Vacating The Award Would Have Required That The Arbitrator Be Actually Aware Of A Ground For Disqualification That The Arbitrator Did Not Disclose.
ECC Capital, a former client of Manatt, Phelps & Phillips, LLP (Manatt) appealed from a superior court judgment confirming a final arbitration award of almost $7M against ECC and its subsidiary, and in favor of Manatt, for fees, expert expenses, and costs. ECC Capital Corp. et al. v. Manatt, Phelps & Phillips, LLP, No. B265760 (2/7 2/15/17) (Segal, Zelon, Small).
ECC, which had a malpractice dispute with its former attorney Manatt, contended the trial court erred in confirming the arbitrator’s interim award denying ECC’s claims, because the arbitrator violated mandatory disclosure rules governing arbitrations. ECC raised conflicts issues, including that Manatt had represented Bear Stearns, which was adverse to ECC, and then done transactional work for ECC in a matter involving Bear Stearns, without disclosing the conflict and obtaining a waiver. ECC also complained that a Manatt attorney had participated in a Uniform Domain Name Dispute Resolution Policy (UDRP) proceeding in which the arbitrator had been a panelist, and the arbitrator failed to disclose his involvement in the UDRP matter.
ECC commenced arbitration against Manatt in 2010, and apparently did not raise the disqualification issue with the arbitrator until October 2013, after the arbitrator had already deemed Manatt the prevailing party in the arbitration, and before Manatt filed its application for fees and costs. The arbitrator issued the award, and the trial court confirmed it.
The meaty issue on appeal was whether the arbitrator violated mandatory disclosure rules. No, said the Court of Appeal, because Cal. Code Civ. Proc., section 1286.2(a)(6)(A), provides grounds for vacatur where the arbitrator fails to disclose a ground for disqualification “of which the arbitrator was then aware.” Constructive knowledge does not suffice. The parties did not dispute that at the time of his disclosures, the arbitrator was not aware a former Manatt lawyer had participated in the UDRP matter. For good measure, the Court pointed out that as a factual matter, it was not unreasonable for the arbitrator to fail to disclose the UDRP matter, because he had participated in many such matters, such matters may not even qualify as genuine arbitrations, and they typically involve no in-person or telephonic hearings, no witnesses, no discovery, and no contact with the panelist.
Various other arguments made by ECC were rejected by the Court as meritless or forfeited.
The Court did comment, however, “[t]hat it might have been a better arbitrator disclosure practice” for the arbitrator to disclose that he had participated in numerous UDRP proceedings that he did not bother to review, allowing the parties to undertake their own review. But “a better practice”, absent authority, was no basis for vacating an arbitration award.
COMMENT: Arbitrator disclosure issues tend to lose traction when raised late in the game. Courts like to emphasize that arbitration is final, binding, and cost-effective. The Legislature intended “to prevent the undoing of an arbitration award based upon an arbitrator’s unknowing failure to disclose information.” (quoting Casden Park La Brea Retail LLC v. Ross Dress for Less, Inc., 162 Cal.App.4th 468, 477 (2009)).
TRIVIA: Casden Park La Brea Retail LLC successfully convinced the trial court to vacate an arbitration award on the basis that the arbitrator had failed to disclose prior business dealings. The Court of Appeal agreed with Ross, however, "that a neutral arbitrator who has no pecuniary interest in profits generated by his employer's business relationship with a party or a party's representative has no substantial business relationship with the party or its representative and, therefore, no duty to disclose such transactions." Manatt represented Casden Park La Brea Retail LLC in that appeal.