44 Cal.4th 1334 (2008)

CABLE CONNECTION, INC., et al., Plaintiffs and Appellants,
v.
DIRECTV, INC., Defendant and Respondent.

No. S147767.

Supreme Court of California.

August 25, 2008.

*1339 Beatie and Osborn and Daniel A. Osborn for Plaintiffs and Appellants.

Reed Smith, Margaret A. Grignon, Andrew E. Paris; Kirkland & Ellis, Michael E. Baumann and Becca Wahlquist for Defendant and Respondent.

Horvitz & Levy, Barry R. Levy, Jeremy B. Rosen and Alicia A. Pell for L.F.P., Inc., as Amicus Curiae on behalf of Defendant and Respondent.

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 *1340 Associates, L.L.C. v. Mattel, Inc. (2008) 552 U.S. ___ [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.

*1341 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 *1342 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 *1343 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

(1) "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 (Law Revision Commission Study); 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, *1344 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]) Anaward may be corrected for (1) evident miscalculation or mistake; (2) excess of the arbitrators' powers; or (3) imperfection in form. (§ 1286.6;^[6] 9 U.S.C. § 11.^[7])

*1345 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 *1346 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 the statutory bases for vacating and correcting arbitration awards are exclusive, and 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 *1347 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: "`either 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 *1348 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 p. ___ [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].)

(2) 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 p. ___ [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 *1349 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].)

*1350 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. 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