Arbitrators Allowed One Party To Speak And Did Not Allow Other Side Even A Limited Chance To Do The Same Or To Cross-Examine.
One of the raps against arbitration is that arbitration proceedings lack due process. In Royal Alliance Associates, Inc. v. Liebhaber, No. B264619 (2/4 8/30/16) (Collins, Epstein, Manella), the Court of Appeal applies some basic due process concepts to affirm the vacation of an award because “the hearing was not fair.”
Royal Alliance Associates is an insurance broker, and Liebhaber was a client of Tarr, a financial advisor. Liebhaber arbitrated with Royal Alliance under Financial Industry Regulatory Authority, Inc. (FINRA) rules, alleging Tarr sold her “illiquid, high-risk investments” that were “inappropriate and unsuitable” for her circumstances. The case settled, Liebhaber’s allegations against Tarr were documented in FINRA’s Central Registration Depository (CRD), and Royal Alliance then sought to expunge the allegations from the CRD record. After the arbitration panel granted an award, Royal Alliance petitioned the trial court to confirm the award. FINRA and Liebhaber, however, opposed the petition, and sought to vacate the award.
The problem with the award was the flawed process: the arbitrators had allowed Tarr to “testify” unsworn, while denying an opportunity to Liebhaber’s counsel to cross-examine, and to Liebhaber to even speak. The trial court refused to confirm and vacated the award, and the Court of Appeal affirmed.
COMMENT: The California Arbitration Act does not mention a right to due process in arbitration. But a number of the Court’s comments bear on the concept of due process. For example, the opinion states: “The arbitrators denied Liebhaber a full and fair opportunity to introduce and challenge evidence material to the expungement proceedings to which she was a party.” The Court also quotes Moncharsh v. Heily & Blase: “Precisely because arbitrators wield such mighty and largely unchecked power, the Legislature has taken an increasingly more active role in protecting the fairness of the process.” 3 Cal. 4th at pp. 12-13. Finally, the Court describes California Code of Civil Procedure, section 1286.2, the vacatur provision, as a “safety valve . . . that permits the court to intercede when an arbitrator has prevented a party from fairly presenting its case”.