As has been true with many other aspects of arbitration, California’s approach to arbitrator disclosures and disqualification differs markedly from how those matters are handled under the FAA. Commercial arbitrators serving as neutral arbitrators are required to make a number of advance disclosures and must recuse themselves if any party timely objects after receipt of the arbitrator’s disclosures. Standard 6 of California’s Ethics Standards for Neutral Arbitrators in Contractual Arbitration (the “Ethics Rules”) squarely places the responsibility on the arbitrator to assess his or her ability to be impartial and to decline an appointment if he or she is unable to be so “notwithstanding any contrary request, consent or waiver by the parties.” The Ethics Rules are found at the end of the California Rules of Court and are incorporated by reference into the California Arbitration Act at Sections 1281.85(a) and 1281.9(a)(1) of the California Code of Civil Procedure.
As a matter of common law, California courts historically held that arbitration awards shall be vacated if it is shown that the arbitrator failed to disclose facts creating a reasonable impression of possible bias. See Britz v. Alfa-Laval Food & Dairy Co., 34 Cal. App. 4th 1085 (1995); Betz v. Pankow, 31 Cal. App. 4th 1503 (1995). As a matter of statute, neutral arbitrators are required to 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.” Cal. Code of Civ. Proc. § 1281.9(a). Included within those disclosure obligations are six specific disclosures concerning relationships the arbitrator or any member of his or her immediate family has or had with any party or lawyer for a party in the current arbitration proceeding.
An even more detailed and extensive list of required disclosures is contained in Standard 7 of the Ethics Rules. Among other matters, the Ethics Rules require disclosure generally of (1) any matter that might cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial and, more specifically, (2) any interest that could be substantially affected by the outcome of the arbitration.” Ethics Rules, Standards 7(d)(14) and (d)(11).
The Ethics Standards provide that arbitrators have an obligation to inform themselves about matters that need to be disclosed, Ethics Rules, Standard 9(a), and that an arbitrator’s duty of disclosure is a continuing duty. Ethics Rules, Standard 7(f).Thus, if something arises in the course of an arbitration that triggers a need to make a supplemental disclosure, the arbitrator must disclose the added information within 10 calendar days and parties have 15 calendar days after the disclosure within which to disqualify the arbitrator. Ethics Rules, Standard 10(a)(3).[1]
Disqualification based on disclosures is an absolute right of the parties, and can occur at the outset of the process or at any time during the process if new disclosures are provided by the arbitrator. See, Azteca Construction, Inc. v. ADR Consulting, Inc., 121 Cal. App. 4th 1156, 1163 (2005); Ovitz v. Schulman, 133 Cal. App. 4th 830, 840 (2005). In this regard, parties not only have an absolute right to disqualify an arbitrator for failing to serve a disclosure statement as required, but nondisclosure also grants an objecting party the absolute right to have an arbitration award vacated without a showing of actual bias or evident partiality. Id. It is the simple fact of the failed disclosure or the failure of the arbitrator to recuse himself or herself after receipt of a timely objection after making disclosures that serves as grounds for vacatur. Cal. Code Civ. Proc. § 1286.2(a)(6). Under Section 1281.9(b) of the California Code of Civil Procedure, disqualification is mandatory; operates as a peremptory challenge; and takes effect when a party timely serves a notice of disqualification.
Under Section 1281.91(b), there is no limit on the number of times a party may challenge a proposed arbitrator. For the recalcitrant party trying to avoid binding arbitration, an obvious tactic would be to serve a notice of disqualification within 15 days of each proposed arbitrator’s disclosures. The only way to limit the number of peremptory challenges a party may assert is by seeking court intervention via a motion that asks the court to appoint the arbitrator as provided by Code of Civil Procedure section 1281.91. Section 1281.91(a)(2) then provides that a party shall have the right to disqualify one court-appointed arbitrator without cause in any single arbitration and, beyond that, may petition the court to disqualify a subsequent appointee “only upon a showing of cause.”
Code of Civil Procedure section 1286.2 provides the “strong-arm” mechanism for enforcing arbitrator disclosures – namely, vacatur. As amended, Section 1286.2 mandates that a court “shall” vacate an arbitration award if the arbitrator making the award (a) failed to disclose a ground for disqualification of which the arbitrator was aware, or (b) was subject to disqualification upon grounds specified in Section 1281.9 but failed to disqualify himself or herself after receipt of a timely notice of disqualification. At least one court has commented that, on its face, “the statute leaves no room for discretion. If a statutory ground vacating an award exists, the trial court must vacate the award.” See, Ovitz v. Schulman, 133 Cal. App. 4th 830, 845; accord, International Alliance of Theatrical Stage Employees, etc. v. Laughton, 118 Cal. App. 4th 1380, 1386 (2004).
Despite the breadth and detail of the Ethics Rules, the California Supreme Court has previously made clear that the statutory disclosure requirements are intended to ensure the impartiality of the arbitrator, not mandate disclosure of “all matters that a party might wish to consider in deciding whether to oppose or accept the selection of an arbitrator.” Haworth v. Superior Court, 50 Cal. 4th 372, 393 (2010). In this regard, the Supreme Court cautioned against construing the governing standard too broadly. “An impression of possible bias in the arbitration context means that one could reasonably form a belief that an arbitrator was biased for or against a party for a particular reason.” Id. at 389 (italics in the original). In this regard, one California Court of Appeal has construed the Ethics Rules so that “’ordinary and insubstantial business’ arising from participation in the business or legal community do not necessarily require disclosure.” Luce, Forward, Hamilton & Scripps, LLP v. Koch, 162 Cal. App. 4th 720, 723 (2008), quoting Guseinov v. Burns, 145 Cal. App. 4th 944, 959 (2006). As evidenced by the decision of the California Court of Appeal in Mt. Holyoke Homes, L.P. v. Jeffer Mangels Butler & Mitchell, 219 Cal. App. 4th 1299 (2013), the issue of what type of relationships require disclosure on penalty of vacatur is still under discussion and development in the courts, and involve similar, fact-driven decisions versus any clear line of demarcation as to what personal or professional relationships rise to the level of being “substantial” or “meaningful” or otherwise provocative for purposes of mandating a disclosure.
The following are some notable cases regarding what does and does not constitute a “required” disclosure under California’s ethics standards:
Azteca Construction, Inc. v. ADR Consulting, Inc.,
Ovitz v. Schulman,
Guseinov v. Burns,
Hayden v. Superior Court,
Advantage Medical Services, LLC v. Hoffman,
Dornbirer v. Kaiser Foundation Health Plan, Inc.,
Casden Park La Brea Retail LLC v. Ross Dress for Less, Inc.,
Luce, Forward, Hamilton & Scripps LLP v. Koch,
– Under California law, persons serving as neutral arbitrators 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.” Cal. Code Civ. Proc. § 1982.9(a). While not exclusive, the statute sets forth six enumerated matters that must be disclosed, including “[a]ny professional or significant personal relationship the proposed neutral arbitrator … has or has had with any party to the arbitration proceeding or lawyer for a party.” Cal. Code Civ. Proc. § 1281.9(a)(6). In this case, the Court of Appeal addressed the extent to which disclosure about relationships through professional organizations are legally required or, even if not required, will nevertheless confer upon the parties an automatic right to disqualify a neutral arbitrator once made. At the outset of the case, the neutral arbitrator in this case disclosed that he had previously acted as mediator in three cases where Luce Forward was a party, but that none of the mediations concerned the issues in the present case and the attorneys involved in the present case did not participate in those earlier mediations. Neither party sought to disqualify the arbitrator based upon these disclosures. Later, in the course of preparing for the evidentiary hearing, the arbitrator learned that a Luce Forward partner with whom he had served on the board of the ABTLA was listed as counsel on the opening brief. The arbitrator then supplemented his disclosures to apprise the parties that he had served on the ABTLA board and on the board of the American Inns of Court with the Luce Forward partner whose name appeared on the brief. In response to these disclosures, Koch moved to disqualify the arbitrator, which motion was denied. The hearing went forward as scheduled, and the arbitrator issued a final award in favor of Luce Forward. Koch then moved to vacate the award on the grounds that the arbitrator was disqualified based on his disclosures, which petition was also denied. The trial court was affirmed on appeal, which concluded that while the neutral’s candor was “commendable,” he was not legally required to disclose the board service relationships because they did not involve close personal or business relationships or close friendships, but only “slight or attenuated” contacts. The court noted that “arbitrators cannot sever all their ties with the business world” and the same is true of professional obligations involving service to the legal community and the public, continuing education for bar members and mentoring for new lawyers.” Also significant was the court’s holding that while parties to an arbitration have an unqualified right under the California arbitration statutes to disqualify a neutral arbitrator based upon any disclosure that is required by law, the court refused to interpret these statutes to grant an absolute right of disqualification where a disclosure is not legally required but is instead made out of an abundance of caution or “commendable” candor on the part of the neutral. [Note: The California Supreme Court declined to follow the Luce Forward reasoning in Haworth.]
Haworth v. Superior Court,
– Despite the breadth and detail of the Ethics Rules, the California Supreme Court has made clear that the disclosure requirements are intended to ensure the impartiality of the arbitrator, not mandate disclosure of “all matters that a party might wish to consider in deciding whether to oppose or accept the selection of an arbitrator.” In this case, the fact that the arbitrator, a retired judge, had disclosed the fact of judicial discipline many years in the past. The Supreme Court cautioned against construing the governing standard too broadly. “An impression of possible bias in the arbitration context means that one could reasonably form a belief that an arbitrator was biased for or against a party for a particular reason.”