Wasserman, Comden, Casselman &
Esensten, LLP v. Patel
Filed 9/23/13 Wasserman, Comden, Casselman & Esensten,
LLP v. Patel CA2/7
California Rules of Court, rule 8.1115(a), prohibits courts and
parties from citing or relying on opinions not certified for publication or
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publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
SEVEN
WASSERMAN, COMDEN, CASSELMAN
& ESENSTEN, LLP,
Plaintiff and Respondent,
v.
RAKESH PATEL et al.,
Defendants and Appellants.
B243613
(Los Angeles
County
Super. Ct.
No. LS022131)
APPEAL from
a judgment of the Superior Court
of
County, Huey P. Cotton, Judge. Affirmed.
Snell &
Wilmer, Richard A. Derevan, and Todd E. Lundell, for Defendants and Appellants.
Esner,
Chang & Boyer, Stuart B. Esner; Wasserman, Comden, Casselman &
Esensten, David B. Casselman; Law Offices of Peter Q. Ezzell and Peter Q.
Ezzell for Defendant and Respondent.
__________________
>
Rakesh (Ray) Patel, Thakor I. Patel
and Kusum T. Patel appeal from the judgment confirming an arbitration award
resolving an attorney fee dispute in favor of the Patels’ former counsel
Wasserman, Comden, Casselman & Esensten LLP (WCCE). The Patels contend the award of approximately
$4.8 million, plus attorney fees and costs of another $200,000, should have
been vacated because (1) the arbitrators failed to disclose their service as
neutrals in cases involving the law firm with which counsel for WCCE was associated
as “of counsel†in violation of Code of Civil Procedure section 1281.9 and the
California Rules of Court, Ethics Standards for Neutral Arbitrators in
Contractual Arbitration, and (2) the arbitrators exceeded their powers by
issuing an award that violates the public policy set forth in rule 3-300 of the
Rules of Professional Conduct. We
affirm.
FACTUAL AND PROCEDURAL BACKGROUND
1. Litigation Concerning The Americana at Brand and the Contingency Fee
Agreement Between the Patels and WCCE
Ray Patel was part owner and
general manager of the 55-room Golden Key Hotel in Glendale. Thakor I. Patel and Kusum T. Patel, Ray
Patel’s parents, are the trustees of the Patel Family Trust, which was also
part owner of the hotel. The Patels
acquired the hotel in 2002 for approximately $5.2 million.
In May 2008 the Patels retained
WCCE to represent them on a contingency fee basis in connection with claims
against the Glendale Redevelopment Agency, the City of Glendale, Caruso
Affiliated Holdings, LLC and The Americana at Brand, LLC (the
successor-in-interest to Caruso Affiliated Holdings) arising out of the
construction and operation of the multi-million dollar shopping center and
residential development known as The Americana at Brand, which opened May 2,
2008.
to, and effectively surrounded by, The Americana at Brand and was one of only
two buildings in the “footprint†of the project that was not demolished during
the initial construction phases.
As reflected in the complaint filed
by WCCE in July 2008 for inverse
condemnation, breach of contract, nuisance, negligence and trespass (
(Super. Ct. L.A. County, 2008, No. BC395089)), the Patels contended their
“comparatively modest hotel business has suffered years of continuous physical
and business interference and damage. A
combination of construction traffic, trash loading, congestion, noise, dust,
fumes, blocked access, banging and other generally offensive and abnormal
conditions starting early in the mornings and extending until late into the
night, have proven to be highly detrimental to their business, use and
enjoyment of their property.†Alleging
The Americana at Brand was planned, approved, constructed and developed by the
Glendale Redevelopment Agency (GRA) with the substantial participation of the
City of Glendale as part of an effort to eliminate blight and keep downtown
Glendale economically viable, the Patels asserted the public entity defendants
were liable under a theory of inverse condemnation for the hotel’s “diminution
in value, loss of revenue, loss of goodwill, property damage, increased
operating costs, attorneys fees, and other losses and costs in a sum
. . . expected to exceed $10 million.†The complaint also alleged Caruso Affiliated
Holdings breached a written contract to relocate trash collection and disposal
facilities at the construction site, Caruso Affiliated Holdings and The
Americana at Brand were liable for trespass and negligence, and all defendants
were responsible for the Patels’ damages for maintaining a nuisance.
The written contingency fee
agreement between the Patels and WCCE identified the subject matter of the
representation as “a claim for damages or other appropriate relief against
whomever is responsible for the injury or loss suffered by Client [(defined as
the Patel Family Trust and Ray Patel)] arising out of the following incident or
transaction: the construction and
operation of the Glendale Town Center Project (Americana at Brand) in Glendale,
California, including conduct of Caruso Affiliated, LLC, The Americana at
Brand, LLC, the City of Glendale Redevelopment Agency, and the City of
Glendale.†The fee agreement recited the
Patels had agreed “the following fee arrangement is fair and reasonable, and to
pay Attorney the following amount:
[¶] If the matter is settled at
any time before the case is first assigned a trial date, an amount equal to
thirty three and one-third percent (33 1/3%) of any recovery obtained. [¶]
Thereafter, an amount equal to forty percent (40%) of any recovery,
whether by way of settlement, judgment or compromise.†The agreement, which contemplated the
possible recovery of attorney fees under Code of Civil Procedure section 1036
(inverse condemnation proceedings), specifically provided “[a]ttorney’s fee
shall be computed based on the gross recovery.â€
Thus, costs and expenses advanced by WCCE in connection with the
litigation were to be reimbursed after the contingency fee was computed.
The Patels granted WCCE an
attorney’s lien—what is sometimes referred to as a charging lien—to secure
payment of all sums due under the fee agreement “on Client’s claim and any
cause of action or lawsuit filed thereon, and to any recovery Client may
obtain . . . .†Any
disputes regarding fees or services were to be resolved by binding arbitration.
2.
The Sale of the Golden Key Hotel
At the outset of WCCE’s
representation, Ray Patel told David B. Casselman, the partner in charge of the
matter, he did not want to sell the hotel.
Nonetheless, in November 2010, while the Patels’ hard-fought litigation
over The Americana at Brand was slowly proceeding toward trial, the City of
Glendale and the GRA notified Ray Patel they were considering taking the hotel
through eminent domain and transferring it to Rick Caruso’s company to expand
The Americana at Brand (apparently to provide space for a Nordstrom as an
additional anchor tenant). At a city
hearing to consider the issue, Caruso confirmed his interest in acquiring the
hotel; and Ray Patel, in turn, indicated he was willing to sell the hotel at an
appropriate price, but not “with a gun to his head.†A further hearing was scheduled for February
15, 2011.
On December 20, 2010 Caruso
extended an offer to purchase the hotel for $6 million. (A 2010 appraisal Caruso provided with his
offer valued the property at $4.9 million, slightly less than the amount
the Patels had paid to purchase the hotel in 2002.)
the offer, which he described as “woefully inadequate.â€
Separately from the inverse
condemnation/nuisance litigation, Ray Patel had begun working with Michael Hall
of Patriot Capital Group, Inc. and other experts to prepare plans to upgrade
the Golden Key Hotel as an alternative, competing proposal for the property to
present to the City of Glendale. In
February 2011 the Patels retained Joseph E. Thomas and Michael D. Martello of
the Thomas Whitelaw law firm (on an hourly basis) to defend against any effort
by the City of Glendale and the GRA to condemn the hotel and to assist Hall in
preparing their competing plans for the hotel property. In negotiating his retention of the Thomas
Whitelaw firm, Ray Patel forwarded the WCCE fee agreement and a copy of the
inverse condemnation/nuisance complaint with the following directive: “I definitely do not want any financial gains
from the eminent domain issue spilling over [to the] existing lawsuit.â€
Communications concerning
acquisition of the hotel continued between Caruso and the Patel team. In a February 12, 2011 email to Hall, which
was shared with Thomas and Ray Patel, but not WCCE, Caruso offered to purchase
the hotel for $12.75 million. On
February 14, 2011 another offer (this time directed to Thomas) was made, which
included $15 million cash for the hotel property and resolution of the inverse
condemnation/nuisance action, with a 10 1/2 month leaseback of the hotel
(that is, through December 31, 2011) to the Patels for $1, and payment of legal
fees to WCCE and Thomas’s firm of $650,00-$700,000 (a package that Thomas
valued at close to $17 million).
Again, neither the fact that negotiations were ongoing nor the details
of the offer were shared with WCCE.
Discussions for the sale of the
hotel continued into the night on February 14, 2012 and through the
morning of February 15, 2011, the scheduled date for the city council meeting
to hear Ray Patel and Thomas present their plan for redevelopment of the
property to compete with the proposal submitted by the Caruso entities (and
approved by the council staff).
Ultimately, on that day Caruso agreed to purchase the hotel for
$16.25 million, separately to pay $500,000 to settle the inverse
condemnation/nuisance action and to lease back the hotel to the Patels through
December 31, 2011 for $1. The final
agreement included the following provision, “The parties will agree to be
silent on the allocation of purchase price above and agree not to refute each
party’s respective allocation. The
Purchase Price is in consideration for the Property and for the settlement of
the Litigation.â€
Casselman first learned of the
negotiations on the morning of February 15, 2011 when Thomas called him
and said Caruso was interested in talking about settlement. Thomas would not provide Casselman with any
details and, in fact, observed the discussions were “probably not going to
amount to much.†Casselman asked Thomas
to have Patel call him and urged Thomas to be sure, if Patel decided to settle
the inverse condemnation case, he invoked his
Code of Civil Procedure section 1036.
When Casselman spoke to Patel that morning, according to Casselman,
Patel claimed to know nothing about the settlement discussions.
of February 15, 2011 asking for information went unanswered until after
11 p.m., when Patel advised him he had settled the case for $500,000.
3.
The Fee Dispute
When Thomas first told Casselman
about the settlement discussions on February 15, 2011, Thomas asked how
much WCCE had invested in the case.
Casselman responded that the time value of the work done on behalf of
the Patels was $920,000, but advised Thomas the firm had a contingency fee
agreement that Casselman expected to be honored.
Patel came to the WCCE offices on
February 16, 2011 and again reported the inverse condemnation litigation had
been settled for $500,000. He refused to
disclose any other details of the purchase price or final term sheet signed by
the parties. The Patels tendered
$200,000 to WCCE, 40 percent of $500,000, contending that was the full amount
of the fee owed to WCCE. The Patels
claimed the contingency fee was never intended to cover a sale of their property.
WCCE, on the other hand, asserted
the “gross recovery†on the Patels’ claims subject to the retainer agreement
was $17.75 million: $500,000 plus the
full $16.25 million allocated to the purchase price of the hotel, plus the
$1 million valuation given to the $1 one-year lease-back of the property.
4.
The Arbitration
Pursuant to the terms of the
written fee agreement WCCE and the Patels submitted the dispute to Alternative
Dispute Resolution Services, Inc. (ADR Services) for arbitration. Apparently at the request of counsel for the
Patels, it was agreed to use a panel of three arbitrators, rather than a single
arbitrator. Retired Los Angeles Superior
Court Judge Enrique Romero was the Patels’ selected panel member; retired Los
Angeles Superior Court Judge Joe W. Hilberman was WCCE’s selected panel member.
Patricia L. Collins was selected by Judges Romero and Hilberman as the third
panel member and served as the presiding arbitrator.
The complaint for attorney fees and
breach of contract submitted to ADR by WCCE showed as its counsel Peter Q.
Ezzell of the Law Offices of Peter Q. Ezzell APC and David B. Casselman of
WCCE. William Gwire of the Gwire Law
Offices appeared on behalf the Patels.
In a letter dated July 27, 2011 ADR Services sent to Ezzell, Casselman
and Gwire fully executed disclosure statements for Judges Collins, Hilberman
and Romero. The arbitrators disclosures
were limited to prior arbitrations, mediations and discovery references for
individual attorneys Gwire, Ezzell, Casselman and Katherine A. Winder, an
associate of Casselman’s; for law firms Gwire Law Offices, Law Offices of Peter
Q. Ezzell and WCCE; and for the Patels, their family trust and the Golden Key
Hotel. Each arbitrator also indicated he
or she would continue to entertain offers of employment as neutrals from the
parties, the lawyers and their law firms during the pendency of the arbitration
proceedings.
The arbitration hearing took place
over five days, February 6-10, 2012. On
March 22, 2012 the arbitration panel issued an interim binding award of
$5.2 million in favor of WCCE plus interest, reserving the issue of
attorney fees and costs. On May 25,
2012 the panel issued its final binding
arbitration award, reducing the basic award to $4.82 million, plus
interest from March 10, 2011, attorney fees in the amount of $114,240 and costs
of $88,527.39.
In their award, which largely
agreed with the position advanced by WCCE, the arbitrators explained the Patels
had consistently contended the inverse condemnation/ nuisance lawsuit was worth
between $15 and $17 million, a position they supported with verified discovery
responses in the litigation identifying past and future lost income, loss of
goodwill and physical damage to the hotel property and emotional distress
damages in the nuisance part of the litigation.
In addition, the total value of the purchase/settlement agreement with
Caruso greatly exceeded (by a factor of three) the fair market value of the
hotel as reflected in the various appraisals obtained during the
litigation. Accordingly, the arbitrators
found the total consideration paid was necessarily the direct result of WCCE’s
efforts in the inverse condemnation litigation.
However, the arbitrators concluded the “gross recovery†subject to the
40 percent contingency fee should not include the fair market value of the
hotel: “To include the value of the
Hotel as part of [the Patels’] ‘gross recovery’ would ignore the full consideration
that [the Patels] contributed to the settlement—i.e., title to the Hotel
[condemnation] lawsuit, and would result in a windfall to WCCE.â€
value Caruso paid to the Patels by $5.2 million to determine the “gross
recovery obtained as a result of WCCE’s efforts in its representation of the
Patels.â€
5. Post-arbitration
disclosures regarding Kaufman Dolowich Voluck & Gonzo, LLP
Although Peter Ezzell, cocounsel
for WCCE with David Casselman, was identified on WCCE’s July 6, 2011
arbitration complaint simply as a member of Law Offices of Peter Q. Ezzell APC
with a business address in Marina del Rey, as of June 2011 and throughout
the arbitration proceedings Ezzell was also “of counsel†to the law firm of
Kaufman Dolowich Voluck & Gonzo, LLP (the Kaufman firm).
counsel of record for WCCE, and Ezzell’s of-counsel relationship to the firm
was not disclosed to ADR Services, any of the three arbitrators or the
Patels. Consequently, the arbitrators’
disclosure statements, provided to the parties and their counsel in late July
2011, did not include any information concerning arbitrations, mediations or
discovery matters involving the Kaufman firm in which the arbitrators had
served as neutrals.
After the arbitrators issued their
March 22, 2012 interim award, the Patels hired new counsel, Jeffrey Huron, to
review the arbitration proceedings.
Huron was apparently aware of Ezzell’s relationship with the Kaufman
firm; on May 4, 2012 he served a deposition subpoena for production of business
records on ADR Services seeking all documents from 2006 through the present
date reflecting any participation or service by Judges Collins, Hilberman or
Romero as an arbitrator or mediator in a matter in which the Kaufman firm or
the law firm of Haight Brown & Bonesteel (Ezzell’s prior law firm) had been
involved.
title="">[10]
The date scheduled for production was May 24, 2012.
In a letter dated May 31, 2012,
apparently sent in response to a meet-and-confer letter from Huron’s firm, ADR
Services informally provided certain information requested in the subpoena.
Ezzell’s prior law firm, Haight, Brown & Bonesteel) were not listed as a
party or lawyer for any party in the WCCE-Patel arbitration and “ADR Services,
Inc. was not aware that Mr. Peter Ezzell was ‘associated’ with [the Kaufman
firm] until we received your subpoena on May 4, 2012. None of the parties and/or attorneys informed
us of this fact and the official California State Bar records do not list Mr.
Ez[z]ell as being associated with [the Kaufman firm].â€
The ADR Services letter disclosed
that Judge Collins was serving as a neutral in one arbitration involving the
Kaufman firm as counsel that had commenced many months after the initiation of
the Patel-WCCE arbitration; Judge Hilberman had completed one mediation as a
neutral in a matter in which the Kaufman firm served as counsel prior to the
initiation of the Patel-WCCE arbitration and another such mediation during the
pendency of the Patel-WCCE arbitration; and Judge Romero had participated as a
neutral in four mediations in which the Kaufman firm served as counsel prior to
the initiation of the Patel-WCCE arbitration and six additional mediations
during the Patel-WCCE arbitration. A
more formal response to the subpoena was given on June 6 and June 7,
2012: ADR Services provided a
declaration from its president, Lucie Barron, as custodian of records and
documents evidencing the mediations and arbitrations involving the Kaufman firm
described in the May 31, 2012 letter.
6.
Proceedings in the Superior Court
WCCE petitioned the superior court
to confirm the arbitration award; the Patels filed a combined petition to
vacate the award and response to WCCE’s petition. The Patels’ principal argument was that the
award must be vacated because the arbitrators had failed to make mandatory
disclosures regarding the Kaufman firm.
The Patels also asserted the fee agreement as interpreted by the
arbitrators violated public policy by granting WCCE an interest in the Golden
Key Hotel without complying with the requirements for obtaining such an
interest as set forth in rule 3-300 of the Rules of Professional Conduct (rule
3-300).
On August 3, 2012 the court granted
WCCE’s petition to confirm the arbitration award and denied the Patels’ motion
to vacate the award. The court found the
arbitrators were not aware of a nexus between Ezzell and the Kaufman firm until
May 2012 after issuance of the binding arbitration award and additionally found
Ezzell at all times represented WCCE through his professional corporation, not
through any association with the Kaufman firm.
Accordingly, the court concluded the Patels had not established the
arbitrators’ failure to disclose their participation in prior (or scheduled
future) mediations/arbitrations with the Kaufman firm was a ground for their
disqualification or that it was proper to vacate the arbitration award on that
basis.
The court also rejected the Patels’
public policy argument, noting it had been presented to and denied by the
arbitrators. Evaluating the claim itself
in terms of unconscionability, the court found there had been no procedural
unconscionability in the manner in which the fee agreement was negotiated and,
although not as “clear cut,†no
substantive unconscionability:
“Considered in isolation, the contingent fee providing for 40% of the
hotel sales price does, in this court’s estimation, approach the outer limits
of an acceptable contingent fee.
However, it is not substantively unconscionable. No firm other than WCCE would undertake the
representation of the Patels in a lawsuit instigated by substantial nuisance
activity that was driving away business from the Patels’ hotel. No firm would undertake the representation on
an hourly basis, nor on contingent fee terms better than those fairly
negotiated with WCCE.â€
Judgment confirming the arbitration
award in favor of WCCE was entered on August 24, 2012. The Patels filed a timely notice of appeal.
DISCUSSION
1.
Grounds for Vacating an
Arbitration Award and Standard of Review
As the Supreme Court and
Courts of Appeal have repeatedly held, when parties agree to private
arbitration, the scope of judicial review is strictly limited to give effect to
the parties’ intent to bypass the judicial system and thereby avoid potential
delays at the trial and appellate levels.
(E.g., Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1,
10; Gray v. Chiu (2013) 212
Cal.App.4th 1355, 1362.) Generally, a
court may not review the merits of the controversy between the parties, the
validity of the arbitrators’ reasoning or the sufficiency of the evidence
supporting the arbitration award. (Moncharsh, at p. 10.) “‘[I]t is within the power of the arbitrator
to make a mistake either legally or factually.
When parties opt for the forum of arbitration they agree to be bound by
the decision of that forum knowing that arbitrators, like judges, are
fallible.’†(Id. at p. 12;
accord, Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1340 [“the California
Legislature ‘adopt[ed] the position taken in case law . . . that is,
“that in the absence of some limiting clause in the arbitration agreement, the
merits of the award, either on questions of fact or of law, may not be reviewed
except as provided in the statuteâ€â€™â€].)
Judicial review of an
serious problems with the award itself, or with the fairness of the
(Moncharsh v. Heily & Blase,
supra, 3 Cal.4th at p. 12.) The only grounds on which a court may
section 1286.2, which include, in subdivision (a)(4), the arbitrator exceeded
his or her power (for example, by violating an explicit legislative expression
of public policy) and in subdivision (a)(6)(A), the arbitrator’s failure to
timely disclose a ground for disqualification of which the arbitrator was then
aware.
fraud, or undue means; (2) issued by corrupt arbitrators; (3) affected by
prejudicial misconduct on the part of the arbitrators; or (4) in excess of
the arbitrators’ powersâ€].)
We review de novo a trial
court’s order confirming an arbitration award, including a determination
whether the arbitrator failed to make required disclosures (
Cal.4th 372, 385-387; Gray v. Chiu,
supra, 212 Cal.App.4th at p. 1362) and whether the arbitrator exceeded
his or her powers in granting relief (Advanced
Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376, fn. 2;
121 Cal.App.4th 44, 55). However, to the
extent the superior court’s decision to grant the petition to confirm and deny
the petition to vacate the award rests on its determination of disputed factual
issues, we review the court’s orders under the substantial evidence standard. (Toal
v. Tardif (2009) 178 Cal.App.4th 1208, 1217; Malek, at pp. 55-56; cf. Haworth,
at pp. 382-383.)
2. The
Disclosure and Disqualification Provisions of the California Arbitration Act
and the Ethics Standards for Neutral Arbitrators
In Mahnke v. Superior Court (2009) 180 Cal.App.4th 565, 573 (
struggled with the problem of ensuring not only the neutrality but also the
perception of neutrality of arbitrators, who wield tremendous power to decide
cases and whose actions lack, for the most part, substantive judicial
review.†To address this problem, since
1994 section 1281.9, part of the California Arbitration Act (Arbitration Act)
(§ 1280 et seq.),
name="_ftnref14" title="">[14] has required a proposed neutral
arbitrator to disclose various matters relating to his or her ability to be
impartial, specifically including information regarding prior or pending cases
in which he or she served as either a party or neutral arbitrator that involved
any party to the current arbitration or one of the lawyers for a party. (§ 1281.9, subd. (a)(3) [service as party
arbitrator], (a)(4) [service as neutral arbitrator]; see also former
§ 1281.9, subd. (a)(1) & (2), Stats. 1994, ch. 1202, § 1, p.
7420; see generally § 1281.9, subd. (a) [“when a person is to serve
as a neutral arbitrator, 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 impartialâ€].)
As part of a revision of
section 1281.9 in 2001, the Legislature added current subdivision (a)(2), which
requires disclosure by proposed neutral arbitrators of “[a]ny matters required
to be disclosed by the ethics standards for neutral arbitrators adopted by the
Judicial Council†(Stats. 2001, ch. 362, § 5, pp. 3491-3492) and, at the
same time, enacted section 1281.85, which directed the Judicial Council to
adopt ethical standards for all neutral arbitrators—standards that were
specifically to “address the disclosure of interests, relationships, or affiliations
that may constitute conflicts of interest, including prior service as an
arbitrator or other dispute resolution neutral entity, disqualifications,
acceptance of gifts, and establishment of future professional relationships.†(Stats. 2001, ch. 362, § 4, pp.
3490-3491.) Now incorporated into the
California Rules of Court, the Ethics Standards for Neutral Arbitrators in
Contractual Arbitration (Ethics Standards) “establish the minimum standards of
conduct for neutral arbitrators who are subject to these standards. They are intended to guide the conduct of
arbitrators, to inform and protect participants in arbitration, and to promote
public confidence in the arbitration process.â€
(Ethics Std. 1(a).)
As relevant to the case at
bar, Ethics Standard 7(d)(4) requires a person nominated or appointed as a
neutral arbitrator to disclose service within the preceding five years as a
neutral arbitrator or party-appointed arbitrator in another prior or pending
noncollective bargaining case involving a party to the current arbitration or a
lawyer for a party, and Ethics Standard 7(d)(5) requires similar disclosure of
service within the preceding two years as a dispute resolution neutral other
than as an arbitrator (for example, as a mediator). Disclosure of all matters “of which the
arbitrator is then aware†must be made in writing within 10 days of service of
notice of the proposed nomination or appointment.†(Id.,
7(c).) The proposed neutral arbitrator
is obligated to “make a reasonable effort to inform himself or herself of
matters that must be disclosed . . . .†(Id.,
9(a).) The duty to disclose these
matters is a continuing one. (
of a matter that must be disclosed . . . , the arbitrator must
disclose that matter to the parties in writing within 10 calendar days after
the arbitrator becomes aware of the matter.â€
(Ethics Std. 7(c).) “Lawyer for a
party†is defined to include “any lawyer or law firm currently associated in
the practice of law with the lawyer hired to represent a party.†(§ 1281.9, subd. (c); see Ethics Std.
2(m) [same definition].)
Ethics Standard 12 prohibits a
neutral arbitrator from entertaining or accepting any offer to serve as a
dispute resolution neutral in another case from a party or a lawyer for a party
in the pending arbitration from the time of appointment until the conclusion of
the arbitration unless the proposed arbitrator discloses within 10 days of
service of notice of his or her proposed nomination or appointment that such
offers will be entertained and accepted.
(Ethics Std. 12(b) & (c).)
However, if an arbitrator has made the disclosure described in Ethics
Standard 12(b), the arbitrator is not required to disclose when he or she
subsequently receives or accepts such an offer.
(Id., 7(b)(2).)
The parties have an
opportunity to disqualify the proposed neutral arbitrator based on the
disclosures made. (§ 1281.91, subds.
(b), (d); see Haworth v. Superior Court,
supra, 50 Cal.4th at p. 381.) In addition, a proposed neutral arbitrator
shall be disqualified if he or she fails to comply with the section 1281.9
disclosure requirements (which, as discussed, incorporate the Ethics Standards’
requirements in section 1291.9, subdivision (a)(2)). (§ 1281.91, subd. (a).) “If an arbitrator ‘failed to disclose within
the time required for disclosure a ground for disqualification of which the
arbitrator was then aware,’ the trial court must vacate the arbitration
award. (§ 1286.2, subd.
(a)(6)(A).)†(Haworth, at p. 381; accord, Gray
v. Chiu, supra, 212 Cal.App.4th at p. 1366; International Alliance of Theatrical State Employees, Etc. v. Laughon (2004)
118 Cal.App.4th 1380, 1393.)
The rules for party
arbitrators differ from those for neutral arbitrators. The Arbitration Act defines a “neutral
arbitrator†as one “who is (1) selected jointly by the parties or by the
arbitrators selected by the parties or (2) appointed by the court when the
parties or the arbitrators selected by the parties fail to select an arbitrator
who was to be selected jointly by them.â€
(§ 1280, subd. (d); see Haworth
v. Superior Court, supra, 50 Cal.4th at p. 381, fn. 4.) Ethics Standard 2(a)(1) contains a similar
definition: “‘Arbitrator’ and ‘neutral arbitrator’
[as used in these standards] mean any arbitrator who is subject to these
standards and who is to serve impartially, whether selected or appointed: [¶]
(A) Jointly by the parties or by the arbitrators selected by the
parties; [¶] (B) By the court,
when the parties or the arbitrators selected by the parties fail to select an
arbitrator who was to be selected jointly by them; or [¶] (C) By a dispute resolution
provider organization under an agreement of the parties.†A “[p]arty-arbitrator,†in contrast, is “an
arbitrator selected unilaterally by a party.â€
(Ethics Std. 2(q).)
Neither section 1281.9 nor the
Ethics Standards’ requirements apply to party arbitrators. (Jevne
v. Superior Court (2005) 35 Cal.4th 935, 945, fn. 4 [the Ethics Standards
do not apply to party arbitrators]; Mahnke,
supra, 180 Cal.App.4th at p. 577 [“[t]he disclosure requirements in
section 1289 and the Judicial Council’s ethics standards for neutral
arbitrators do not apply to any arbitrator other than the jointly selected, or
court-appointed, proposed neutral arbitratorâ€]; Jakks Pacific, Inc. v. Superior Court (2008) 160 Cal.App.4th 596,
605 [“[t]he Standards apply only to neutral arbitrators selected by the parties
or a dispute resolution services provider, or appointed by the court to serve
impartially [citation], and do not apply to party arbitrators [citation]â€];
Ethics Std. 3(b).) For party
arbitrators, disclosure and disqualification are governed by an objective
standard: Matters must be disclosed and
may be the basis for disqualification if they would create an impression of
bias or cause a person aware of all the facts to reasonably entertain a doubt
as to the ability of the party arbitrator to be impartial. (See Mahnke,
at p. 579; Betz v. Pankow (1995)
31 Cal.App.4th 1503, 1508-1509; see generally Commonwealth Coatings Corp. v. Continental Casualty Co. (1968) 393
U.S. 145, 149 [89 S.Ct. 337, 21 L.Ed.2d 301] [“[w]e can perceive no way in
which the effectiveness of the arbitration process will be hampered by the simple
requirement that arbitrators disclose to the parties any dealing that might
create an impression of possible biasâ€].)
“[U]nless ‘a reasonable member of the public at large, aware of all the
facts, would fairly entertain doubts concerning the [arbitrator’s] impartiality
. . . ,’ the arbitrator is not subject to disqualification. [Citations.]
Moreover, ‘[p]otential bias and prejudice must clearly be established by
an objective standard. [Citation.] “Courts must apply with restraint statutes
authorizing disqualification of [an arbitrator] due to bias.â€â€™â€ (Mahnke,
at p. 579.) “There is a presumption
favoring the validity of the award, and [the party challenging the award] bears
the burden of establishing [a] claim of invalidity.†(Betz
v. Pankow (1993) 16 Cal.App.4th 919, 923.)
3. The
Arbitrators’ Failure To Disclose Their Previous Service as Neutrals in Cases
Involving the Kaufman Firm Does Not Require Vacating the Arbitration Award
The Patels charge “the
arbitrators had a total of 14 undisclosed mediations and arbitrations with the
Kaufman firm.†However, nine of those 14
matters were initiated while the WCCE-Patel arbitration was pending. Because all three arbitrators advised the
parties in writing they would entertain and accept offers to serve as a dispute
resolution neutral in another case from the parties or a lawyer for a party,
Ethics Standard 7(b)(2) expressly excludes those matters from any disclosure
requirement.
name="_ftnref15" title="">[15] Accordingly, the Patels’
challenge to the arbitration award on this ground rests only on Judge
Hilberman’s failure to disclose he had served as a neutral in one prior
mediation in which the Kaufman firm was involved as counsel and Judge Romero’s
failure to disclose he had served as a neutral in four mediations involving the
Kaufman firm. There can be no issue at
all with respect to disclosures by Judge Collins, who had not participated as a
dispute resolution neutral in any matters involving the Kaufman firm prior to
the initiation of the WCCE-Patel arbitration.
The Patels contend disclosure
of the five mediations was required by section 1281.9 and Ethics Standard 7 and
the failure to timely disclose that information requires the arbitration award
be vacated under section 1286.2, subdivision (a)(6)(A), whether or not those facts
could reasonably cause a person to doubt the arbitrators’ impartiality. Their argument suffers from multiple flaws.
a. Ezzell
was associated in the practice of law with the Kaufman firm for purposes of
section 1281.9 and Ethics Standard 7
Based on evidence presented in
connection with the Patels’ motion to vacate the arbitration award, the
superior court found Ezzell began his representation of WCCE in this fee
dispute many months before he associated part of his professional work in an
of-counsel capacity with the Kaufman firm; WCCE retained Ezzell, not the
Kaufman firm, to represent it; and Ezzell, in fact, represented WCCE through
his professional corporation, not through his association with the Kaufman
firm. These findings, although contested
by the Patels, are supported by substantial evidence.
not germane to the disclosure issue.
Prior to the initiation of the arbitration itself, when the proposed
arbitrators were being selected, Ezzell had an of-counsel relationship with the
Kaufman firm; and the firm was, therefore, “associated in the practice of law
with the lawyer hired to represent a party in the arbitration.†Certainly, if a proposed neutral arbitrator
knew of this relationship between Ezzell and the Kaufman firm, under section
1281.9 and Ethics Standard 7 he or she was obligated to disclose prior service
as a neutral in matters in which the Kaufman firm was involved within the
relevant time period (five years for arbitrations and two years for
mediations).
b. In
light of the superior court’s findings regarding the arbitrators’ lack of
knowledge, disclosure of prior service as a neutral in proceedings involving
the Kaufman firm was not required prior to May 2012
i. The
superior court’s findings
The superior court found the
arbitrators were not aware of a nexus between Ezzell and the Kaufman firm until
May 2012, “after issuance of the Binding Award.†Because the Patels had the burden of
establishing the facts supporting their claim the arbitrators failed to make
required disclosures, thereby invalidating the arbitration award (see
p. 926 [“the burden of proof is on appellant as the party claiming bias to
establish facts supporting her positionâ€]), we may reverse that finding only if
the evidence compels the contrary finding—that the arbitrators were, in fact,
aware Ezzell was of counsel to the Kaufman firm. (See Sonic
Mfg. Technologies, Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th
456, 466 [when “‘the issue on appeal turns on a failure of proof [in the trial
court], the question for a reviewing court becomes whether the evidence compels
a finding in favor of the [moving party] as a matter of law. [Citations.]
Specifically, the question becomes whether the [moving party’s] evidence
was (1) “uncontradicted and unimpeached†and (2) “of such a character and
weight as to leave no room for a judicial determination that it was
insufficient to support a findingâ€â€™â€]; Valero
v. Board of Retirement of Tulare County Employees’ Retirement Assn. (2012)
205 Cal.App.4th 960, 965-966 [same].)
The evidence submitted on the Patels’ petition falls well short of that
mark.
In his declaration in opposition to
the petition to vacate the arbitration
award, David Casselman stated he had negotiated with Ezzell to represent
WCCE through his own professional capacity.
According to Casselman, Ezzell’s address with the California State Bar
was listed as Law Offices of Peter Q. Ezzell, “which is how arbitrators at ADR
[Services] and elsewhere check and make their disclosures.†Casselman also testified Ezzell was
identified through his professional corporation, not the Kaufman firm, “on the
proof of service of every pleading to my knowledge.†Casselman acknowledged Ezzell’s address was
listed at the Kaufman firm on the face page of several pleadings or briefs
filed with the arbitrators, but explained they were “inadvertent and clearly
erroneous†and insisted, “[N]o such erroneous references were made at any time
before disclosures by the arbitrators were required and made.†In his declaration Ezzell confirmed he had
maintained his Marina Del Rey office with the State Bar, not the Kaufman firm’s
offices. In Ezzell’s opinion, the arbitrators
would not have any “reason to suspect that the Kaufman firm was somehow
involved, through me, when my appearance was always through my own Professional
Corporation.†Finally, as discussed, in
its May 31, 2012 letter informally responding to the Patels’ subpoena, which
was submitted as an exhibit in support of the petition to vacate arbitration
award, ADR Services explained the Kaufman firm had not been listed as a party
or a lawyer for a party in the materials submitted in connection with the initiation
of the arbitration and selection of arbitrators, and stated, “ADR Services,
Inc. was not aware that Mr. Ezzell was ‘associated’ with [the Kaufman firm]
until we received your subpoena on May 4, 2012.
None of the parties and/or attorneys informed us of this fact and the
official State Bar records do not list Mr. Ez[z]ell as being associated with
[the Kaufman firm].â€
In their own petition to vacate the
Patels implicitly conceded, because neither Ezzell nor WCCE had disclosed
Ezzell’s of-counsel relationship with the Kaufman firm, the arbitrators were
unaware of it. Thus, they asserted,
“WCCE’s failure to identify the Kaufman firm as its counsel prevented retired
Judges Romero and Hilberman from timely disclosing their service in 4 prior
mediations involving the Kaufman firm†and insisted “WCCE alone—not the
arbitrators, not the Patels, not their lawyers, no one else—is responsible for
the missteps that fatally marred the arbitration proceedings.†Indeed, misapprehending their burden in
seeking to vacate an arbitration award, they specifically argued, “the Patels
need not show that the arbitrators knew that Mr. Ezzell practiced at the
Kaufman Firm.â€
In its written ruling granting the
petition to confirm and denying the petition to vacate the arbitration award,
the superior court commented that the Patels had “offer[ed] no evidence that
the arbitrators knew or, based upon the information before them showing
Ezzell’s law firm as his professional corporation, should have known that
Ezzell was associated with the Kaufman firm.â€
That is, perhaps, an overstatement.
The Patels did present some evidence that, perhaps, might have supported
a finding the arbitrators were aware, or should have been aware, of Ezzell’s
relationship with the Kaufman firm prior to May 2012—specifically, the
occasional listing of Ezzell’s address as the Kaufman firm at its Wilshire
Boulevard address on the face sheet of papers filed in the arbitration
proceeding and a press release announcing Ezzell’s of-counsel relationship with
the Kaufman firm several months prior to the commencement of the
arbitration. But the court was not
obligated to credit that evidence; and, standing alone, it is woefully
insufficient to compel a finding as a matter
of law that the arbitrators were aware of a professional relationship
between Ezzell and the Kaufman firm prior to May 2012.
ii. Only
nondisclosure of facts then known to the arbitrators supports an order vacating
an arbitration award
A proposed neutral arbitrator’s
disclosure obligations are limited to specific matters “of which the arbitrator
is then aware†(Ethics Std. 7(c)) and matters of which he or she “subsequently
becomes aware.†(Ibid.; see Ethics Std. 7(f) [arbitrator’s duty to disclose is a continuing
one].) In light of the superior court’s
findings that none of the arbitrators was aware of Ezzell’s relationship to the
Kaufman firm and did not subsequently become aware of that relationship prior
to issuance of the binding award, the court properly denied the petition to
vacate the arbitration award on this basis.
As discussed, section 1286.2, subdivision (a), which authorizes the
court to vacate an arbitration award in carefully delimited situations, permits
vacatur only if the arbitrator “failed to disclose within the time required for
disclosure a ground for disqualification of
which the arbitrator was then aware.â€
(§ 1286.2, subd. (a)(6)(A), italics added; see Haworth v. Superior Court, supra, 50 Cal.4th at pp. 381, 386 [“[i]n
ruling on a petition to vacate an arbitration award, the superior court is
itself reviewing a decision by the arbitrator not to disclose, based upon the
facts known to the arbitrator at the time required for disclosureâ€].) “[T]his requirement of scienter is a
deliberate expression of the Legislature’s intent to prevent the undoing of an
arbitration award based upon an arbitrator’s unknowing failure to disclose
information.†(Casden Park La Brea Retail, LLC v. Ross Dress for Less, Inc. (2008)
162 Cal.App.4th 468, 477; Betz v. Pankow,
supra, 31 Cal.App.4th 1511-1512 [an arbitrator “cannot be faulted for
failing to disclose facts of which he was unawareâ€].)
To be sure, Judges Hilberman
and Romero presumably knew they had served as mediators in matters in which the
Kaufman firm (although not Ezzell) had been involved. But, contrary to the Patels’ argument, that
information, standing alone, did not constitute “a ground for disqualification
of which the arbitrator was then aware.â€
Absent any awareness that the Kaufman firm was associated in the
practice of law with Ezzell, the arbitrators could not be charged with
knowledge of a ground for disqualification.
Consequently, their failure to disclose that information falls outside
the narrow scope of section 1286.2, subdivision (a)(6)(A).
c. The
Patels have forfeited the issue of the timeliness of the arbitrators’
post-subpoena disclosures
The Patels correctly observe,
under Ethics Standard 7(c) and (f), the fact Ezzell’s relationship with the
Kaufman firm was not initially known did not relieve the arbitrators of their
disclosure obligations under the Ethics Standards
a continuing one, “applying from service of the notice of the arbitrator’s
proposed nomination or appointment until the conclusion of the arbitration
proceeding.†(Ethics Std. 7(f); see
p. 1363.) Relying on that principle, the
Patels now argue the May 31, 2012 disclosure of Judges Hilberman and
Romero’s participation as mediators in matters involving the Kaufman firm was
not timely because it occurred more than 10 days after service of the
subpoena on ADR Services on May 4, 2012.
This ground for vacating the
arbitration award was not presented by the Patels to the superior court. Their petition to vacate the award,
supporting papers, reply brief and oral argument all addressed only the
neutral in proceedings involving the Kaufman firm, not the purportedly untimely
nature of the May 31, 2012 disclosures.
The 10-day rule for disclosure of subsequently acquired information was
addressed by the Patels in the superior court only in the context of the arbitrators’
appointment as neutrals in new matters while the WCCE-Patel matter was pending
(see fn. 15, above), not in relation to the May 31, 2012 disclosures. Similarly, although the timing of the
disclosures themselves was mentioned at oral argument, it was not challenged as
a violation of Ethics Standard 7(c) and (d), but rather proffered as an
explanation as to why no motion to disqualify the arbitrators had been made by
the Patels.
name="_ftnref18" title="">[18] Having failed to raise the issue in the
superior court, it has been forfeited on appeal. (Cable
Connection, Inc. v. DIRECTV, Inc., supra, 44 Cal.4th at p. 1351,
fn. 12 [the rule is well settled that a party is not permitted to adopt a
new and different theory on appeal]; Johnson
v. Greenelesh (2009) 47 Cal.4th 598, 603 [issues not raised in the trial
court cannot be raised for the first time on appeal]; see Delaney v. Dahl (2002) 99 Cal.App.4th 647, 660 [argument
forfeited on appeal because not raised in petition to vacate arbitration
award].)
The Patels suggest their
argument the May 31, 2012 disclosures were themselves untimely presents a
question of law based on undisputed facts and, therefore, may be considered
even though raised for the first time on appeal. (See, e.g., Sea & Sage Audubon Society, Inc. v. Planning Com. (1983)
34 Cal.3d 412, 417.) But the
Patels’ claim plainly involves at least one factual question—did the
arbitrators first learn of Ezzell’s relationship with the Kaufman firm on May
4, 2012 when their subpoena was served on ADR Services, as the Patels contend?
identify the relationship between Ezzell and the Kaufman firm; it merely asks
for records regarding the arbitrators’ prior service as neutrals in cases in
which the firm was involved. In
addition, the subpoena itself was not served on the arbitrators, but on ADR
Services. When Judges Collins, Hilberman
and Romero first actually learned about it has never been addressed. Indeed, the superior court only found the
arbitrators were not aware of the nexus between Ezzell and the Kaufman firm
“until May 2012.†When in May, however,
is the crucial question for purposes of the 10-day disclosure rule. Because the issue was not previously raised,
the record is devoid of evidence necessary to resolve this claim. We cannot decide it for the first time on
appeal.
d. Judge Hilberman and Judge Romero were serving as party arbitrators, not
neutrals, and, as such, were not bound by the disclosure requirements of
section 1281.9 and Ethics Standard 7
Even were we to accept the
Patels’ premise that Judge Hilberman and Judge Romero violated Ethics Standard
7 by failing in a timely manner to make mandatory disclosures regarding their
prior service as neutrals in matters involving the Kaufman firm—either upon
their appointment or during the pendency of the arbitration proceedings—such nondisclosure
would not be a ground for vacating the arbitration award under section 1286.2,
subdivision (a)(6)(A). As discussed, the
specific disclosure requirements of Ethics Standard 7 apply only to proposed
neutral arbitrators. Yet neither Judge
Hilberman nor Judge Romero was selected “jointly by the partiesâ€; thus, neither
was a neutral arbitrator within the meaning of the Arbitration Act or the
Ethics Standards.
name="_ftnref20" title="">[20]
Under the selection procedure
adopted by the parties following their fee dispute, after each party
unilaterally selected two potential arbitrators, the adverse party had the
right to deselect one of the two names submitted. The arbitrator remaining after each side’s
deselection—Judge Romero for the Patels and Judge Hilberman for WCCE—was selected
unilaterally by the side that put his name forward. Accordingly, both arbitrators are party
selected; and neither is subject to the mandatory disclosure requirements of
section 1281.9 and the Ethics Standards.
(See Jevne v. Superior Court,
supra, 35 Cal.4th at p. 945, fn. 4; Jakks
Pacific, Inc. v. Superior Court, supra, 160 Cal.App.4th at p.
605.) Rather, issues of disclosure and
the ultimate question of vacating the arbitration award under section 1286.2
for failure to timely disclose a ground for disqualification require a showing
that a reasonable person would doubt the arbitrators’ impartiality if he or she
knew the undisclosed information. (See Casden
Park La Brea Retail LLC v. Ross Dress for Less, Inc., supra, 162
Cal.App.4th at p. 478; Mahnke, supra, 180 Cal.App.4th at pp.
579-580.)
In their supplemental letter
brief the Patels contend WCCE has waived any contention Judge Hilberman and
Judge Romero were not subject to the disclosure requirements of section 1281.9
and the Ethics Standards because it failed to make that argument either in the
superior court or in its respondent’s brief in this court. The issue here, however, is not whether a
party has properly presented an argument for decision by the trial or appellate
court—the question just addressed with respect to the Patels’ contention the
May 31, 2012 disclosures were untimely.
The Patels petitioned to vacate the arbitration award on the ground
legally required disclosures were not made by the arbitrators. We cannot evaluate the merits of that claim
without first determining the governing legal standard: What, if any, disclosures were the three
arbitrators required to make under section 1281.9 and the Ethics Standards? Our analysis may be helped by briefing from
the party seeking to confirm the arbitration award, but it is not dependent on
it. Whether WCCE failed to discuss the
applicable legal standard at all or asserted an incorrect standard applied, our
task is to determine and apply the proper one.
(See Mansouri v. Superior Court
(2010) 181 Cal.App.4th 633, 639 [doctrine of forfeiture not applicable
“where the error is too fundamental to be ignoredâ€]; cf. Smith v. Smith (2012) 208 Cal.App.4th 1074, 1078 [appellant bears
affirmative burden to show error whether or not respondent has filed a brief];
Cal.App.4th 327, 334 [failure to file respondent’s brief means appellate court
decides appeal on the record, the opening brief and any oral argument by
appellant, “reversing only if prejudicial error is shownâ€]; Cal. Rules of
Court, rule 8.220(a)(2).)
Similarly, we attach no legal
significance to the fact Judge Hilberman and Judge Romero may have identified
themselves as neutral arbitrators. The
question is not whether they believed they were obligated to make disclosures
in conformity with the Ethics Standards—undoubtedly they did. The issue before us is whether their
purported failure to make all the disclosures required by the Ethics Standards
is a valid, statutory ground for vacating the arbitration award. For the reasons discussed, it is not.
Finally, measuring the
disclosures and nondisclosures in this proceeding against the objective
standard applicable to party arbitrators, we have no difficulty concluding, as
did the superior court, that the failure to disclose prior service as a neutral
in several mediations involving the Kaufman firm under the circumstances here
would not cause a reasonable person to doubt the arbitrators’
impartiality: Those undisclosed
relationships were “‘too insubstantial to warrant vacating the award.’†(Mahnke,
supra, 180 Cal.App.4th at p. 580; see
Casden Park La Brea Retail LLC v. Ross Dress for Less, Inc., supra,
162 Cal.App.4th at p. 478.) Indeed, the Patels do not seriously contend
to the contrary. Rather, relying on
Employees, Etc. v. Laughon, supra, 118 Cal.App.4th 1380, the Patels argue
the Legislature intended the failure to disclose a prior relationship to a
party or a lawyer for a party within one of the categories specified in section
1281.9, subdivision (a), or the Judicial Council’s Ethics Standards
“necessarily satisfies the ‘might cause a reasonable person to question’
standard.†(International Alliance, at pp. 1386-1387; see also
already decided that, when a proposed arbitrator had previously served in an
arbitration involving parties to the proposed arbitration, an impression of
possible bias is createdâ€].)
We prefer Gray’s articulation of the relationship between the general
disclosure requirement and the specific disclosures mandated by section 1281.9,
subdivision (a), and Ethics Standard 7:
“In addition to compelling the disclosure of all facts that
doubt, section 1281.9 enumerates specific instances where disclosure is always
compelled.†(Gray v. Chiu, supra, 212 Cal.App.4th at p. 1364.) But regardless of phasing, both
award based on nondisclosure by neutral arbitrators; the per se rule of section
1281.9 simply has no applicability here as to party arbitrators Hilberman and
Romero.
4. The
Arbitration Award Does Not Violate Public Policy
Rule 3-300 prohibits a lawyer
from entering into a business transaction with a client or acquiring a
pecuniary interest adverse to the client without satisfying certain
requirements to ensure the terms of the arrangement are fair to the client and
the client has given his or her informed written consent.
to secure payment of hourly fees—a “lien ‘upon the fund or judgment which [the
attorney] has recovered for his [or her] compensation as attorney in recovering
the fund or judgment’â€â€”is a security interest in the proceeds of the litigation
and, as such, constitutes “an adverse interest within the meaning of rule 3-300
and thus requires the client’s informed written consent.†(Fletcher
v. Davis (2004) 33 Cal.4th 61, 66-67, 69.)
Seeking to extend the holding
of Fletcher v. Davis, supra, 33
Cal.4th 61, the Patels contend their contingency fee agreement with WCCE, as
interpreted and enforced by the arbitrators, violated public policy by
providing WCCE an interest in the Patels’ hotel property (through the retainer
agreement’s charging lien) without complying with the requirements of rule
3-300 and assert the award must therefore be vacated under section 1286.2,
subdivision (a)(4), as exceeding the arbitrators’ powers. This argument is predicated on the acknowledgment
in Moncharsh v. Heily & Blase, supra,
3 Cal.4th at page 31 that “‘the rules which give finality to the
arbitrator’s determination of ordinary questions of fact or of law are
inapplicable where
transaction is raised in a proceeding for the enforcement of the
arbitrator’s award.’†(See also
may be some limited and exceptional circumstances justifying judicial review of
an arbitrator’s decision when a party claims illegality affects only a portion
of the underlying contract. Such cases
would include those in which granting finality to an arbitrator’s decision
would be inconsistent with the protection of a party’s statutory rights. [Citation.]
[¶] Without an explicit
legislative expression of public policy, however, courts should be reluctant to
invalidate an arbitrator’s award on this ground.â€].)
As reviewed in a recent case by our colleagues in
Division Four of this court, Ahdout v.
Hekmatjah (2013) 213 Cal.App.4th 21, 37, “Numerous courts have since
construed Moncharsh to stand for the
proposition that an arbitrator exceeds its power within the meaning of Code of
Civil Procedure section 1286.2 by issuing an award that violates a party’s
statutory rights or ‘an explicit legislative expression of public policy.’†(See, e.g., D.C. v. Harvard-Westlake School (2009) 176 Cal.App.4th 836,
866 [attorney fee award to defendant based on prevailing party clause in
arbitration contract vacated because underlying statute authorized fees to be
awarded only to a prevailing plaintiff; “the one-way provisions are unwaivable
statutory rightsâ€]; Department of
Personnel Administration v. California Correctional Peace Officers Assn.
(2007) 152 Cal.App.4th 1193, 1203 [arbitrator exceeded his powers and
violated the Dills Act by reforming memorandum of understanding after its terms
had been approved by the Legislature]; Jordan
v. Department of Motor Vehicles (2002) 100 Cal.App.4th 431, 452 [award
amounted to unconstitutional gift of public funds in derogation of special
statute authorizing arbitration and impliedly limiting amount of award to no
more than earlier judgmen
| Description | Rakesh (Ray) Patel, Thakor I. Patel and Kusum T. Patel appeal from the judgment confirming an arbitration award resolving an attorney fee dispute in favor of the Patels’ former counsel Wasserman, Comden, Casselman & Esensten LLP (WCCE). The Patels contend the award of approximately $4.8 million, plus attorney fees and costs of another $200,000, should have been vacated because (1) the arbitrators failed to disclose their service as neutrals in cases involving the law firm with which counsel for WCCE was associated as “of counsel†in violation of Code of Civil Procedure section 1281.9 and the California Rules of Court, Ethics Standards for Neutral Arbitrators in Contractual Arbitration, and (2) the arbitrators exceeded their powers by issuing an award that violates the public policy set forth in rule 3-300 of the Rules of Professional Conduct. We affirm. |
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