law is based on this assumption.’ (Arbitration Study, supra, [3 Cal. Law Revision Com. Rep.,] p. G-54.)[¹⁵] After surveying the state of the law, the report concluded that although the California statutes do not ‘attempt to express the exact limits of court review of arbitration awards, ... no good reason exists to codify into the California statute the case law as it presently exists.’ (Ibid.) Further, the report recommended that the ‘present grounds for vacating an award should be left substantially unchanged.’ (Id. at p. G-57.)” (Moncharsh, supra, 3 Cal.4th at p. 25.) Considering the nature of the revisions incorporated in the CAA, this court concluded that the Legislature intended to “adopt the position taken in case law and endorsed in the Arbitration Study, that is, ‘that in the absence of some limiting clause in the arbitration agreement, the merits of the award, either on questions of fact or of law, may not be reviewed except as provided in the statute.’ ” (Moncharsh, at p. 25, quoting Crofoot, supra, 119 Cal.App.2d at p. 186.)

The Crofoot rule does not suggest that review of the merits must rest on a nonstatutory basis. As discussed below, Crofoot’s reference to a limiting clause in the agreement pertains to limits on the arbitrators’ powers. Thus, the merits of an award may come within the ambit of the statutory grounds of review for excess of the arbitrators’ powers. (§§ 1286.2, subd. (a)(4), 1286.6, subd. (b).) However, absent such a limitation, the scope of review provided by statute is quite limited. In Moncharsh, we noted that section 1286.2 includes no provision for review of the merits like that found in section 1296, governing public construction contract arbitrations.¹⁶ (Moncharsh, supra, 3 Cal.4th at pp. 25-26.) The Crowell court, and the Court of Appeal below, considered section 1296 an indication that the Legislature did not intend to permit review of the merits by agreement. (Crowell, supra, 95 Cal.App.4th at pp. 737-738.) This view is mistaken. In Moncharsh we inferred from section 1296 that “the Legislature did not intend to confer traditional judicial review in private arbitration cases.” (Moncharsh, at p. 26.) However, the failure to provide for that scope of review by statute does not mean the parties themselves may not do so by contract. Moreover, section 1296 authorizes review for legal error without any specific agreement to that effect. The parties to a public construction contract need only provide that the award must be supported by law and substantial evidence. Thus, section 1296 says nothing about the Legislature’s intent regarding contracts expressly permitting review on the merits.

Our holding in Moncharsh that the CAA incorporates the Crofoot rule is irreconcilable with the notion that the parties are barred from agreeing to limit the arbitrators’ authority by subjecting their award to review on the merits. The history of the FAA, as reviewed by the Hall Street majority, includes no similar indication that Congress intended the statutory grounds for review to operate as default provisions, providing only limited review unless the parties agree otherwise. (Hall Street, supra, 552 U.S. at pp._,_ fn. 7 [128 S.Ct. at pp. 1405, 1406, fn. 7].) Nor did Hall Street address whether the FAA provision for vacatur “where the arbitrators exceeded their powers” (9 U.S.C. § 10(a)(4)) is applicable when the agreement specifically limits the arbitrators’ powers by providing for an award governed by law and reviewable for legal error. Therefore, Hall Street's FAA analysis is inapposite.

In California, the policy favoring arbitration without the complications of traditional judicial review is based on the parties’ expectations as embodied in their agreement, and the CAA rests on the same foundation. “Accordingly, policies favoring the efficiency of private arbitration as a means of dispute resolution must sometimes yield to its fundamentally contractual nature, and to the attendant requirement that arbitration shall proceed as the parties themselves have agreed.'' (Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 831 [88 Cal.Rptr.2d 366, 982 P.2d 229].) The scope of judicial review is not invariably limited by statute; rather, “the parties, simply by agreeing to arbitrate, are deemed to accept limited judicial review by implication ....'' (Ibid.) It follows that they may expressly agree to accept a broader scope of review.¹⁷

Neither Crofoot, the Arbitration Study, nor Moncharsh had occasion to explore the nature of the “limiting clause in the arbitration agreement” that all these sources recognized as an exception to the usual rule barring review of the merits of an award. (Crofoot, supra, 119 Cal.App.2d at p. 186; Arbitration Study, supra, 3 Cal. Law Revision Com. Rep., p. G-53; see Moncharsh, supra, 3 Cal.4th at p. 25.) In the case before it, the Crofoot court rejected the claim that the parties’ agreement limited the arbitrator’s powers. (Crofoot, supra, 119 Cal.App.2d at pp. 186-187.) However, the two authorities cited in Crofoot that discuss contract limitations suggest the scope of judicial review may be expanded by provisions restricting arbitrators’ usual broad powers.

Crofoot quoted Sapp v. Barenfeld (1949) 34 Cal.2d 515, 523 [212 P.2d 233], for the proposition that “ ‘[arbitrators, unless specifically required to act in conformity with rules of law, may base their decision upon broad principles of justice and equity, and in doing so may expressly or impliedly reject a claim that a party might successfully have asserted in a judicial action.’ ” (Crofoot, supra, 119 Cal.App.2d at p. 185, italics added; see also Moncharsh, supra, 3 Cal.4th at pp. 10-11.) The Sapp court followed this statement with a citation to Gerdetz v. Central Oregon Irr. Co. (1917) 83 Ore. 576 [163 P. 980], where the court reviewed the parties’ agreement and observed: “We note that no restriction is placed upon the arbitrators in any degree within their respective provinces. No reservation is made for reviewing any decision of law or fact. The case is not like many of those cited in the plaintiff’s brief where the arbitrators were required to determine questions of law according to legal rules and the decisions of the courts on identical matters. Neither is it like other instances where the statute requires the award to be made agreeable to certain precepts or in pursuance of an order or rule of court where the award must be subject to the approval of the tribunal making the order. In the instant case the unrestricted terms of the submission differentiate it from all such precedents. It is said in 5 C. J. 183: [][] ‘In the absence of a special requirement, the arbitrators are not bound to decide according to law, and therefore in such case a mistaken construction of the law has been held not sufficient ground of avoidance of an award . . . .’ ” (Gerdetz, supra, 163 P. at pp. 981-982, italics added.)

The Crofoot court also relied on Kagel, California Arbitration Statute (1950) 38 Cal. L.Rev. 799, 825 et seq. (Kagel). (Crofoot, supra, 119 Cal.App.2d at p. 185.) There, the author stated: “Whether an arbitrator’s decision on questions of law and facts is final and not subject to judicial review seems to depend on the 'submission agreement. ... If the submission agreement is qualified and provides, for example, that an arbitrator should ‘make his judgment and award according to the legal rights of the parties,’ . . . apparently the award is subject to judicial review.” (Kagel, supra, at p. 827.)¹⁸ After quoting Sapp v. Barenfeld, supra, 34 Cal.2d 515, to the same effect as in Crofoot, Kagel concluded: “The wording of the arbitration clause or submission agreement is important then, affecting the limits of review.” (Kagel, supra, at p. 827.)

The Arbitration Study discussed in Moncharsh includes a similar observation. Regarding the statutory ground of review for excess of the arbitrators’ powers, the study stated: “Arbitrators may base their decision on broad principles of justice and equity, but if the submission agreement specifically requires an arbitrator to act in conformity with rules of law, the arbitrator exceeds his authority if his decision is not based on rules of law.” (Arbitration Study, supra, 3 Cal. Law Revision Com. Rep, p. G-56, fns. omitted.)

These early authorities might be read to support a rule that a provision simply requiring the arbitrators to follow the rule of law places it beyond their powers to apply the law incorrectly, so that the award may be vacated or modified on that basis. However, the Legislature has since enacted a similar rule for public contract arbitrations. (§ 1296; see fn. 16, ante, and accompanying text.)¹⁹ Had it intended to make review of the merits generally available on that basis, presumably it would have included a similar provision in sections 1286.2 and 1286.6. Moreover, requiring the parties to expressly provide for an expanded scope of review is consistent with the usual expectations of parties to arbitration agreements, who accept the risk of legal error in exchange for the benefits of a quick, inexpensive, and conclusive resolution. (See Moncharsh, supra, 3 Cal.4th at pp. 11-12.)

A provision requiring arbitrators to apply the law leaves open the possibility that they are empowered to apply it “wrongly as well as rightly.” (Utah Const. Co. v. Western Pac. Ry. Co., supra, 174 Cal. at p. 163; see Baize, supra, 142 Cal.App.4th at pp. 301-302.) As we recently observed: “When parties contract to resolve their disputes by private arbitration, their agreement ordinarily contemplates that the arbitrator will have the power to decide any question of contract interpretation, historical fact or general law necessary, in the arbitrator’s understanding of the case, to reach a decision. (Moshonov v. Walsh [(2000)] 22 Cal.4th [771,] 775-777 [94 Cal.Rptr.2d 597, 996 P.2d 699]; Advanced Micro Devices, Inc. v. Intel Corp., supra, 9 Cal.4th at pp. 372-375; Moncharsh . . . , supra, 3 Cal.4th at p. 28.) Inherent in that power is the possibility the arbitrator may err in deciding some aspect of the case. Arbitrators do not ordinarily exceed their contractually created powers simply by reaching an erroneous conclusion on a contested issue of law or fact, and arbitral awards may not ordinarily be vacated because of such error, for ' “[t]he arbitrator’s resolution of these issues is what the parties bargained for in the arbitration agreement.” ’ (Moshonov v. Walsh, at pp. 775-776, quoting Moncharsh ... at p. 28.)” (Gueyffier, supra, 43 Cal.4th at p. 1184.)

Therefore, to take themselves out of the general rule that the merits of the award are not subject to judicial review, the parties must clearly agree that legal errors are an excess of arbitral authority that is reviewable by the courts. Here, the parties expressly so agreed, depriving the arbitrators of the power to commit legal error. They also specifically provided for judicial review of such error.²⁰ We do not decide here whether one or the other of these clauses alone, or some different formulation, would be sufficient to confer an expanded scope of review. However, we emphasize that parties seeking to allow judicial review of the merits, and to avoid an additional dispute over the scope of review, would be well advised to provide for that review explicitly and unambiguously. (Cf. Advanced Micro Devices, Inc. v. Intel Corp., supra, 9 Cal.4th at p. 383.)

Those Court of Appeal opinions refusing to enforce specific provisions for judicial review of the merits are disapproved insofar as they conflict with our analysis. (Crowell v. Downey Community Hospital Foundation, supra, 95 Cal.App.4th 730, 735; Oakland-Alameda County Coliseum Authority v. CC Partners, supra, 101 Cal.App.4th 635, 645; Old Republic Ins. Co. v. St. Paul Fire & Marine Ins. Co., supra, 45 Cal.App.4th 631, 638-639.) The objections raised in these cases are outweighed by the freedom of contract that is fundamental to arbitration, by the availability of an expanded scope of review in other contexts, and by the considerable public and private benefits that such review can provide.

Review on the merits has been deemed incompatible with the goals of finality and informality that are served by arbitration and protected by the arbitration statutes. (Crowell, supra, 95 Cal.App.4th at p. 735; Old Republic, supra, 45 Cal.App.4th at p. 638.) However, as discussed above, those policies draw their strength from the agreement of the parties. It is the parties who are best situated to weigh the advantages of traditional arbitration against the benefits of court review for the correction of legal error.

Arbitration provisions calling for review of the merits have also been condemned as attempts to create jurisdiction where none exists. (Crowell, supra, 95 Cal.App.4th at p. 739; Old Republic, supra, 45 Cal.App.4th at pp. 638-639.) But the CAA authorizes review on the ground that an award exceeds the arbitrators’ powers. (§§ 1286.2, subd. (a)(4), 1286.6, subd. (b).) Because those powers are circumscribed by the terms of the parties’ agreement (Gueyffier, supra, 43 Cal.4th at p. 1185; Moncharsh, supra, 3 Cal.4th at p. 8), there is no jurisdictional impediment to contracts limiting the arbitrators’ authority by subjecting their award to correction for legal error.

Some courts have expressed concern that arbitration is so different from judicial proceedings that courts would be unable to adequately review the substance of arbitrators’ decisions. (National Union, supra, 69 Cal.App.4th at pp. 715-716; Old Republic, supra, 45 Cal.App.4th at p. 638.) This problem has not appeared in those circumstances where arbitration awards have been reviewed for legal error. Section 1296 has provided for review of the merits in public construction contract arbitrations since 1979. Arbitration awards have been reviewed to determine whether the arbitrators complied with statutes conferring unwaivable rights. (See, e.g., Aguilar v. Lerner, supra, 32 Cal.4th 974, 982-983; Board of Education v. Round Valley Teachers Assn., supra, 13 Cal.4th 269, 276-277.) Until recently, federal courts have reviewed arbitration awards under agreements calling for an expanded scope of review. (See fn. 9, ante.) Obstacles to effective review have not been evident in any of these settings.²¹ Problems with the record are not reflected in the cases, but in the event they arise, there is a ready solution in the familiar rule that the decision under review is presumed correct on matters where the record is silent. (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1140-1141 [104 Cal.Rptr.2d 377, 17 P.3d 735]; see Lopes v. Millsap (1992) 6 Cal.App.4th 1679, 1685 [8 Cal.Rptr.2d 814]; Goldman, supra, 8 Harv. Negot. L.Rev. at p. 187.)

To the extent the concern with reviewability arises from apprehension that permitting review on the merits would open the door to contracts imposing unfamiliar standards of review, it appears to be unfounded. We have discovered no case where the parties attempted to make the courts apply an unusual standard of review. Instead, as in this case, they have required the arbitrators to apply legal standards, resulting in awards that can be reviewed in traditional fashion. (See Goldman, supra, 8 Harv. Negot. L.Rev. at p. 186.) We need not speculate about provisions calling for bizarre modes of decision, but we note that arbitration agreements are “as enforceable as other contracts, but not more so.” (Prima Paint v. Flood & Conklin (1967) 388 U.S. 395, 404, fn. 12 [18 L.Ed.2d 1270, 87 S.Ct. 1801]; Cronus, supra, 35 Cal.4th at p. 384.) Thus, just as the parties to any contract are limited in the constraints they may place on judicial review, an arbitration agreement providing that a “judge would review the award by flipping a coin or studying the entrails of a dead fowl” would be unenforceable. (LaPine, supra, 130 F.3d 884, 891 (conc. opn. of Kozinski, J.); see Cole, Managerial Litigants? The Overlooked Problem of Party Autonomy in Dispute Resolution (2000) 51 Hastings L.J. 1199, 1263 (Cole).)

The benefits of enforcing agreements like the one before us are considerable, for both the parties and the courts. The development of alternative dispute resolution is advanced by enabling private parties to choose procedures with which they are comfortable. Commentators have observed that provisions for expanded judicial review are a product of market forces operating in an increasingly “judicialized” arbitration setting, with many of the attributes of court proceedings. The desire for the protection afforded by review for legal error has evidently developed from the experience of sophisticated parties in high stakes cases, where the arbitrators’ awards deviated from the parties’ expectations in startling ways. (Goldman, supra, 8 Harv. Negot. L.Rev. at pp. 172-173; Cole, supra, 51 Hastings L.J. at p. 1243; Brunet, Replacing Folklore Arbitration with a Contract Model of Arbitration (1999) 74 Tul. L.Rev. 39, 40-42, 52-57, 62-63; Younger, Agreements to Expand the Scope of Judicial Review of Arbitration Awards (1999) 63 Alb. L.Rev. 241.)

The judicial system reaps little benefit from forcing parties to choose between the risk of an erroneous arbitration award and the burden of litigating their dispute entirely in court. Enforcing contract provisions for review of awards on the merits relieves pressure on congested trial court dockets. (See Crowell, supra, 95 Cal.App.4th at pp. 752-753 (dis. opn. of Nott, J.); LaPine, supra, 130 F.3d at pp. 888-889; Fils et Cables d’Acier de Lens v. Midland Metals, supra, 584 F.Supp. at p. 244; Moses, supra, 52 U. Kan. L.Rev. at p. 443; Goldman, supra, 8 Harv. Negot. L.Rev. at p. 184; Hulea, supra, 29 Brook. J. Int’l L. at pp. 353-354.) Courts are spared not only the burden of conducting a trial, but also the complications of discovery disputes and other pretrial proceedings. Incorporating traditional judicial review by express agreement preserves the utility of arbitration as a way to obtain expert factual determinations without delay, while allowing the parties to protect themselves from perhaps the weakest aspect of the arbitral process, its handling of disputed rules of law. (See Rau, supra, 8 Am. Rev. Int’l Arb. at p. 233; Hulea, supra, 29 Brook. J. Int’l L. at p. 354.)

There are also significant benefits to the development of the common law when arbitration awards are made subject to merits review by the parties’ agreement. “[I]f courts are reduced to the function of merely enforcing or denying arbitral awards, without an opportunity to discuss the reasoning for the arbitral decision, the advancement of the law is stalled, as arbitral decisions carry no precedential value. [Fn. omitted.] Thus, expansion of judicial review gives the courts of first instance the opportunity to establish a record, and to include the reasoning of expert arbitrators into the body of the law in the form of written decisions. This procedure better advances the state of the law and facilitates the necessary beneficial input from experts in the field.” (Hulea, supra, 29 Brook. J. Int’l L. at pp. 354-355.)

These advantages, obtained with the consent of the parties, are substantial. As explained in Moncharsh, the drafters of the CAA established the statutory grounds for judicial review with the expectation that arbitration awards are ordinarily final and subject to a restricted scope of review, but that parties may limit the arbitrators’ authority by providing for review of the merits in the arbitration agreement. (Moncharsh, supra, 3 Cal.4th at p. 25.) The Court of Appeal erred by refusing to enforce the parties’ clearly expressed agreement in this case.

B. The Award Permitting Classwide Arbitration

Two of the three arbitrators below decided the dealers could pursue arbitration on a classwide basis, although the parties’ contract did not mention classwide arbitration. The Court of Appeal agreed with this determination. The contract calls for the arbitrators to apply California substantive law, while following the procedural requirements of AAA rules and the FAA.²²

The Court of Appeal, and the arbitrators in the majority, viewed the right to pursue classwide arbitration as a substantive one under Keating, supra, 31 Cal.3d 584, and Blue Cross, supra, 67 Cal.App.4th 42. The court concluded that these cases “give[] arbitrators discretion to order classwide arbitration even where the arbitration agreement is silent on that issue, in divergence from the general rules of contract interpretation that terms are not to be inserted into contracts.”

This reasoning suffers from several lapses. Assuming the right to classwide arbitration may be viewed as substantive rather than procedural, a question we do not address here, the Keating rule is that courts have the authority to order classwide arbitration when an arbitration clause appears in a contract of adhesion, and “gross unfairness would result from the denial of opportunity to proceed on a classwide basis . . . .” (Keating, supra, 31 Cal.3d ; see also Blue Cross, supra, 67 Cal.App.4th at pp. 52-55.) The Keating court did not speak to whether arbitrators have that authority. We have since held that whether an arbitration clause is unconscionable “is for the courts to decide, not an arbitrator.” (Discover Bank v. Superior Court, supra, 36 Cal.4th at p. 171.) In any event, here the dealers did not claim and the arbitrators did not find that the contract was adhesive, or that a denial of classwide arbitration would lead to gross unfairness.

Furthermore, the majority arbitrators did not need to turn to Keating for authority to order classwide arbitration. The AAA rules invoked in the arbitration clause expressly confer that power on the arbitrators. Their task under the relevant rule was to “determine as a threshold matter, in a reasoned, partial final award on the construction of the arbitration clause, whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class.” (AAA, Supplementary Rules for Class Arbitrations (Oct. 2003), rule 3.) DIRECTV claims that in making this decision, the arbitrators in the majority violated a provision of the AAA rules stating: “In construing the applicable arbitration clause, the arbitrator shall not consider the existence of these Supplementary Rules, or any other AAA rules, to be a factor either in favor of or against permitting the arbitration to proceed on a class basis.” CIbid.)

DIRECTV appears to be correct. The majority award referred both to the Keating rule and to AAA rules and policy. The policy specifying that AAA “will administer demands for class arbitration ... if ... the agreement is silent with respect to class claims” (AAA, Policy on Class Arbitrations (July 14, 2005), italics added) was misquoted in the award as stating that AAA “will admit demands for class arbitration” when the agreement is silent. The majority then relied on that proposition to support the conclusion that “the clause construction aspect under the Association rules provides for class arbitration to be allowed unless the arbitrators find that the arbitration clause forbids it.” Thus, the majority does seem to have considered the existence of AAA provisions governing classwide arbitration as a factor favoring the procedure.

AAA’s class arbitration policy is based on the Bazzle decision.²³ The Bazzle plurality declared: “[T]he relevant question here is what kind of arbitration proceeding the parties agreed to. That question does not concern a state statute or judicial procedures, cf. [Volt, supra,] 489 U.S. 468, 474-476 .... It concerns contract interpretation and arbitration procedures. Arbitrators are well situated to answer that question.” (Bazzle, supra, 539 U.S. at pp. 452-453 (plur. opn. of Breyer, J.).) We express no view on whether the terms of this arbitration clause are consistent with conducting arbitration on a classwide basis. Instead of deciding that question, the majority arbitrators misapplied AAA rules and policy as well as the Keating rule. Under the circumstances, we deem it appropriate to permit the arbitration panel to reconsider the availability of classwide arbitration as a matter of contract interpretation and AAA arbitration procedure.

III. DISPOSITION

We reverse the judgment of the Court of Appeal, with directions to instruct the trial court to vacate the award so that the arbitrators may redetermine whether the arbitration may proceed on a classwide basis.

Kennard, J., Baxter, J., Werdegar, J., and Chin, J., concurred.

1 Further statutory references are to the Code of Civil Procedure unless otherwise indicated.

2 The contract allows enforcement proceedings to be brought in either state or federal court. Because the parties proceeded in state court under the CAA, we conclude that judicial review of the award is governed by state law, though the arbitration proceedings are governed by federal procedural law and AAA rules under the terms of the contract. (See fn. 12, post.)

3 The sales agency agreement, unlike the earlier residential dealer agreement, specified that claims of $250,000 or more would be heard by three arbitrators. The arbitrators, the trial court, and the Court of Appeal applied the arbitration clause in the sales agency agreement. The parties do not question the use of that clause.

Section 18.12 of the sales agency agreement, captioned “ARBITRATION,” states:

“(a) Any dispute or claim arising out of the interpretation, performance, or breach of this Agreement, including without limitation claims alleging fraud in the inducement, shall be resolved only by binding arbitration, at the request of either party, in accordance with the rules of the American Arbitration Association, modified as herein provided. The arbitrators shall be, to the fullest extent available, either retired judges or selected from a panel of persons trained and expert in the subject area of the asserted claims. If the claim seeks damages of less than $250,000, it shall be decided by one arbitrator. In all other cases, each party shall select one arbitrator, who shall jointly select the third arbitrator. If for any reason a third arbitrator is not selected within one month after the claim is first made, the third arbitrator shall be selected in accordance with the rules of the American Arbitration Association. The arbitrators shall apply California substantive law to the proceeding, except to the extent Federal substantive law would apply to any claim. The arbitration shall be conducted in Los Angeles, California. An award may be entered against a party who fails to appear at a duly noticed hearing. The arbitrators shall prepare in writing and provide to the parties an award including factual findings and the reasons on which their decision is based. The arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error. The decision of the arbitrators may be entered and enforced as a final judgment in any court of competent jurisdiction. The parties shall share equally the arbitrator’s fees and other costs of the arbitration.

“(b) Notwithstanding the foregoing, the following shall not be subject to arbitration and may be adjudicated only by the Los Angeles County, California Superior Court or the U.S. District Court for the Central District of California:

“(1) any dispute, controversy, or claim relating to or contesting the validity of DIRECTV’S right to offer DBS Service to the public or any of DIRECTV’S Trade Secrets or Marks; and “(2) the request by either party for preliminary or permanent injunctive relief, whether prohibitive or mandatory, or provisional relief such as writs of attachment or possession.

“(c) This Section and any arbitration conducted hereunder shall be governed by the United States Arbitration Act (9 U.S.C. Section 1, et seq.). The parties acknowledge that the transactions contemplated by this Agreement involve commerce, as defined in said Act. This Section 18.12 shall survive the termination or expiration of this Agreement.”

4 “[T]he court shall vacate the award if the court determines any of the following:

“(1) The award was procured by corruption, fraud or other undue means.

“(2) There was corruption in any of the arbitrators.

“(3) The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator.

“(4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.

“(5) The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title.

“(6) An arbitrator making the award either: (A) failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware; or (B) was subject to disqualification upon grounds specified in Section 1281.91 but failed upon receipt of timely demand to disqualify himself or herself as required by that provision. However, this subdivision does not apply to arbitration proceedings conducted under a collective bargaining agreement between employers and employees or between their respective representatives.” (§ 1286.2, subd. (a).)

5 “In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration—•

“(1) where the award was procured by corruption, fraud, or undue means;

“(2) where there was evident partiality or corruption in the arbitrators, or either of them;

“(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

“(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” (9 U.S.C. § 10(a).)

6 “[Tjhe court, unless it vacates the award pursuant to Section 1286.2, shall correct the award and confirm it as corrected if the court determines that:

“(a) There was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award;

“(b) The arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted; or

“(c) The award is imperfect in a matter of form, not affecting the merits of the controversy.” (§ 1286.6.)

7 “In either of the following cases the United States court in and for the district wherein the award was made may make an order modifying or correcting the award upon the application of any party to the arbitration—■

“(a) Where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award.

“(b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted.

“(c) Where the award is imperfect in matter of form not affecting the merits of the controversy.

“The order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties.” (9 U.S.C. § 11.)

8 Two divided Courts of Appeal have treated arbitration proceedings as other forms of alternative dispute resolution, so as to permit review of the merits. In National Union Fire Ins. Co. v. Nationwide Ins. Co. (1999) 69 Cal.App.4th 709, 714 [82 Cal.Rptr.2d 16] (National Union), a stipulation for arbitration was deemed “ ‘a reference by consent of the parties’ ” under section 638. In City of Shasta Lake v. County of Shasta (1999) 75 Cal.App.4th 1, 10-13 [88 Cal.Rptr.2d 863], the court construed an agreement for binding arbitration before a retired judge as a stipulation for trial before a temporary judge under article VI, section 21 of the California Constitution.

9 Puerto Rico Telephone v. U.S. Phone Mfg. (1st Cir. 2005) 427 F.3d 21, 30-31 (dicta; see also New England Utilities v. Hydro-Quebec (D.Mass. 1998) 10 F.Supp.2d 53, 62-64); Roadway Package System, Inc. v. Kayser (3d Cir. 2001) 257 F.3d 287, 293 (dicta); Syncor Intern. Corp. v. McLeland (4th Cir. 1997) 120 F.3d 262; Gateway Technologies v. MCI Telecommunications (5th Cir. 1995) 64 F.3d 993, 996-997; Jacada Ltd. v. Intern. Marketing Strategies (6th Cir. 2005) 401 F.3d 701, 710-712 (dicta). See also LaPine Technology Corp. v. Kyocera Corp. (9th Cir. 1997) 130 F.3d 884, 888 (LaPine), overruled by Kyocera Corp. v. Prudential-Bache (9th Cir. 2003) 341 F.3d 987, 1000 (Kyocera).

A district court from the Southern District of New York enforced a provision for expanded review (Fils et Cables d’Acier de Lens v. Midland Metals (S.D.N.Y. 1984) 584 F.Supp. 240, 244); the Second Circuit did not weigh in on the question.

10 Chicago Typographical Union v. Chicago Sun-Times (7th Cir. 1991) 935 F.2d 1501, 1505 (dicta); UHC Management Co. v. Computer Sciences Corp. (8th Cir. 1998) 148 F.3d 992, 997-998 (dicta); Kyocera, supra, 341 F.3d at page 1000; Bowen v. Amoco Pipeline Co. (10th Cir. 2001) 254 F.3d 925, 935-937.

11 “In the years before the passage of the FAA, arbitration awards were subject to thorough and broad judicial review. See Cohen & Dayton, The New Federal Arbitration Law, 12 Va. L.Rev. 265, 270-271 (1926); Cullinan, Contracting for an Expanded Scope of Judicial Review in Arbitration Agreements, 51 Vand. L.Rev. 395, 409 (1998). In §§ 10 and 11 of the FAA, Congress significantly limited the grounds for judicial vacatur or modification of such awards in order to protect arbitration awards from hostile and meddlesome courts.”

12 At our invitation, the dealers also briefed the question whether the proceedings for judicial review of the arbitration award in this case are governed by the FAA, given the contract specification that “any arbitration conducted hereunder shall be governed by the United States Arbitration Act . . . .” The dealers contend this clause requires application of the FAA grounds for review, as strictly limited by Hall Street. DIRECTV responds that the FAA provisions governing judicial review are specific to federal courts; that the dealers waived their FAA theory by failing to raise it in the trial court or on appeal; and that the contract calls only for the arbitration itself to be governed by the federal statute, not postarbitration proceedings in court.

We conclude that DIRECTV has the better argument. Sections 10 and 11 of the FAA refer to review by “the United States court in and for the district wherein the award was made.” (9 U.S.C. §§ 10(a), 11.) The parties’ contract did not specify whether enforcement proceedings were to be brought in state or federal court, providing generally that “[t]he decision of the arbitrators may be entered and enforced as a final judgment in any court of competent jurisdiction.” DIRECTV’S petition to vacate the award was filed, argued, and appealed in state court, and before the Hall Street decision both parties proceeded on the theory that the CAA was controlling. “The rule is well settled that the theory upon which a case is tried must be adhered to on appeal. A party is not permitted to change his position and adopt a new and different theory on appeal. To permit him to do so would not only be unfair to the trial court, but manifestly unjust to the opposing litigant.” (Ernst v. Searle (1933) 218 Cal. 233, 240-241 [22 P.2d 715]; see also JRS Products, Inc. v. Matsushita Electric Corp. of America (2004) 115 Cal.App.4th 168, 178 [8 Cal.Rptr.3d 840]; 9 Witkin, Cal. Procedure (4th ed. 1997) Appeal, § 404, p. 455.)

13 Other courts have reached similar conclusions. See Trombetta v. Raymond James Financial Services, Inc. (2006) 2006 PA Super 229 [907 A.2d 550, 568]; DeBaker v. Shah (Ct.App. 1994) 187 Wis.2d 252 [522 N.W.2d 268, 271], reversed on other grounds in DeBaker v. Shah (1995) 194 Wis.2d 104 [533 N.W.2d 464]; Flexible Mfg. Systems Pty v. Super Products (E.D.Wis. 1994) 874 ESupp. 247, 249. Compare M&L Power Services v. American Networks Intern. (D.R.I. 1999) 44 F.Supp.2d 134, 139-142, holding that a “complete irrationality” standard articulated by the Rhode Island Supreme Court violated the policy established by section 2 of the FAA, and was therefore preempted in cases involving interstate commerce.

14 Such an effect would be sweeping indeed in the commercial setting. Not only would state courts be barred from giving a more expansive interpretation to state law as it applies to agreements for merits review of arbitration awards, but state legislatures would be unable to specifically permit contract provisions for expanded review. (See, e.g., N.J. Stat. Ann. § 2A:23B-4(c) [“nothing in this act shall preclude the parties from expanding the scope of judicial review of an award by expressly providing for such expansion . . .”].) Arguably, statutory provisions for review of the merits in particular contexts, such as public contract arbitrations (see § 1296), would be precluded. The viability of public policy exceptions to the general rule of limited review would also be called into question. For example, when unwaivable statutory rights are at stake, this court has repeatedly held that review must be “ ‘sufficient to ensure that arbitrators comply with the requirements of the statute.’ ” (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 106, quoting Shearson/American Express Inc. v. McMahon, supra, 482 U.S. at p. 232; see also, e.g., Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 32, fn. 4 [114 L.Ed.2d 26, 111 S.Ct 1647]; Gentry v. Superior Court (2007) 42 Cal.4th 443, 456-457 [64 Cal.Rptr.3d 773, 165 P.3d 556]; Aguilar v. Lerner (2004) 32 Cal.4th 974, 983 [12 Cal.Rptr.3d 287, 88 P.3d 24]; Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269, 276 [52 Cal.Rptr.2d 115, 914 P.2d 193]; Moncharsh, supra, 3 Cal.4th at p. 32.)

15 The study makes it clear that the assumption noted above is drawn from the normal form of agreement to conclusive arbitration, and the statutes accommodating that norm. “Both the agreement between the parties that the award shall be final and binding and the statutory treatment of arbitration agreements suggest that the ordinary concepts of judicial appeal and review are not applicable . . . .” (Arbitration Study, supra, 3 Cal. Law Revision Com. Rep., p. G-54.)

16 Section 1296 states: “The parties to a construction contract with a public agency may expressly agree in writing that in any arbitration to resolve a dispute.relating to the contract, the arbitrator’s award shall be supported by law and substantial evidence. If the agreement so provides, a court shall, subject to Section 1286.4, vacate the award if after review of the award it determines either that the award is not supported by substantial evidence or that it is based on an error of law.”

17 Law review commentary has tended to support this view. (Goldman, Contractually Expanded Review of Arbitration Awards (2003) 8 Harv. Negot. L.Rev. 171, 183-184 (Goldman); Hulea, Contracting to Expand the Scope of Review of Foreign Arbitral Awards: An American Perspective (2003) 29 Brook. J. Int’l L. 313, 351 (Hulea); Moses, Can Parties Tell Courts What to Do? Expanded Judicial Review of Arbitral Awards (2004) 52 U. Kan. L.Rev. 429, 430-431 (Moses); Rau, Contracting Out of the Arbitration Act (1997) 8 Am. Rev. Int’l Arb. 225, 230-231 (Rau); but see Schmitz, Ending a Mud Bowl: Defining Arbitration’s Finality Through Functional Analysis (2002) 37 Ga. L.Rev. 123, 189-190; Smit, Contractual Modification of the Scope of Judicial Review of Arbitral Awards (1997) 8 Am. Rev. Int’l Arb. 147, 150.)

The approach to judicial review outlined in the concurring and dissenting opinion is a novel one. Whatever its merits may be, the parties in this case certainly did not agree to such a scope of review. Nor is it reflected in any reported case. If “the CAA permits parties to clearly define the limits to an arbitrator’s powers,” it is unclear why they should be allowed only “some measure of judicial review” defined by a court, instead of the scope of review authorized by their contract and the statutes permitting review for excess of the arbitrator’s powers. (Cone. & dis. opn., post, at p. 1375.)

18 In a footnote, Kagel refers to Utah Const. Co. v. Western Pac. Ry. Co. (1916) 174 Cal. 156 [162 P. 631]. (Kagel, supra, 38 Cal. L.Rev. at p. 827, fn. 126.) The agreement in that case included a clause calling for the arbitrator to “ ‘make his judgment and award, according to the legal right of the parties ....’” (174 Cal. at p. 161.) The court noted that this provision “bound the arbitrator to decide in conformity with the law, and left him without authority to do otherwise.” (Id. at pp. 161-162.) However, it then said: “Our final conclusion on the merits renders it unnecessary to determine whether the submission agreement, when properly construed, did or did not empower him to decide the law wrongly as well as rightly. We may assume, for the purposes of the case, that he was empowered only to decide correctly as to the law, and proceed upon that theory without deciding the point.” (Id. at p. 163.) The court reviewed the award and found no legal error. (Id. at pp. 163-167.)

19 DIRECTV has requested that we take judicial notice of the legislative history of section 1296. We grant the request, but do not find the history useful.

20 The arbitration clause states: “The arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.”

21 It is noteworthy that the Court of Appeal below, despite its holding limiting the scope of review, had no difficulty examining the merits of the arbitrators’ decision on the alternative assumption that the award was reviewable for legal error.

22 The arbitration clause provides in relevant part: “Any dispute or claim arising out of the interpretation, performance, or breach of this Agreement. . . shall be resolved only by binding arbitration, at the request of either party, in accordance with the rules of the American Arbitration Association .... The arbitrators shall apply California substantive law to the proceeding, except to the extent Federal substantive law would apply to any claim.” The clause further specifies: “This Section and any arbitration conducted hereunder shall be governed by the United States Arbitration Act (9 U.S.C. Section 1, et seq.).”

23 In relevant part, the policy states: “On October 8, 2003, in response to the ruling of the United States Supreme Court in Green Tree Financial Corp. v. Bazzle, the American Arbitration Association issued its Supplementary Rules for Class Arbitrations to govern proceedings brought as class arbitrations. In Bazzle, the Court held that, where an arbitration agreement was silent regarding the availability of class-wide relief, an arbitrator, and not a court, must decide whether class relief is permitted. Accordingly, the American Arbitration Association will administer demands for class arbitration pursuant to its Supplementary Rules for Class Arbitrations if (1) the underlying agreement specifies that disputes arising out of the parties’ agreement shall be resolved by arbitration in accordance with any of the Association’s rules, and (2) the agreement is silent with respect to class claims, consolidation or joinder of claims.” (AAA, Policy on Class Arbitrations, supra.)