Archive for the ‘Arbitration’ Category

Arbitration Insight No. 24

MICHAEL D. MARCUS’S ARBITRATION INSIGHT NO. 24

YOU CAN NEVER BE TOO CAREFUL

Mt. Holyoke Homes, LP, et al. v. Jeffer Mangels Butler & Mitchell, LLP (2013) 219 Cal.App.4th 1299 sends the message that arbitrators can never be too careful when disclosing possible conflicts to potential parties and their counsel. Mt. Holyoke Homes et al. sued Jeffer Mangels Butler and Mitchell (JMBM) for legal malpractice. JMBM cross-complained for its legal fees. The arbitrator disclosed that he had mediated a matter with JMBM’s counsel, knew one of the JMBM attorneys who had been involved in the underlying matter and had previously conducted an arbitration and mediation with one of the claimants. After the arbitrator found for JMBM, one of the losing parties discovered that the arbitrator had not disclosed that he had named Robert Mangels of JMBM as a reference on his resume. The resume was available on the internet. Apparently, the arbitrator had no professional relationship with Mangels and had prepared the resume ten years before the arbitration. The trial court granted JMBM’s’ petition to confirm the arbitration award and denied claimants’ petition to vacate the award because of the arbitrator’s failure to disclose the Mangel’s reference.
The appellate court vacated the arbitration award, not because the arbitrator was biased, but because “An objective observer reasonably could conclude that an arbitrator listing a prominent litigator as a reference on his resume would be reluctant to rule against the law firm in which that attorney is a partner as a defendant in a legal malpractice action.” (Id. at p. 1313; i.e. a reasonable person aware of the facts could reasonably entertain a doubt that the arbitrator could be impartial.) The appellate court rejected the argument that the arbitrator had no duty to disclose the resume because it was readily discoverable on the internet. “A party to an arbitration is not required to investigate a proposed neutral arbitrator in order to discover information, even public information, that the arbitrator is obligated to disclose.” (Ibid.)
MDM’s observation about the Mt. Holyoke decision: Arbitrators must be careful to disclose all facts that might cause a doubt about their potential biases but, at the same time, parties and their attorneys should have a concomitant obligation to learn of all public information about potential arbitrators. Such a duty was not realistic fifteen years ago. Today, because of the internet, there are few public secrets; thus, it is unreasonable to allow a party, after a negative ruling, to claim arbitrator bias when, with reasonable diligence, it could have discovered the basis for that alleged bias before the arbitrator’s selection.
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 2013

Arbitration Insight No. 23

MICHAEL D. MARCUS’S ARBITRATION INSIGHT NO. 23

THE MFAA AND AN ATTORNEY’S DEMAND TO ARBITRATE THE FEE DISPUTE

Rosenson v. Greenberg Glusker Fields Claman & Machtinger LLP (2012) 203 Cal.App.4th 688 is required reading for all attorneys who have a fee or costs dispute with a client.

In Rosenson, Greenberg Glusker and its client initially participated in nonbinding arbitration pursuant to the Mandatory Fee Arbitration Act. (MFAA; Bus. and Prof. Code section 6200 et seq.) Note that the MFAA does not require the existence of a fee agreement with the client; also, “whereas a client cannot be forced under the MFAA to arbitrate a dispute concerning legal fees, at the client’s election an unwilling attorney can be forced to do so.” (Schatz v. Allen Matkins Leck Gamble & Mallory LLP (2009) 45 Cal.4th 557, 565.) Either party may seek a trial de novo from the MFAA award, unless they had previously agreed in writing to binding arbitration. (Ibid.)

Within 30 days of a nonbinding MFAA arbitration award in favor of Rosenson, Greenberg Glusker filed a demand for binding arbitration pursuant to a retainer agreement. The client chose instead to file a petition to confirm the MFAA award. The trial court granted the client’s petition after finding that the law firm’s demand for binding arbitration was ineffective because it had not filed beforehand an action to compel arbitration. The trial court reasoned that the filing of the demand for arbitration was not the filing of an action under the MFAA. The appellate court reversed the trial court because it held that the law firm’s arbitration demand effectively invoked the arbitration clause without first filing a superior court action to compel arbitration. (Rosenson, supra, at p. 693.)

Rosenson provides both a reminder and a lesson: If a client has opted to engage in the nonbinding MFAA  process, and should the attorney be dissatisfied with the result, the attorney can demand arbitration, without first moving to compel it, if there is an existing written agreement with the client to arbitrate all fee and costs disputes. Without that agreement, the attorney’s remedy is to file a complaint for fees.

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, March 2012

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.

Arbitration Insight No. 23

MICHAEL D. MARCUS’S ARBITRATION INSIGHT NO. 23

THE MFAA AND AN ATTORNEY’S DEMAND TO ARBITRATE THE FEE DISPUTE

Rosenson v. Greenberg Glusker Fields Claman & Machtinger LLP (2012) 203 Cal.App.4th 688 is required reading for all attorneys who have a fee or costs dispute with a client.

In Rosenson, Greenberg Glusker and its client initially participated in nonbinding arbitration pursuant to the Mandatory Fee Arbitration Act. (MFAA; Bus. and Prof. Code section 6200 et seq.) Note that the MFAA does not require the existence of a fee agreement with the client; also, “whereas a client cannot be forced under the MFAA to arbitrate a dispute concerning legal fees, at the client’s election an unwilling attorney can be forced to do so.” (Schatz v. Allen Matkins Leck Gamble & Mallory LLP (2009) 45 Cal.4th 557, 565.) Either party may seek a trial de novo from the MFAA award, unless they had previously agreed in writing to binding arbitration. (Ibid.)

Within 30 days of a nonbinding MFAA arbitration award in favor of Rosenson, Greenberg Glusker filed a demand for binding arbitration pursuant to a retainer agreement. The client chose instead to file a petition to confirm the MFAA award. The trial court granted the client’s petition after finding that the law firm’s demand for binding arbitration was ineffective because it had not filed beforehand an action to compel arbitration. The trial court reasoned that the filing of the demand for arbitration was not the filing of an action under the MFAA. The appellate court reversed the trial court because it held that the law firm’s arbitration demand effectively invoked the arbitration clause without first filing a superior court action to compel arbitration. (Rosenson, supra, at p. 693.)

Rosenson provides both a reminder and a lesson: If a client has opted to engage in the nonbinding MFAA  process, and should the attorney be dissatisfied with the result, the attorney can demand arbitration, without first moving to compel it, if there is an existing written agreement with the client to arbitrate all fee and costs disputes. Without that agreement, the attorney’s remedy is to file a complaint for fees.

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, March 2012

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.

Arbitration Insight No. 22

MICHAEL D. MARCUS’S ARBITRATION INSIGHT NO. 22

WAIVER OF THE RIGHT TO ARBITRATE

Not infrequently, where an arbitration agreement exists, a defendant will move to compel arbitration when a plaintiff has filed a complaint in the trial court. (An action to compel arbitration is in essence a suit to compel specific performance of a contractual term. [See Freeman v. State Farm Mutual Automobile Ins. Co. (1975) 14 Cal.3d 473, 479].) Plaintiffs, who don’t want to concede the motion, may argue, inter alia, that the defendant has waived the right to arbitrate the dispute. The following is a cursory review of the waiver argument.
It is well-accepted that waiver may occur where “the party seeking to compel arbitration has previously taken steps inconsistent with an intent to invoke arbitration,” “unreasonably delayed in undertaking the procedure” or acted in “bad faith” or engaged in “wilful misconduct.” (Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 425-426.)
Examples of conduct inconsistent with an intent to invoke arbitration: The following three cases were discussed in Service Employees International Union, Local 1021 v. San Joaquin County (2011) 202 Cal. App.4th 449, 460: Case v. Kodota Fig Assn. (1950) 35 Cal.2d 596, 605–606 (moving party pursued a lawsuit on the same issue as that to be arbitrated); Local 659, I.A.T.S.E. v. Color Corp. of America (1956) 47 Cal.2d 189, 197–198 (express refusal to participate in arbitration in order to seek ruling by the Labor Commissioner) and Bodine v. United Aircraft Corp. (1976) 52 Cal.App.3d 940, 945–946 (failed to demand arbitration on the rationale that it would have been stayed in any event by collateral litigation). Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, cited with approval in Saint Agnes Medical Center v. Pacificare of California (2003) 31 Cal. 4th 1187, 1196, discussed waiver examples including that the parties “were well into preparation of a lawsuit” before the moving party notified the opposing party of an intent to arbitrate and a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings. Saint Agnes Medical Center, on the other hand, holds that Pacificare’s filing of a separate lawsuit against St. Agnes did not preclude it from moving to compel arbitration.
Unreasonable delay in seeking arbitration: “When an arbitration agreement does not specify the time within which arbitration must be demanded, a reasonable time is allowed; a party who does not demand arbitration within a reasonable time is deemed to have waived the right to arbitration.” (Citations.) “[W]hat constitutes a reasonable time is a question of fact, depending on the situation of the parties, the nature of the transaction, and the facts of the particular case.” (Spear v. California State Automobile Association (1992) 2 Cal. 4th 1035, 1043.) Sobremonte v. Superior Court, supra, provides that unreasonable delay may include whether “a party … requested arbitration enforcement close to the trial date,” “important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place” or  “the delay ‘affected, misled, or prejudiced’ the opposing party.” (Id. at p. 992; see also Zamora v. Lehman (2010) 186 Cal. App. 4th 1, 6 holding that parties who conducted discovery before moving to compel arbitration had waived arbitration.)
Waiver, however, is not an easy finding to obtain. Because of the strong policy favoring arbitration agreements, “close judicial scrutiny of waiver claims” is required. (Citation.) “Although a court may deny a petition to compel arbitration on the ground of waiver (statute), waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof.” (Saint Agnes Medical Center v. Pacificare of California, supra, at p. 1195.)
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 2012

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.

Arbitration Insight No. 21

MICHAEL D. MARCUS’S ARBITRATION INSIGHT NO. 21

RETIREMENT DOES NOT WAIVE ARBITRATION CLAIM

The question whether a disciplined employee’s contractual claim for relief at arbitration survives despite his/her retirement was answered in Service Employees International Union, Local 1021 v. County of San Joaquin (2011) 202 Cal.App.4th 449. In that matter, San Joaquin County terminated the employee because he had stolen $250 worth of County-owned recyclables. The disciplined employee, who had the right, pursuant to a MOU, to appeal the finding to the Civil Service Commission or an arbitrator, chose arbitration. He then retired one month after requesting arbitration. The trial court accepted the County’s argument that the employee had waived his arbitration rights by retiring before the arbitration had begun and, thus, denied the employee’s petition to compel arbitration.

On appeal, the County contended that the employee’s future employment was no longer an issue because his receipt of retirement benefits was a waiver of his election to arbitrate the propriety of his termination. The Appellate Court disagreed, finding that the employee had not taken steps inconsistent with an intent to invoke arbitration. (Id. at pp. 459-460.) “Although he did draw upon his vested right to retirement benefits … that right was independent of his interest in continued employment for the County.” (Id. at p. 460.)

The Appellate Court distinguished County of Los Angeles Dept. of Health Services v. Civil Service Com. of County of Los Angeles (2009) 180 Cal.App.4th 391 (retirement is a voluntary resignation that automatically divests a civil service commission of jurisdiction to decide a disciplinary action) and Hall-Villareal v. City of Fresno (2011) 196 Cal.App.4th 24 (receipt of retirement benefits does not preclude an employee from appealing her termination to the Civil Service Commission) because neither case involved a request for arbitration, which is a matter of contract. (Id. at pp. 461-462.)

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, January 2012

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.

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.

Arbitration Insight No. 19

MICHAEL D. MARCUS’S ARBITRATION INSIGHT NO. 19

ARBITRATORS NEED NOT DISCLOSE BACKGROUND FACTS IRRELEVANT TO THE CASES BEFORE THEM

It is accepted that arbitrators have a duty, pursuant to Code of Civil Procedure section 1281.9(a), to disclose matters that could cause a person to reasonably entertain a doubt about their impartiality but Rebmann v. Rohde (2011) 196 Cal.App.4th 1283 (hearing denied September 14, 2011) holds that this disclosure duty does not extend to information about an arbitrator’s background that has nothing to do with the facts of the case.
In Rebmann, Rohde sued his former business partner Rebmann for allegedly misrepresenting material facts about their joint venture. (Relevant only to post-arbitration proceedings was that Rohde was born in Berlin in 1943, his father had been in the German Army in World War II and his father-in-law had been a member of the German SS during the War.) The lawsuit was arbitrated. The arbitrator made no disclosures specific to the case and the matter was heard on its merits. The arbitrator ultimately found that the Rohde parties had not proved any of their claims and awarded the Rebmann parties $1,000 on their counterclaims and $1,136,000 in attorney’s fees and costs.
Rohde opposed Rebmann’s petition to confirm the award, contending that the arbitrator should have disclosed that he and his parents were German Jews, had lost family and property in the Holocaust and were members of an organization dedicated to avoiding a repeat of the Holocaust.
The appellate court was dismissive of Rhode’s argument and affirmed the judgment to confirm the award because, relying upon Haworth v. Superior Court (2010) 50 Cal.4th 372 (see Arbitration Insight No. 16), there was nothing in the arbitrator’s professional record to indicate a bias towards anyone, no less Germans. More importantly, the arbitrator’s background had nothing to do with the facts of the case, which had nothing to do with World War II or the Holocaust. (Id. at pp. 1291-1292.)
Rebmann also rejects the assumption that an arbitrator or “judge who is a member of a minority cannot be fair when a case somehow related to that minority status—no matter how remote or tenuous that relationship might be—comes before that judge. A judge or arbitrator’s impartiality should never be questioned simply because of who he or she is.” (Id. at p. 1293.)
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, September 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.

Arbitration Insight #18

THE APPELLATE COURT REVISTS BENJAMIN, WEILL & MAZUR V. KORS

A few months ago or last December (see Arbitration Insight No. 16), I discussed Benjamin, Weill & Mazer v. Kors (2010) 189 Cal.App.4th 126 (BW&M), which held that part-time lawyer-arbitrators should disclose their legal involvement in business interests that are similar to the facts of the matter to be arbitrated. In BW&M, one of the arbitrators in a mandatory fee arbitration (MFA) failed to advise the aggrieved former client that he was representing a large law firm in a case before the California Supreme Court involving an attorney fee dispute and was also representing another major law firm in an action for attorney malpractice and related torts.

The BM&W decision was inconsistent with Haworth v. Superior Court (2010) 50 Cal.4th 372 which had held only two months earlier that the appearance-of-partiality standard concerning arbitrator recusal should not be broader than the same standard applicable to judicial recusal. More specifically, Haworth found, in part, that “The arbitrator cannot reasonably be expected to identify and disclose all events in the arbitrator’s past, including those not connected to the parties, the facts, or the issues in controversy, that conceivably might cause a party to prefer another arbitrator.” (At p. 394.)

BW&M distinguished Haworth because, it reasoned, an arbitrator’s non-disclosures of concurrent business interests similar to a party’s interests could never occur in judicial matters, as they do private arbitration. Thus, it held that arbitrators must disclose their ties to the business world “to the extent these relationships are substantial and involve financial considerations creating an impression of possible bias …” What BW&M failed to recognize is that sitting judges, although not practicing law, may also have commercial ties, such as stock or building ownership or an interest in a business, that may be both substantial and factually similar to the cases before them but, under present appearance-of-partiality standards, need not be disclosed. Therefore, upon analysis, BW&M’s stated need for more disclosures in arbitrations than in the courts does not stand up to scrutiny.

Shortly after issuing the above decision, the BW&M court, on its own motion, ordered a rehearing as to two issues: whether the trial court had improperly merged a MFA dispute into a binding California Arbitration Act (CAA) proceeding and whether the disclosure requirements under the CAA are applicable to non-binding MFA arbitrations. The parties’ additional briefing (which concluded in December 2010) gives the appellate court an opportunity to revise its original holding, which surely would have caused the Supreme Court to either depublish it or grant a hearing to review its controversial analysis.

 

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

 

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.

 

 

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

Arbitration Insight No. 16

APPEARANCE-OF-PARTIALITY DISCLOSURES BY ARBITRATORS

Two very recent cases discuss the parameters of an arbitrator’s obligation to disclose “matters that could cause a person aware of the facts to reasonably entertain a doubt that the … neutral arbitrator would be able to be impartial.” (Code of Civil Procedure section 1281.9, subdivision (a).) Haworth v. Superior Court (2010) 50 Cal.4th 372 is important because it holds that the above appearance-of-partiality standard concerning arbitrator recusal should not be broader than the same standard applicable to judicial recusal. Benjamin, Weill & Mazer v. Kors (2010) A125732 (BW&M), decided just last week, is more fact specific, holding that part-time lawyer-arbitrators should disclose their legal involvement in business interests that are similar to the facts of the matter to be arbitrated.

In Haworth, the trial court vacated an arbitration award for a doctor involving  a female patient’s claim that the doctor had been negligent in performing plastic surgery to her lip because the arbitrator, a retired judge, had failed to disclose that, 10 years earlier, he had been publicly censured for making statements to court employees, which created “an overall courtroom environment where discussion of sex and improper ethnic and racial comments were customary.” The Supreme Court held that the arbitrator was not required to disclose the censure because nothing in its background facts would suggest to a reasonable person that the retired judge could not be fair to female litigants. Moreover, “None of the conduct or comments for which (the) judge … was censured involved litigants or occurred in the courtroom while court was in session.” (Id. at p. 390.) And, “Unlike cases in which evidence of gender bias has required disqualification of a judge, the subject matter of this arbitration was not such that the circumstance of gender was material, or that gender stereotyping was likely to enter into the decision made by the arbitrators.” (Id. at p. 391.)

In finding that a reasonable person would not entertain a doubt about the former judge’s impartiality as an arbitrator, Haworth acknowledged that, while some of the policies applicable to judicial disclosure may differ from those applicable to arbitrator disclosure, “we find no reason to interpret the appearance-of-partiality rule more broadly in the context of arbitrator disclosure than in the context of judicial recusal … It may be appropriate for an arbitrator to resolve doubts in favor of disclosure, but the arbitrator has no legal duty to do so.” (Id. at p. 393.) “The disclosure requirements … are intended only to ensure the impartiality of the neutral arbitrator. (Citation.) They are not intended to mandate disclosure of all matters that a party might wish to consider in deciding whether to oppose or accept the selection of an arbitrator.” (Ibid.)

Presciently, Haworth also provided that “The arbitrator cannot reasonably be expected to identify and disclose all events in the arbitrator’s past, including those not connected to the parties, the facts, or the issues in controversy, that conceivably might cause a party to prefer another arbitrator. Such a broad interpretation of the appearance-of-partiality rule could subject arbitration awards to after-the-fact attacks by losing parties searching for potential disqualifying information only after an adverse decision has been made. …. Such a result would undermine the finality of arbitrations without contributing to the fairness of arbitration proceedings.” (Id. at pp. 394-395.)

Two months later, BW&M attempts to carve out an exception to Haworth’s holding that arbitrator disclosures need not include facts not connected to the parties or the issues in controversy. In BW&M, the chief arbitrator in a three-person panel, which awarded a law firm its legal fees against a former client, had not disclosed that he was representing a large law firm in a case before the California Supreme Court involving an attorney fee dispute and was representing another major law firm in an action for attorney malpractice and related torts. The appellate court reversed the trial court’s order confirming the award and ordered that it be vacated because these non-disclosures concerned “matters that could cause a person aware of the facts to reasonably entertain a doubt that [the arbitrator] would be able to be impartial.”

BW&M distinguished Haworth because, it reasoned, the arbitrator’s non-disclosures of concurrent business interests similar to the parties’ interests could never occur in judicial matters, as they do private arbitration. Thus, it held that arbitrators must disclose their ties to the business world “to the extent these relationships are substantial and involve financial considerations creating an impression of possible bias …” What BW&M fails to recognize is that sitting judges, although not practicing law, may also have commercial ties, such as stock ownership or an interest in a business, that may be both substantial and factually similar to the cases before them but, under present appearance-of-partiality standards, need not be disclosed. Therefore, upon analysis, BW&M’s stated need for more disclosures in arbitrations than in the courts does not stand up to scrutiny.  

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 2010