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self-study / Alternative Dispute Resolution

Arbitrator disclosure rules meet legal creativity

Fred Bennett

Email: fredgbennettADR@outlook.com

Fred is an experienced international and domestic arbitrator and mediator. He is a fellow with the College of Commercial Arbitrators, member of the National Academy of Distinguished Neutrals and the ICC Commission, and former head of arbitration at Quinn Emanuel and Gibson Dunn.

It is not your day -- you've just lost a trial, which is rare for you (and of course, an underserved travesty). But before locking your office to kick the wall, or taking an aimless drive on the freeway to some unmarked spot in the desert, you realize that an unwelcome challenge remains -- explaining the result to your client. Inevitably, that conversation will turn to an appeal, and the temptation will be huge to provide comfort by explaining how some wrong could be righted by appealing, and make everything good again. But the road to appellate success is daunting. The hard facts are that, on average, only about 10% to 15% of civil trial appeals in California yield fruit.

When one moves to the appeal of an arbitration judgment, however, the level of difficulty escalates to rarified air -- indeed, to a level of "no air" to some lawyers, who, before even taking on an arbitration matter, will hedge their bets with a firm caution to the client that "there is no appeal from an arbitration award." This is an overstatement (happily), but there is no denying that that pathway to vacating an arbitration award is as narrow as a slot canyon. Material errors of fact and law (except, possibly, in the extreme instance where the law has been "manifestly disregarded") -- the common fodder of trial appeals -- are not available in the appellate world of arbitration. Instead, the restrictive grounds under California law (CCP 1286.2) for vacating an arbitration award are confined to proving objective facts that, in most cases, simply do not exist: i.e., (i) the arbitration award was procured by fraud or corruption; (ii) the arbitrator(s) themselves were corrupt; (iii) the arbitrator lacked jurisdiction to issue the award; or (iv) the arbitrator made a procedural error that deprived a party of the opportunity to fully present its case, including the refusal to postpone the hearing when good cause existed for doing so, or refusing to allow a party to present evidence material to the case. The 18th century English proverb that "it is impossible to get blood out of a stone" comes to mind.

However, the California standard also contains subjective elements. An award can be vacated by any kind of "misconduct" or "misbehavior" by an arbitrator that prejudices a party's case -- which of course includes bias toward or against a party. More specifically, in California an award must be vacated where the arbitrator has made or failed to make any of the disclosures specifically required under Code of Civil Procedure Section 1289.1, as long as the appellant has objected within the prescribed time limit (CCP 1286.2). And the appellate court's review of a bias claim will be de novo, which means the court will consider -- on the merits -- all the evidence and legal arguments an appellant can muster to make the case for arbitrator bias, and in its discretion decide whether to strike a fatal blow to the award. Honeycutt v. JP Morgan Chase Bank, 25 Cal. App. 5th 909 (2018).

So it is not surprising that lawyers have jumped -- with both feet -- on potential claims of arbitrator bias to support an appeal, with all of their creative juices in tow. Indeed, it is now common for counsel to hire private investigators and/or IT experts to mine for personal information about an arbitrator from which a colorable bias claim can emerge, in the hope of finding some nugget that will sufficiently exercise the court to take action in the interest of preserving the sanctity of arbitration impartiality at all costs.

In the "are you kidding me?" category, parties have even resorted to hiring co-counsel or, where possible, adding witnesses for the arbitration who have some personal connection with the arbitrator in order to generate a disqualifying disclosure. Yikes!

But land mines await the intrepid proponent of a bias appeal, thanks to a potpourri of California case decisions. The overarching standard is that, from the evidence, "one could form a reasonable belief that shows that the arbitrator was biased," which reduces but does not eliminate the subjectivity element, since the court must still decide what a "reasonable belief" is under the relevant facts. To this, the courts have added that the evidence must also show "the particular reason for the bias" -- general platitudes of what is or is not acceptable moral behavior for an arbitrator will not suffice. Haworth v. Superior Ct., 50 Cal. 4th 372 (2010). The arbitrator must also have been aware of the nondisclosure, which adds a scienter element to the bias standard (Honeycutt). And if the arbitrator has made a general disclosure as required, bias cannot be shown by the arbitrator not having provided more specific, allegedly relevant details. Dornbrier v. Kaiser Foundation Health Plan, 166 Cal. App. 4th 831 (2008). Finally, even if the bias protocol is followed, the court will not be persuaded by personal connections which are "slight and attenuated." Luce, Forward, Hamilton & Scripps, LLP v. Koch, 162 Cal. App. 4th 720, 723 (2008).

Although the California vacatur standard for arbitration presents a fairly wide-open field for defining bias, the preferred strategy -- as reflected in case law -- is to try and fit a bias claim within one of the required disclosures under Code of Civil Procedure Section 1281.9. The potential reward for doing so is great; success means, al a Code of Civil Procedure Section 1286.2, that the court "shall vacate the award" -- full stop. Nonetheless, even with this approach case law reflects a subjective element in the decision-making process. The Holy Grail is attained by convincing the court, on the merits, that the alleged bias of the arbitrator has been captured by Code of Civil Procedure Section 1281.9.

Though it's admittedly like roller-skating through the British Museum, a brief overview of selected cases on arbitrator bias over the last few years helps prove the point. Possibly the most fertile ground for bias claims has been Section 1281.9 (5), which requires the arbitrator to disclose any "professional relationship" with a party or lawyer to the arbitration. In Guseinov v. Burns, 145 Cal. App. 4th 944 (2006), the court rejected a claim of bias on grounds that the arbitrator had not disclosed that he had previously acted as an uncompensated mediator for one of the parties. And in Speier v. The Advantage Fund, LLC, 2021 DJDAR 3633 (Cal. Ct. Appeal, April 19, 2021), the court rejected a claim that the arbitrator was biased by not disclosing that he had a 1% ownership interest in JAMS (the entity which administered the arbitration) and that the law firm representing a party had an undefined "relationship" with JAMS. Vacatur was also denied in Rivera v. Shivers, 2020 DJDAR 9592 (Cal. Ct. Appeal, Aug. 31, 2020), where the appellant claimed bias based on a nondisclosure that the father of one of the parties had been the arbitrator's "mentor" in the past.

On the flip side, the 9th U.S. Circuit Court of Appeals recently held that the line had been crossed in Monster Energy v. City Beverages, 940 F. 3d 1130 (9th Cir. 2019), vacating an award based on the arbitrator's failure to disclose that he had an ownership interest in JAMS, and that the Monster had used JAMS for 97 arbitrations over the last five years.

In Mt. Holyoke Homes L.P., v. Jeffers Mangel Butler & Mitchel, 29 Cal. App. 4th 1299 (2013), the court decided it was enough that the arbitrator had failed to disclose that he had listed as a reference the managing partner of a law firm who was a party to action. It's not hard to see from these decisions that, at the end of the day, even bias claims evoking Code of Civil Procedure Section 1281.9 encounter the subjective world. How close a past or current professional relationship must be to raise the specter of arbitrator partiality ultimately rests in the eye of the judicial beholder.

The challenge of drawing a bright line for bias claims -- which, for want of a catch phrase, I shall affectionately refer to as the "legal fuzziness factor" -- is further enhanced by the fact that many of the statutory disclosure requirements under Code of Civil Procedure Section 1281.9 have not really been tested in court. For example, Section 1289.1 requires the arbitrator to make all disclosures required by the "ethical standards for neutrals" adopted by the California Judicial Council, as well as all disclosures required of judges under Section 170.1. Ethical Rule 7(e)(14) requires the arbitrator to disclose membership in any organization "that practices invidious discrimination on the basis of sex, religion, national origin or sexual orientation." Relative to this, the courts have held that showing of bias cannot be based simply on "who [an arbitrator is]" -- as explained in Haworth -- where the court refused to vacate an award for bias on grounds that the arbitrator was Jewish and the appealing party of German descent (Rebmann v. Rohde, 146 Cal. App. 4th 1283 (2011)); likewise, vacatur was refused where the appellant argued bias based on the fact that the arbitrator had a connection with a gay and lesbian organization (GLAAD), and a party witness had given irrelevant testimony that he was Catholic (and therefore implicitly opposed to same-sex marriage). Malek Media Group LLC v. AXQC Corp., 2020 DJDAR 132387 (Cal. Ct. Appeal, Dec. 16, 2020).

But these cases sort of hit around the target. What happens if the evidence is more complex -- for example, if the arbitrator is a member of a church which does not allow women to speak in its services, and one of the parties or lawyers is female?

Code of Civil Procedure Section 170.1 requires the judge -- ergo, arbitrator -- to be disqualified if he/she fails to disclose any discussions with the parties or their counsel about possible service as a neutral, or regarding a reference to another neutral whom the arbitrator has employed or has an arrangement, if the arbitrator has made further inquiry about or asked for more information concerning the matter. The bandwidth of this rule is not easy to discern. Is disqualification mandated by any inquiry about details of the matter, however innocuous? The courts have not yet spoken on these matters, and until they do (and maybe even after), legal fuzziness and arbitrator bias claims will remain friends.

Thus, it is not surprising that, for better or worse, the creative juices of lawyers considering arbitrator bias claims continue to flow. The most recent illustration is the case of Roussos v. Roussos, 2021 DJDAR 1506 (Cal. Ct. Appeal, Feb. 16, 2021), where the parties made a creative, but what turned out to be ill-fated, attempt to avoid Section 1289.1 altogether. The parties negotiated a written agreement with an arbitration clause naming a particular individual as the arbitrator for all future disputes. However, years down the road, after the arbitrator had decided several disputes (apparently not to one party's liking), that party -- surprisingly -- moved to disqualify the arbitrator, on the self-evident grounds that the arbitrator had (as agreed) served in prior arbitrations between the parties, mandating automatic disqualification under Section 1281.9. In response -- to nobody's surprise -- the other party argued that the parties had intentionally waived any right to disqualify the arbitrator on this basis, since resolution of multiple disputes between the parties was precisely what the agreement contemplated. But the court wouldn't buy it, holding that the sanctity of impartiality in arbitration prohibits the parties from waiving an arbitrator's statutory disclosure obligations, even by agreement. One can't help but notice the dichotomy between this ruling and the general principle that arbitration rights are spawned and defined by party agreement. So much for advance planning in the arbitrator bias world.

It's hard to think of anything that spurs on lawyer creativity more than "legal fuzziness" or entirely unchartered legal territory, especially when attached to a judicial decision-making process with subjective elements. So place your bets on parties and their counsel continuing proactive, expensive searches and stratagems to unearth any nondisclosure by an arbitrator that just might catch an appellate court's attention. 

#990

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