Arbitration Insight No. 2

MATTERS THAT MUST BE DISCLOSED BY NEUTRAL ARBITRATORS

Arbitration Insight No. 1 discussed the statutory grounds for requiring neutral arbitrators (party arbitrators are not covered) to make certain disclosures in contractual and commercial arbitrations. Insight No. 2 reviews what information those disclosures must provide.

Matters that must be disclosed – Within 10 calendar days of service of notice of his or her proposed nomination or appointment (CCP §1281.9(b)), a neutral arbitrator must disclose “all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.” (CCP§ 1281.9(a); see also CCP §170.1(a)(6)(C) [comparable language]), including the following:

• offers of employment or a professional relationship with a party or lawyer while the arbitration is pending (Standard 7(b)(2) of Standard 7 of the California Rules of Court, Appendix, Div. VI [Standards]);
• a family relationship with a party (CCP § 170.1(a)(4); Standard 7(d)(1));
• a family relationship with a lawyer for a party (CCP § 170.1(a)(5); Standard 7(d)(2));
• a significant personal relationship with a party or lawyer for a party (CCP §§ 170.1(a)(1)(B) and 1281.9(a)(4); Standard 7(d)(3));
• complete information regarding prior service as both a neutral and party arbitrator for a party or lawyer for a party within the preceding five years (CCP § 1281.9(a)(3) and (4); Standard 7(d)(4));
• prior compensated service as a dispute resolution neutral involving a party or lawyer for a party (Standard 7(d)(5));
• current arrangements with a party for prospective neutral service (CCP § 1281.9(a)(5);Standard 7(d)(6));
• an attorney-client relationship with a party or lawyer for a party (CCP §§ 170.1(a)(2)(A) and 1281.9(a)(3); Standard 7(d)(7));
• prior association in the practice of law with a lawyer for a party (CCP § 170.1(a)(1)(B);
• a financial interest in a party (CCP § 170.1(a)(3); Standard 7(d)(9));
• a financial interest in the subject of the arbitration (CCP §170.1(a)(3); Standard 7(d)(10));
• an interest that could be substantially affected by the arbitration’s outcome (Standard 7(d)(11));
• knowledge of any disputed facts (CCP §170.1(a)(1); Standard 7(d)(12)) and
• membership in an organization that practices discrimination (Standard 7(d)(13)).

Arbitrators also have a continuing duty, until the conclusion of the arbitration, to disclose matters that might prejudice them within 10 days of learning of that prejudicial fact.

The failure to disclose information of which the arbitrator is then aware within the required time is a ground for vacatur of the arbitrator’s award (CCP §1286.2(a)(6)(A); see also the comment to Standard 1.) Recent decisions (International Alliance of Theatrical Stage Employees and Moving Picture Machine Operators, etc. v. Laughon (2004) 118 Cal.App.4th 1380; Michael v. Aetna Life & Casualty Ins. Co. (2001) 88 Cal.App.4th 925, 937-938) indicate that the trial and appellate courts are sensitive to such failures to disclose.

Note that these disclosure requirements are pre-empted by the Securities and Exchange Act of 1934 when NASD arbitrations are mandated. (Jevne v. Superior Court (2005) 35 Cal.4th 935 [also declining to decide whether the Federal Arbitration Act pre-empts CCP §1285.85(a), which authorizes the California Judicial Counsel to establish ethics standard for arbitrators]; Credit Suisse First Boston Corp. v. Grunwald (9th Cir. 2005) 400 F.3d 1119.)

Copyright, Michael D. Marcus, June 2005

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