Court Requires Full Disclosure from Arbitrator

California law requires timely disclosure of all matters that may cause a person to doubt the impartiality of the arbitrator. (See Cal. Code of Civil Procedure, section 1281.9.)  In common parlance, this means that proposed arbitrators must disclose conflicts of interest – and potential conflicts of interest –to parties considering hiring them to decide a contested case.

In most cases, these disclosures relate to business relationships between a nominated arbitrator and one of the parties or their attorneys. But what if a proposed arbitrator has simply handled a number of cases for defendants, or for defendants in disputes similar to the one at issue?  Does that type of information have to be disclosed?

The answer is yes, depending on the specific facts.  In Benjamin Weill & Mazer v. Kors, the court of appeal ruled that an arbiter who routinely represents lawyers in fee disputes with clients was required to disclose that work upon his nomination to serve as an arbitrator in an attoney0client fee dispute.  His failure to disclosure led the court of appeal to vacate the award that had been issued in favor of a law firm and against a former client.

In its ruling, the court of appeal was careful to observe that disclosure rules for private arbitrators are more expansive than those for a sitting judge due to the different nature of arbitration as opposed to court litigation.  To quote the court:

“The judicial process is not administered by persons chosen by the parties and paid a fee for the service, but by public officials chosen by a process in which the public participates, whose compensation is at levels that are fixed by law and cannot be affected by their rulings.  (See Tumey v. Ohio (1927) 273 U.S. 510.)  Their job is not to maximize the ends of private parties, nor simply to secure the peace, but to apply the law; and their decisions are almost invariably subject to review for faithfulness to the facts and the mandates of applicable statutes and constitutional principles.  Because judicial officers cannot accept a fee for their services, they have no economic interest in potential customers’ response to their decisions.”

“Private arbitration, on the other hand, is a commercial enterprise.  Although arbitration can take many forms, arbitrators are usually selected and compensated by the parties to resolve a dispute with a decision not ordinarily subject to judicial review for consistency with the law.  Because judicial interference in the merits of an arbitrator’s decision is severely restricted (Moncharsh v. Heily & Blasé, supra, 3 Cal.4th at pp. 10-11), arbitrators are not required to and often do not base their decisions on strict rules of law (Azteca Construction, Inc. v. ADR Consulting, Inc., supra, 121 Cal.App.4th at p. 1165).  Thus, “[t]he United States Supreme Court has observed that ‘we should, if anything, be even more scrupulous to safeguard the impartiality of arbitrators than judges, since the former have completely free rein to decide the law as well as the facts and are not subject to appellate review.’ ”  (Haworth v. Superior Court (2010) 50 Cal.4th at p. 393, quoting Commonwealth Corp. v. Casualty Co. (1968) 393 U.S. 145, 149.)”

In the Kors case, the court of appeal said that the arbitrator should have disclosed the fact that he routinely represented law firms in fee disputes against clients. The contention raised by Kors “is simply that an objective person could reasonably question the impartiality of an arbitrator in a dispute over legal fees who, at the time of the arbitration, was engaged generally in the defense of attorneys and law firms in cases involving professional responsibility and was actively representing a law firm in a case before the California Supreme Court involving a dispute over legal fees.  To the extent the disclosure sought here is “broader” than what would be required of a judge, it is because the circumstances here could not arise in the judicial arena, where a sitting judge could not simultaneously represent parties of the same class as one of the parties to the litigation. . . . We conclude that upon his appointment [the arbitrator] had a duty to timely disclose to the parties the nature of his legal practice, including the fact that he was then representing a law firm engaged in a fee dispute with a former client.  An arbitrator’s failure to disclose facts as required by section 1281.9 warrants vacation of his or her award.”

For your conveninece, a complete copy of the court's ruling is attached.

At Slote & Links, we regularly participate in arbitration proceedings (including the provision of services as an arbitrator, as well as client advocacy).  Please feel free to consult with us on arbitration related issues.