Arbitration Insight No. 20

MICHAEL D. MARCUS’S ARBITRATION INSIGHT NO. 20

BUSINESS REPRESENTATIVES CANNOT BE EXCLUDED AT ARBITRATION
    
The number of business representatives entitled to be present at an arbitration was addressed in Hoso Foods, Inc. v. Columbus Club, Inc. (2010) 190 Cal. App.4th 881. In Hoso Foods, a catering business leased an assembly hall, refurbished it, then learned it could not use the hall’s liquor license and was unable to obtain one on its own. In the subsequent arbitration, the arbitrator allowed only Columbus Club’s president, who had signed the lease and was a named respondent, to attend the proceeding on Columbus Club’s behalf. The Club’s secretary, who had participated in the lease negotiations but was not a party, was precluded from being present except when testifying. The arbitrator awarded Hoso Foods $1,263,135 in damages, including costs and attorney’s fees.

    The court of appeal noted that neither the Code of Civil Procedure nor the rules of the arbitral forum (AAA) suggested that the arbitrator had the power to preclude a corporate party from designating a representative to attend the arbitration proceedings. (Id. at pp. 889-890.) The court also found it of no moment that Columbus Club had not requested that it be allowed to have additional representatives at the hearing. “[N]othing in either the statutes or applicable rules governing arbitration proceedings mandates that such a motion be made.” (Id. at p. 891.)

    The 2-1 majority also found that Columbus Club had been actually prejudiced by the absence of additional representatives because its president testified he had not been involved in drafting the lease and, thus, could not dispute the testimony of the Hoso Food’s principal concerning representations made during the lease negotiations. On the other hand, Columbus Club’s excluded secretary, who was not available to assist during cross-examination of Hoso Food’s witnesses, testified he had drafted the lease, was present at all lease negotiations and was unaware of any restrictions on the transfer of Columbus Club’s liquor license.
  
    While acknowledging that arbitration awards are generally subject to extremely narrow judicial review (citing  Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1), Hoso Foods vacated the award pursuant to C.C.P. sec. 1286.2 because the arbitrator had exceeded his powers by limiting Columbus Club’s representation at the arbitration to an individual who had been sued personally, was not appellant’s choice of representative, was not involved in significant aspects of the transaction and was dismissed from the action at the conclusion of the hearing. (Id. at pp. 884, 889.)
         
    Hoso Foods holding should apply to any business entity which had more than one person involved in the events in controversy. Nonetheless, attorneys should be prepared to argue that exclusion of their respective business client’s representatives at an arbitration will be prejudicial.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, October 2011

Please visit my website at www.marcusmediation.com for information about my mediation and arbitration background and experience. Copies of my previous Mediation Messages and Arbitration Insights are available by going to the articles link on the website.

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