Monday, September 8, 2014

Vacating the Vacatur to Consider Missing Conflict Disclosures

United Health Centers of the San Joaquin Valley v. Superior Court, No. F067763 (D5 Aug. 25, 2014)

Due to apparent shoddy recordkeeping, the arbitrator in this case failed to disclose all of the conflicts information required by Code of Civil Procedure § 1281.9. The question is, whether the omissions from the disclosure were sufficient reason to vacate the arbitrator’s award. As the court here explains, that turns on an issue of waiver, which itself depends on whether the plaintiff had reason to know that the disclosures were incomplete when the arbitration commenced.

Prior case law holds that if a party has reason to believe the arbitrator’s § 1281.9 disclosures are incomplete, but nonetheless proceeds to arbitrate before that neutral, it waives the right to challenge any award based on the inadequate disclosure. Dornbirer v. Kaiser Foundation Health Plan, Inc., 166 Cal. App. 4th 831 (2008). The court finds that controls here.

The court also isn’t persuaded that § 1281.85(c), enacted after the Dornbirer decision, merits otherwise. That section states: “The ethics requirements and standards of this chapter [i.e., Chapter 2, “Enforcement of Arbitration Agreements”] are nonnegotiable and shall not be waived.” As used in the statute, the court finds the word “waived” to be ambiguous. It could mean a forfeiture of a right due to acquiescence or failure to act. Or it could mean an affirmative contractual waiver of the statutory grounds for disqualification.  Looking to the purpose of the statute, the legislative history, and the overall statutory scheme, the latter reading prevails. The statute wasn’t enacted to address the Dornbirer-type forfeiture waiver. It was enacted to prevent parties from waiving ethical and conflict rules in arbitration contracts.

So the issue is, did the plaintiff have reason to believe that the arbitrator’s § 1281.9 disclosures were incomplete? If she did, the defects were waived under Dornbirer. If not, and if the omitted information would be sufficient to warrant disqualification, § 1286.2(a)(6)(A) would require mandatory vacatur of the award. The trial court didn’t answer these questions, so it will need to vacate its vacatur and reconsider the petition in light of the standards set out in the opinion.

Writ granted.

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