By: Tiffany Ng

Are the commonly accepted features of arbitration—speed and finality—being watered down by rules permitting a second arbitration that expose parties to delays and significantly increased expenses?

In a recently published decision, Condon v. Daland Nissan, Inc., 6 Cal.App.5th 263, the First District Court of Appeal held that an arbitration provider’s lack of appellate rules was no impediment to providing a new arbitration because the arbitration provision permits a “do-over.” It appears that the benefits of arbitration that we once believed were true—namely, cost-effectiveness and quick resolution of disputes—may no longer be true in certain situations. Instead, parties may now bear the risk of a potential “do-over” arbitration instead of the protection of well-established appellate rules and procedures applicable to arbitrations.

Condon involved a sales contract with an arbitration provision that stated an arbitration award would be final unless “the arbitrator’s award for a party is $0 or against a party is in excess of $100,000, or includes an award of injunctive relief against a party,” in which case “that party may request a new arbitration under the rules of the arbitration organization by a three-arbitrator panel.” The arbitrator found for the plaintiff and awarded costs and fees of $180,175.34. Because the final award exceeded $100,000, defendants invoked the “do-over” provision and requested the arbitrator provider to proceed with a new arbitration. Plaintiff objected, so the arbitration provider refused to conduct a new arbitration stating that it lacked authority to resolve the parties’ disagreement over whether a new arbitration was proper. Plaintiff then petitioned to confirm the arbitration award.

In confirming the arbitration award and denying defendants’ request for a second arbitration, the trial court explained that one of the bases for its ruling was the arbitration provision did not provide for when the arbitration organization selected by the parties does not have a process by which a new arbitration may be heard before a three-arbitrator panel.

The Court of Appeal reversed. Recognizing that the parties did not dispute that the selected arbitration provider had no appellate rules, the Court of Appeal held that whether or not the arbitration provider had specialized appellate rules was irrelevant to the arbitration dispute. Rather, the arbitration provision authorized, at a party’s request, a “new arbitration under the rules of the arbitration organization by a three-arbitrator panel.”

Perhaps we should think twice before giving up the protection that a court system has to offer, including the right to appeal, in light of the rising costs of arbitration and the possibility of “do-over” arbitrations.