In this case, while the arbitrator had a “relationship” that fell within the broad scope of the ethics standards, he was unaware of that connection. Accordingly, the court determined that the arbitration award was valid and not subject to vacatur for the arbitrator’s failure to disclose the “connection.”

ECC Capital Corporation (ECC) sued Manatt Phelps & Phillips (Manatt) for legal malpractice stemming from an asset purchase agreement ECC had entered into with Bear Stearns. Pursuant to the arbitration provision contained in its engagement with ECC, Manatt successful compelled arbitration of the dispute. The arbitrator issued his interim decision in favor of Manatt and instructed Manatt to submit its application for attorney’s fees and costs. Before Manatt filed its application for fees and costs, ECC requested that the arbitrator disqualify himself from the matter, noting that a Manatt attorney had represented a party in a Uniform Domain Name Dispute Resolution Policy (UDRP) proceeding in which the presiding arbitrator had served as a panelist. The arbitrator responded that he was unaware that a Manatt attorney was involved in the prior UDRP; that all of the UDRP arbitrations he handled were uncontested / documents only proceedings in which he had access to a limited set of documents, had no contact or communication with any party’s counsel, and frequently did not know the names of the party’s representatives or attorneys. Because the arbitrator had no knowledge that a Manatt attorney was counsel for a party to the prior UDRP proceeding, he did not disqualify himself (and the AAA did not require his disqualification). The arbitrator then proceeded to award Manatt nearly $7 million in fees and costs.

ECC filed a petition to vacate the award on the grounds that the arbitrator had violated his mandatory disclosure obligations, and that was the meaty issue on appeal. The Court of Appeal said “no,” because Code of Civil Procedure section 1286.2(a)(6)(A) provides grounds for vacatur where the arbitrator fails to disclose a ground for disqualification “of which the arbitrator was then aware.” The court held that constructive knowledge does not suffice. Since the parties did not dispute that at the time of his disclosures, the arbitrator was not aware that a former Manatt attorney had participated in the UDRP matter. For good measure, the court pointed out that as a factual matter, it was not unreasonable for the arbitrator to fail to disclose the UDRP matter because he had participated in hundreds of such desk-arbitration matters and such matters may not even qualify as genuine arbitrations since they typically involve no in-person or telephonic contact, no hearings, no witnesses, and no contact with the panelist.

Comment: Arbitrator disclosure issues tend to lose traction when raised late in the game. Courts like to emphasize that arbitration is final, binding and cost-effective. As stated in Casden Park La Brea Retail LLC v. Ross Dress for Less, Inc., 162 Cal. App. 4th 468 (2009), the Legislature intended “to prevent the undoing of an arbitration award based upon an arbitrator’s unknowing failure to disclose information.” Interestingly, Casden Park successfully convinced the trial court to vacate an arbitration award on the basis that the arbitrator had failed to disclose prior business relationships. The Court of Appeal reversed, finding that a neutral arbitrator who has no pecuniary interest in profits generated by his employer’s business relationship with a party or a party’s representative “has no substantial business relationship … and, therefore, no duty to disclose such transactions.” Manatt represented Casden Park in that appeal.