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self-study / Alternative Dispute Resolution

Feb. 10, 2022

Disqualifying arbitrators under the California Arbitration Act

Gary A. Watt

Partner, Hanson Bridgett LLP

Appellate law (specialist)

Email: gwatt@hansonbridgett.com

Gary chairs Hanson Bridgett's Appellate Practice. He is a State Bar-approved, certified appellate specialist. In addition to writs and appeals, his practice includes anti-SLAPP and post-trial motions as well as trial and appellate consulting. His blog posts can be read at www.appellateinsight.com.

Patrick Burns

Senior Associate, Hanson Bridgett LLP

Email: pburns@hansonbridgett.com

Patrick is an associate in the firm's Appellate Practice. Patrick focuses on writs and appeals, as well as law and motion in the state and federal courts. A former litigator at a global law firm, Patrick has experience litigating high-stakes disputes. He can be reached at pburns@hansonbridgett.com and his blog posts can be read at www.appellateinsight.com.

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ARBITRATION ANGLE

The California Arbitration Act requires a proposed arbitrator to provide a disclosure statement identifying issues that could raise impartiality questions. A party can automatically disqualify the arbitrator by serving a notice of disqualification. Failure to move within 15 days of the arbitrator's disclosure statement waives the right to disqualify, unless the arbitrator made a material omission or misrepresentation in the disclosure statement. Code Civ. Proc. Section 1281.91(c).

But what happens if a party learns about an arbitrator's omission after a hearing on a contested issue but before the arbitration is completed? Can the party wait and raise disqualification in a motion to vacate the arbitrator's award?

In a recent decision, the 5th District Court of Appeal answered "no," holding that a party had forfeited its right by not filing a notice of disqualification within 15 days of its discovery of the arbitrator's omission. Goodwin v. Comerica Bank, N.A., 72 Cal. App. 5th 858 (2021). To resolve the issue, the court had to balance public policy concerns regarding arbitrator neutrality and a party's diligence in seeking disqualification.

Arbitrator Disqualification

Within 10 days of the nomination, a proposed arbitrator must 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 impartial." Code Civ. Proc. Section 1281.9(a)-(b). Required disclosures include (among others) compensation or prospective employment the arbitrator has with any parties, the names of parties and results of cases in matters the arbitrator participated in, and matters required to be disclosed by the ethics standards. Code Civ. Proc. Section 1281.9(a). The arbitrator must also disclose any grounds specified in Code of Civil Procedure Section 170.1, which is the general statute that provides for disqualification of superior court judges.

The proposed arbitrator is automatically disqualified if a party serves notice of disqualification within 15 days of receiving the disclosure statement. Code Civ. Proc. Section 1281.91(a)-(b). There is no limit on the number of times a party may automatically disqualify a proposed arbitrator. A party can seek to have the court appoint an arbitrator, but any court-appointed arbitrator can only be disqualified once without cause. Code Civ. Proc. Section 1281.91(b)(2).

Failing to timely serve the disqualification notice waives the party's right to disqualify, unless the proposed arbitrator made a material omission or misrepresentation in the disclosure statement. Code Civ. Proc. Section 1281.91(c). But while a material omission or representation opens the door to later disqualification, "in no event may a notice of disqualification be given after a hearing on any contested issue of fact ... or after any ruling by the arbitrator regarding any contested matter." Code Civ. Proc. Section 1281.91(c). There is one carve-out for post-hearing disqualification: an arbitrator "shall disqualify himself or herself upon the demand of any party made before the conclusion of the arbitration proceeding" but only where a Section 170.1 ground for disqualification exists. Code Civ. Proc. Section 1281.91(d).

A party may move to vacate an arbitrator's award after its issuance where the arbitrator "failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware." Code Civ. Proc. Section 1286.2(a)(6)(A). But courts have held that a party who learns of a ground for disqualification prior to an arbitration hearing forfeits the right to move to vacate the award after the arbitration. Cox v. Bonni, 30 Cal. App. 5th 287, 306 (2018) (concluding a party may not "passively reserve the issue for consideration after the arbitration has concluded").

Goodwin v. Comerica Bank

Goodwin involved an action brought against a bank by one of its account holders. The account holder alleged that the bank failed to prevent identity theft of his disability benefits that were directly deposited into his account. The parties submitted the dispute to arbitration.

The proposed arbitrator served a timely disclosure statement, identifying matters he was involved in that also involved the account holder's attorneys. Neither party served a notice of disqualification within 15 days of the disclosure statement.

The parties litigated the arbitration for more than a year, and the arbitrator issued an interim award in the account holder's favor awarding him damages. So at this point, a hearing on contested issues had occurred and a ruling had issued. See Code Civ. Proc. Section 1281.91(c).

The account holder filed a motion for attorney fees, and while preparing its opposition to the fee motion, the bank learned that the arbitrator omitted information required in his disclosure statement. Upon discovering the omission, the bank did not file a notice of disqualification right away, filing its opposition to the fee request instead. The arbitrator issued a final decision confirming the interim award, and awarding the account holder attorney fees.

After the final award was made, the bank filed a petition to vacate in the superior court, arguing that the arbitrator made material omissions in the disclosure statement. The trial court granted the petition and vacated the final award holding that, under Section 1286.2, the arbitrator "failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware." It noted that Section 1291.91 requires a party to service a notice of disqualification, but contains an exception where the arbitrator made a material omission; thus, no notice was required. The account holder appealed.

The Court of Appeal reversed, holding that the bank forfeited its right to challenge the final award because the bank was "required to object at the earliest practicable opportunity after discovery of the facts constituting the ground for disqualification," and no later than within 15 days of its discovery of the omission. The appellate court based the timing conclusion on ethics standard 10(a)(4) of the California Rules of Court.

The court acknowledged that Section 1281.91(c) did not permit the bank to serve a notice of disqualification because a hearing had already been conducted, but it concluded that allowing the bank to wait and raise the issue after the final award would "contravene well-settled" public policy. Goodwin, 72 Cal. App. 5th at 679, citing Caminetti v. Pacific Mut. Life Ins. Co. of Cal., 22 Cal. 2d 386, 392 (1943). And because the arbitrator's nondisclosure involved a fee award he made to the account holder's attorney, the arbitrator would be subject to disqualification under Section 170.1 grounds "before the conclusion of the arbitration proceeding." Code Civ. Proc. Section 1281.91(d). So at the time the bank discovered grounds for disqualification, there was still time to act, and ethics standard (10)(a)(4) created a 15-day deadline. Because the bank failed to identify any other grounds for vacating the award, the matter was remanded with instructions to deny the petition to vacate.

Arbitration Angle

Goodwin would be an easy case had the bank learned of the arbitrator's omission before the hearing, as no confusion would arise over disqualification timing. Similarly, it would be an easier case if the bank learned after the arbitration was fully complete -- presumably, the arbitrator would no longer have jurisdiction and the Section 1281.91(d) carveout for arbitrator recusal would not apply because the proceedings were complete. In that scenario, there would be no forfeiture of the right to move for vacatur on disqualification grounds because the only place to move would be in court. But in Goodwin, the discovery of the nondisclosure was made after the hearing, but before the arbitration was complete. It turned out Section 1281.91(d) applied due to the nature of the information withheld.

Goodwin recognized the dilemma created by a strict reading of the CAA provision when a party discovers a nondisclosed basis for disqualification after the arbitration hearing: The party might likely conclude that it (1) has no recourse to disqualification in the arbitration and so (2) must wait until after the arbitration award is final and raise disqualification in a petition to vacate the award. But that depends on whether the subsequent discovery falls within Section 1281.91(d), because if it does, it's not too late to move to disqualify and the clock is running on notice of disqualification. If a party is allowed to wait anyway, the specter of gamesmanship arises.

Goodwin essentially adopts a prophylactic 15-day rule for post-hearing disqualification challenges, up until the conclusion of the arbitration proceedings. It does so by combining Section 1281.91(d)'s incorporation of Code of Civil Procedure Section 170.6, and then grafting ethics rule 10(a)(4)'s 15 day period onto it. Until another appellate court disagrees with Goodwin, or the Legislature expressly fills in the gaps, if an arbitrator's omission or misrepresentation is discovered after the hearing but before the proceedings are complete, file the disqualification within 15 days -- or don't, and live with the result. 

Arbitration Angle is a bi-monthly column presented by Hanson Bridgett's Appellate Group.

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