Thursday, May 18, 2017

Hard to Be Biased by Something You Don’t Remember

EEC Capital Corp. v. Manatt, Phelps & Phillips LLC, No. B265760 (D2d9 Mar. 15, 2017)

Clients sued Attorneys who represented them in a soured debt deal. The case was compelled to arbitration, where Attorneys won. The arbitrator awarded
Attorneys $7 million in costs and fees. Clients seek to vacate the award.


Clients argue: (1) the arbitrator failed to make some mandatory conflict disclosures; (2) that the exceeded his authority by enforcing an illegal agreement; (3) that the award was procured by fraud; and (4) the arbitrator refused discovery on what Clients viewed as a critical issue.

Key to the first issue is that Code of Civil Procedure 1286.2 requires the vacation of an award when the arbitrator fails to disclose a grounds for disqualification “of which the arbitrator was then aware.” 

Under § 1281.9, mandatory disclosures include matters in which the arbitrator presided over in which a party or its attorneys were involved. Here, it came out during the proceedings that the arbitrator here did, in fact, have a prior matter where a member of Attorneys’ firm was counsel. As the arbitrator explained on the record, however, it was an uncontested non-binding domain name arbitration several years beforehand that was decided, essentially on a default basis, entirely on the papers. In those types of matters Arbitrator had no interaction with the parties or their counsel. Arbitrator explained that he had done hundreds of these matters and failed to keep track of all of the relevant attorneys (which he did do for any contested arbitrations). Given that the standard requires actual subjective awareness, the Court of Appeal finds that there was sufficient evidence to support the trial court’s denial of the motion to vacate.

The remaining issues get shorter shrift. On the alleged illegality of the contract, the court holds that Clients should have raised the issue in opposition to the motion to compel arbitration. By failing to do so, it was waived. The evidence also didn’t support the allegations of fraud on the tribunal sufficiently to merit vacation. And while the arbitrator did put some limits on discovery, they were rational limits based on the merits of the arguments raised by the parties. That wasn’t unfair.


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