Markman v. OHare

Filed 3/28/07 Markman v. OHare CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, Hugh Michael Brenner, Judge. Affirmed.

Law Offices of Ian Herzog, Evan D. Marshall, Ian Herzog and Amy Ardell for Plaintiff and Appellant.

Wentworth, Paoli & Purdy and Jeanine A. Scalero for Defendants and Respondents.

* * *

Plaintiff Rebecca Markman appeals from a judgment confirming an award of arbitration after she moved to vacate it because the arbitrator was biased and failed to make required disclosures. We conclude there was no actual or apparent bias on the part of the arbitrator nor improper conduct in accepting a new matter with counsel in the pending arbitration and affirm.

FACTS

Plaintiff claimed there were defects in residential real property she purchased from defendants Daniel OHare and Christine Montesanto. The purchase and sale agreement required the dispute to be arbitrated, and the parties opted to use the services of retired judge James L. Smith at Judicial Arbitration and Mediation Services (JAMS). At that time plaintiff was represented by Ian Herzog of the Law Offices of Ian Herzog and defendants were represented by Jeanine A. Scalero of Wentworth, Paoli & Purdy. Upon Judge Smiths appointment JAMS sent out a Generic Disclosure of Client Activity for the prior five years showing it had found no cases involving the parties or their lawyers in which Judge Smith had acted as arbitrator. Although it is not in the record, the parties stipulated at oral argument that the arbitrator checked a box on this preprinted disclosure form that, while the current arbitration was pending, he would entertain offers of employment as an arbitrator or mediator from a lawyer or law firm involved in the current matter. (JAMS Disclosure Checklist for All Arbitrators and Court Reference Matters, 16.) Citing Ethics Standards for Neutral Arbitrators in Contractual Arbitration (standards), standard 12(b), the last part of that paragraph provides that the disclosure constitutes a waiver of any further requirement to disclose offers of subsequent employment involving the same parties or lawyers or law firms.

Three months later William M. Hensley of Jackson, DeMarco & Peckenpaugh associated into the matter on behalf of defendants. A month later Hensley sent a letter to Judge Smith, with a copy to plaintiffs lawyer, requesting a continuance of the arbitration date. This is the first evidence in the record showing JAMS had notice of Hensleys association into the case. No disclosure notices were sent as to Judge Smiths activity with Hensley or his firm.

The matter was arbitrated on March 9 and taken under submission. On May 4, JAMS faxed a letter to all three counsel of record that Judge Smith had been retained as a mediator in a matter involving Hensleys firm. It stated, The Arbitrator believes . . . his participation in the new case will not affect his neutrality in the current case. On May 6 plaintiffs lawyer faxed a letter to JAMS in response. He question[ed Hensleys] firms motives in the timing of the selection of Judge Smith now[,] although he did not question for a moment Judge Smiths impartiality or neutrality. He believed it was an attempt to curry favor and favorable treatment in the [matter at issue, which was] still under submission. [] I cannot help but feel that defense counsel wants Judge Smith to know that they are a repeat customer . . . .

On May 6, the same day as Herzogs letter, Judge Smith issued his preliminary award, although apparently it was not actually faxed until May 9. As against Montesanto plaintiff was awarded $8,000 of the approximately $43,000 she sought; she was also awarded attorney fees and costs. OHare recovered costs and attorney fees against plaintiff.

On May 10 Hensley faxed a letter to Herzog and JAMS in response to Herzogs May 6 letter. He stated that he had not been aware of the matter for which Judge Smith was to serve as arbitrator; it was being handled by other lawyers in his firm. He also stated Herzogs letter did not present[] any bases for questioning Judge Smiths impartiality or neutrality . . . and . . . there was no intent . . . to curry any favor with [him]. The record contains no response to Herzogs letter from Judge Smith or JAMS.

On May 23 plaintiff filed objections to the award, but did not include a claim of bias. On July 7 the final award was issued. It awarded plaintiff $8,000 against Montesanto but ordered the parties to bear their own costs and attorney fees.

Plaintiff filed an application to modify the award. In it she argued, among other things, that the award had the appearance of the very type of conflict of interest inherent in an arbitration system where arbitrators have a financial incentive to pull their punches in their desire to remain popular, capture repeat business and/or give deference to home-town attorneys who are more likely to be repeat customers. She noted both attorneys representing defendants had their offices in Orange County and were repeat customers of JAMS Orange County office. She also asserted that [t]he mere acceptance of new work during the pendency of this matter has the wrong appearance and should by itself be a basis for a new trial.

A couple of weeks later, while the application was pending, Herzog sent a letter to Judge Smith, stating that plaintiff had not waived her claim of a conflict in violation of the JAMS ethical rules. He claimed the conflict first became apparent after the matter was submitted and JAMS sent the notice Judge Smith had been retained in another case involving Hensleys firm. He asserted it would have been awkward if he had objected to this new matter. He also stated: I write to once again remind you that the very fact that there was a request for a waiver (not given) disqualifies you to sit as arbitrator and violates . . . JAMS [rules]. [] You went ahead and took the work despite the conflict. 

The arbitrator denied plaintiffs entire application to modify. In addressing the claim of conflict, he stated that it sounded like an argument frequently made by out of town counsel. He noted it was unlikely a judge would have been recused under the same circumstances and stated there should be no difference in an arbitration.

About six weeks thereafter, plaintiff filed a petition in the superior court to vacate the award on, among other grounds, that Judge Smith failed to make required disclosures. Specifically she argued the arbitrator was disqualified because he made no disclosures about Hensley and his firm and during the pendency of the arbitration accepted another matter with Hensleys firm without her consent; she also asserted this conduct constituted corruption under Code of Civil Procedure section 1286.2 (all further statutory references are to this code). She further maintained that even if there was no actual bias, the conduct gave the appearance of bias. In their opposition, defendants argued plaintiff had waived the claim by failing to raise the issue until after the preliminary award issued. They also maintained Judge Smiths acceptance of another matter was not corruption under section 1286.2.

The court denied the petition on the basis plaintiff did not timely raise the bias issue. It also noted there was no showing Judge Smith acted improperly when new counsel associated in and that one additional mediation did not trigger disqualification. Judgment confirming the award was subsequently entered.

DISCUSSION

Despite plaintiffs arguments, there is no basis for overturning the award based on a claim of bias. Standard 12(b) requires an arbitrator to disclose whether, during the pending arbitration, he will entertain offers of employment in another case involving a lawyer for a party; disclosure must be made within 10 days of notice of proposed appointment in the instant matter. Section 1281.9, subdivision (a)(2) provides that an arbitrator must disclose [a]ny matters required to be disclosed by the . . . standards . . . . The generic disclosure sent by JAMS when the arbitrator was initially appointed contained such a disclosure. Although a new disclosure was not sent when Hensley associated into the case, the first disclosure was sufficient to put plaintiff on notice of the arbitrators intent, whoever counsel in the current case was.

In addition, when the arbitrator accepted the new mediation, the parties were sent notice. A narrow reading of standard 7 suggests the arbitrator was not required to do so. It declares that if an arbitrator has initially disclosed he will accept new matters from counsel, he is not required to disclose any such subsequent employment. (Standard 7(b)(2).) And the JAMS disclosure form contained the same provision. But notice was given and when it was, plaintiff did not object or seek disqualification. Instead, her lawyer sent a letter castigating defendants counsel for seeking to curry favor, but specifically did not question for a moment Judge Smiths impartiality or neutrality.

Relying on section 1281.91, defendants argue plaintiff waived her right to disqualify the arbitrator. That section provides that if an arbitrator fails to make required disclosures he shall be disqualified if a party gives notice of disqualification within 15 days after the failure. ( 1281.91, subd. (a).) We agree there was a waiver but section 1281.91 is not the ground. Here, the arbitrator made the necessary disclosure, as plaintiff acknowledges. When plaintiff learned of his new employment she unequivocally stated she had no question about his neutrality or fairness. That was the waiver.

Plaintiff points to the arbitrators issuance of his preliminary decision within just a few days of disclosure of his new employment, arguing it was somehow nefarious. She claims that after she raised the ethical issue of the new matter, the arbitrator moved with unseemly speed to render the award. This argument is flawed. First, plaintiff never raised an ethical issue as to the arbitrators neutrality quite the opposite. The criticism was of opposing counsels motives in engaging the arbitrator on a new matter. Moreover, because notice had been given that the arbitrator would accept other employment, plaintiff had no right to object to it when it occurred.

Plaintiff also complains issuance of the award so soon deprived him of the 15 days under provided under section 1281.91, subdivision (b)(1) to move to disqualify. But, as discussed above, her lawyers letter stating he did not question the arbitrators neutrality was a waiver of any claim of partiality. Based on the letter any reasonable person would not believe a motion for disqualification was forthcoming.

Plaintiffs lawyer characterizes the statements in that letter as being a prayer, not a waiver. He complains he was presented with a Hobsons choice he either had to object and risk the arbitrators wrath that would negatively affect the decision as to his client, or ignore the event. We cannot accept this cynical view. Disqualifying an arbitrator is routine and not such that the arbitrator would be offended by it. Certainly nothing in the record shows plaintiff would have been harmed by it. And, contrary to plaintiffs argument, we see no evidence that the arbitrators decision or conduct in accepting new employment was based solely on his interest in obtaining money.

Plaintiff also argues that when the arbitrator gave notice of his new employment he was asking for permission and she did not give it. Nothing in the statutes, the standards, or the JAMS rules supports this claim. Rather, they provide that the designated notices be given and set out a procedure for parties to follow upon receipt of those notices.

She also contends the arbitrators failure to give a new notice when Hensley entered the case deprived her of her ability to evaluate the arbitrators potential bias and was corruption under section 1286.2, subdivision (b). But plaintiff never raised this issue until the petition to set aside the award, too late for anything to be done about it and way past the time it should have been raised.

We also reject plaintiffs suggestion that the arbitrator taking a new case involving current counsel while an arbitration is pending should be an automatic disqualifying event. This is completely contrary to the statutes and standards that allow it if notice is given.

DISPOSITION

The judgment is affirmed. Respondents are entitled to costs on appeal.

RYLAARSDAM, J.

WE CONCUR:

SILLS, P. J.

BEDSWORTH, J.

Publication courtesy of California free legal advice.

Analysis and review provided by Carlsbad Property line Lawyers.