ADR Case Updates
Courts Limit Arbitrator Disclosure Obligations, 05/28/08
Two recent California Court of Appeal cases limit arbitrator disclosure obligations. Both cases demonstrate that an arbitrator may have some ties to the business and legal community without becoming subject to disqualification. Indeed, many arbitrators are chosen because of their special knowledge of the issues in dispute, and will have professional contacts in their field. In order to create an impression of bias, the ties to a party or counsel must be substantial, and involve some form of financial consideration, before the other party may disqualify the arbitrator.
Arbitrator Need Not Disclose His Service on a Professional Organization Board With Counsel For One of the Parties
In Luce, Forward, Hamilton & Scripps v. Koch, 162 Cal. App. 4th 720 (Apr. 30, 2008, Fourth District, Div. One), a case of first impression, the San Diegos 4th District Court of Appeal concluded that service on the board of a professional organization with counsel for one of the parties is not a basis for disqualification.
Defendants were represented by Plaintiff law firm in securities litigation. Defendants did not pay attorney fees other than their initial retainer, and then sued the firm for breach of contract and related counts. Plaintiff successfully petitioned for arbitration pursuant to its fee agreement with Defendants, and asserted a counter claim for its attorney fees.
During the arbitration hearing, the arbitrator (a retired judge) disclosed that he had served on the board of the Business Trial Lawyers Association with Plaintiffs lead counsel and expert witness, and on the board of the American Inns of Court with Plaintiffs lead counsel. The arbitrator denied Defendants motion to disqualify himself, and awarded Plaintiff over $300,000 in fees, the full amount it sought.
Plaintiff petitioned the trial court to confirm the award, and Defendants petitioned to vacate. The court confirmed the award because the arbitrator was not required to disclose that he served on professional boards with Plaintiffs counsel, and that there was no basis for his disqualification on the ground he nevertheless disclosed that information.
Affirmed. Serving on the board of a professional organization with a party, partys attorney, or expert witness is not the type of professional relationship an arbitrator must disclose under CCP § 1281.9. Professional relationships that must be disclosed are ones involving economic relationships. Therefore, a reasonable person would not have an impression of bias under the facts here. Arbitrators cannot sever all ties with the legal community, and will be involved in community service, including continuing education and mentoring for new lawyers that will not, without more, disqualify them from hearing disputes.
Neutral Arbitrator Has No Duty to Disclose Employers Business Relationship With A Party In Which Arbitrator Has No Financial Interest, Nor Political Contribution To Fellow Arbitrator
In Casden Park La Brea Retail L.L.C. v. Ross Dress For Less, Inc., 2008 WL 2058587 (Apr. 25, 2008, Second District, Div. One), Defendant leased a commercial building from Defendant. After a dispute arose regarding the fair market rent, the parties initiated a three-arbitrator panel arbitration proceeding. Plaintiff selected James Travers and Defendant, Steven Soboroff, as their party arbitrators. The two-party arbitrators selected Timothy Bower, a commercial real estate broker employed by CB Richard Ellis (CB) as the neutral arbitrator. The arbitrators issued an award in favor of Defendant.
Plaintiff argued that Bowers, the neutral arbitrator, failed to disclose that CB (his employer) and Defendant had been involved in prior real estate transactions, and that Bowers and CB had contributed to Soboroffs (Defendants arbitrator) 2001 mayoral campaign. The trial court vacated the arbitrators award.
Reversed and remanded. CCP § 1281.9 (a) provides in pertinent part that the proposed neutral arbitrator shall 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 In order to create an impression of possible bias, a business relationship must be substantial and involve financial consideration.
Here, it was undisputed that Bowers had no financial interest in the prior dealings between CB and Defendant. In addition, Bowers $500 contribution to Soboroffs mayoral campaign was ordinary and insubstantial and could not have caused Plaintiff to entertain a doubt about Bowers impartiality, especially since Mr. Casden (of Plaintiff) and Travers (Plaintiffs expert) contributed $1,000 to Soboroffs mayoral campaign.
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