Arbitration Insight No. 17

UPDATE CONCERNING ARBITRATOR DISCLOSURES OF CONFLICTS

Two recent cases involving arbitrator failure to disclose potential conflicts, each with its own focus, are the subject of this Arbitration Insight.

In La Serena Properties v. Weisbach (2010) 186 Cal.App.4th 893, the American Arbitration Association and its arbitrator successfully demurred to a complaint for damages by an arbitration party who alleged that the AAA and the arbitrator had not disclosed the extent of the arbitrator’s relationship with counsel for the opposing party, including that the arbitrator had a relationship with that attorney’s sister. The appellate court affirmed the judgment, finding that common law judicial immunity, which had been extended by Stasz v. Schwab (2004) 121 Cal.App.4th 420 to claimed acts of bias by arbitrators, also applied to an arbitrator’s failure to make adequate disclosures of potential conflicts of interest. (At pp. 603-604.)

Because of arbitral immunity, La Serena Properties concluded that the exclusive remedy for an arbitrator’s failure to disclose a potential disqualifying fact is to set aside the award. (At p. 907; see also Code of Civil Procedure section 1286.2(a)(6)(A) providing that a reviewing court “shall vacate the award if the court determines . . . [a]n arbitrator making the award . . . failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware.”)

The lesson of Johnson v. Gruma Corp. (9th Cir. 2010) 614 F.3d 1062 is different from that of La Serena Properties. Johnson involved a long-running proceeding in which the arbitrator did not disclose that his wife had been a former law partner of Gruma’s attorney. Gruma prevailed in the matter. The case began in 2002; the attorney in question did not enter the matter until 2007 and the arbitrator’s wife had been the attorney’s partner at Paul Hastings from 1997-1999. Applying California law, the Ninth Circuit held that the arbitrator had made all required disclosures when he was chosen to preside in 2002. It was then found that the arbitrator’s supplemental disclosures in 2007, in which he did not mention his wife’s former connection to Paul Hastings or the current lawyer, were sufficient because the applicable rules did not require such information. The Court noted that neither California Judicial Council Standard for Neutral Arbitrators in Contractual Arbitration 7(d)(2)(C) nor standard 7(d)(8)(C) applied because the former requires disclosure about the arbitrator’s spouse when that person is “currently associated in the private practice of law with a lawyer in the arbitration” and the latter standard requires disclosure about the arbitrator’s family when any immediate member “within the preceding two years, was an employee of or an expert witness or a consultant for a lawyer in the arbitration.” (At p. 1068; emphasis included.)

Johnson also found that the appearance of partiality disclosure rule in standard 7(d)(14)(A) was not applicable because the professional relationship between the arbitrator’s wife and the Paul Hastings’ lawyer had ended eight years before the lawyer began to represent Gruma. (At pp. 1068-1069.) Lastly, Johnson held that the appellant had waived standard 7(d)(3), which requires disclosure if “[t]he arbitrator or a member of the arbitrator’s immediate family has or has had a significant personal relationship with any party or lawyer for a party,” by not raising the issue at the trial level or in his appellate papers. (At p. 1069.)

La Serena Properties and Johnson provide the cautionary tale that the disclosure of conflict rules applicable to arbitrators sometimes work in strange and mysterious ways: to paraphrase the Rolling Stones, “You can’t always get what you want in arbitration, and if you try sometime you might get what you need.”

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, February 2011

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