King v. Larsen: California Appellate Court Upholds Arbitration Award Arising From Intra-Board Dispute

In King v. Larsen Realty, Inc., the California Court of Appeal reivewed the trial court's confirmation of a Board arbitration award. The court of appeal held that the trial court properly confirmed the award.

A dispute arose between King and Larsen Realty, both Board members. Larsen Realty filed an objection to the jurisdiction and authority of the California Association of REALTORS® (hereinafter "CAR"), on the ground that they had not entered into a written agreement to participate in an interboard arbitration. Counsel also advised CAR that any attempts to force arbitration would be opposed. CAR told Larsen that the proper course of action was to submit to interboard arbitration so that all of the issues, including that of jurisdiction, could be determined.

CAR mailed a notice of hearing to both parties, but Larsen and Doty did not appear at the arbitration on the advice of their attorney. The arbitration proceeded without Larsen and Doty and, after considering the evidence, the arbitration panel found in favor of King. A copy of the Board's arbitration award was mailed to all parties, but Larsen Realty refused to pay.

King then sought court intervention to confirm the award. The court granted King's request and Larsen and Doty appealed the decision on two grounds: (1) that Code of Civil Procedure, Section 1281.2 provides an exclusive statutory procedure to compel arbitration upon a party's refusal to comply with a demand for arbitration; and (2) that the trial court lacked the authority to make a post-arbitration finding that the arbitration was lawfully conducted pursuant to an underlying written agreement.

The court noted that Larsen Realty's assertion that the preamble to the Code of Ethics and Arbitration Manual of the Board established a contractual duty to petition a court to compel arbitration was inaccurate. In rendering its decision, the court reasoned that no logical construction of this language created any limitation on the right to enforce a self-executing arbitration agreement. The court gave no weight to Larsen and Doty's attempt to misstate the language contained in the Arbitration Manual, striking down their argument that even a self-executing arbitration agreement may not be enforced without a prior court assessment of its self-executing properties.

The court disagreed with Larsen and Doty's assertion that the trial court lacked the authority to make a post-arbitration finding that the arbitration was lawfully conducted pursuant to an underlying written agreement. The court of appeal stated that just as a party seeking arbitration may act to enforce an agreement he takes to be self-executing, he may assume that the underlying document represents a valid, enforceable agreement to arbitration. The court of appeal said that it was a proper function of the trial court, when petitioned, to determine the validity and enforceability of a purported written agreement to arbitrate. The court of appeal also noted that Larsen and Doty were correct in maintaining that arbitration is purely a matter of contract. However, the court also noted that there is a presumption in favor of arbitration where one contracts to abide by bylaws that contain provisions for arbitration. Thus, the parties were bound to arbitrate.

The court found that it was without question that Larsen and Doty contracted to abide by the rules, standards, and bylaws of their local Board, and that the Arbitration Manual binds every member of CAR to submit to Board arbitration. The contract relevant to this matter revealed no provisions weighted in favor of the stronger party. Further, Larsen and Doty did not establish the existence of economic coercion to contract. The court also noted that the contract was not one of adhesion and that Larsen and Doty remained bound by its provisions despite their alleged ignorance of the interboard arbitration provisions. The court of appeal held that the trial court correctly found the existence of an underlying written agreement to arbitrate. Thus, it affirmed the award.

King v. Larsen Realty, Inc., 121 Cal. App. 3d 349, 175 Cal. Rptr. 226 (1981).