New Advice for Arbitrators: Disclose, Disclose, Disclose

        Focus Column
        Alternative Dispute Resolution
        By Ruth V. Glick
        Adoption of the Ethics Standards for Neutral Arbitrators in Contractual Arbitration by the Legislature, effective July 1, 2002, created some conjecture that the requirements to substantially expand arbitrator disclosure, regulate arbitrator action and increase the ability of parties to disqualify arbitrators would provide additional grounds to vacate arbitration awards.
        Two years later, a few cases have begun to surface, providing instruction to would-be arbitrators on how to avoid challenges to themselves and to their arbitration awards.
        One lesson is that, even after making disclosures through an arbitration provider organization, arbitrators should repeat their disclosures to the parties and their attorneys at the first conference call or meeting and ask them to reconfirm their acceptance of service by the arbitrator.
        In Azteca v. ADR Consulting, 121 Cal.App.4th 1156 (2004), which was administered by the American Arbitration Association under its construction rules, the proposed arbitrator disclosed through the association that he previously served as a neutral arbitrator on matters in which ADR's counsel had represented other parties and that, for one year in 1985, he had been employed by the same construction company as ADR's counsel.
        Azteca objected to the arbitrator's appointment within 15 days of receiving the arbitrator's disclosure; however, without the arbitrator's knowledge, the association rejected the objections and reaffirmed the arbitrator's appointment.
        After the arbitrator ruled in ADR's favor on the breach-of-contract dispute, Azteca filed a petition to vacate the award. The trial court granted the petition, reasoning that the parties had waived the right to disqualify the arbitrator by agreeing to the association's construction rules.
        The appellate court reversed, stating that the right of a party to disqualify an arbitrator is absolute and cannot be waived by the parties. As this case articulates, under state law, Code of Civil Procedure Section 1281.91 expressly trumps the rules of any alternative dispute resolution organization. Azteca is the first case to arise specifically out of the Ethics Standards.
        An argument could be made that, in Volt Information Sciences Inc. v. Stanford Junior University, 489 U.S. 4698 (1988), the U.S. Supreme Court ruled that courts should enforce arbitration agreements according to their terms. As a result, a provider organization's procedures, incorporated in an arbitration agreement, could arguably be the terms to which the parties have agreed to be bound.
        Therefore, the ability of the provider organization to determine the disqualification of arbitrators based on their disclosures should be upheld. The securities industry has used this argument by maintaining that the Ethics Standards are, in fact, incompatible with the Securities and Exchange Commission's approved self-regulatory organization procedures, which vest authority over arbitrator disqualification to the National Association of Securities Dealers' director of arbitration.
        What the Azteca case now means to an arbitrator is that, at the time of appointment, the arbitrator should make sure the parties and attorneys have received any disclosures they have made. If a motion to disqualify is made, the arbitrator should be prepared to recuse himself or herself from the matter.
        Arbitrators must make their disclosures within 10 days of service of notice of appointment. Parties then have 15 days to disqualify the proposed arbitrator. Code of Civil Procedure Section 1281.91.
        If the arbitrator is appointed through an arbitration provider, the dates can be established easily. However, an arbitrator who is self-administering an arbitration would be wise to establish a "date of appointment" with the attorneys and parties so that compliance with the window can be determined with certainty.
        In addition to reconfirming the parties' acceptance of them, arbitrators should ask parties and attorneys at the pre-hearing conference whether they are aware of any facts that might affect the arbitrator's impartiality. The standard for such information in Code of Civil Procedure Section 1281.9(a) is, "[A]ll 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." The text in Ethics Standard 7(d)(14) is similar.
        If the parties accept the arbitrator after having being made aware of the arbitrator's disclosures and if they themselves are not aware of any matter that would affect the arbitrator's impartiality, the arbitrator should memorialize the acceptance in a pre-hearing order. Since disclosure is a continuing obligation, arbitrators should memorialize the disclosure again in subsequent orders if there is a substantial time lag between hearings.
        Many arbitrators now also create a document to accompany their disclosures, stating that they have made a reasonable and good-faith effort to determine whether they have any relationship to the attorneys or parties to the dispute. They also might include waiver language such as "I have been an active member of a number of bar association and professional groups but do not maintain a database of these professional contacts and connections."
        Since Ethics Standard 9(b) requires disclosure of any connection that spouses, domestic partners and immediate or extended family living in the household may have to the dispute, some arbitrators identify these family members and their occupations in the attachment to their disclosures. The goal is to alert parties to the connection of family members, especially when their last names are different.
        Standard 9(b)(2) allows an arbitrator to fulfill the obligation regarding inquiries about relationships of immediate and extended family members by declaring in writing that the arbitrator has made such an inquiry. Arbitrators then memorialize this declaration in their disclosure attachments.
        Arbitrators also may ask lawyers whether they are aware of any relationships that should be disclosed, and the arbitrators may attach those responses to their disclosures. Standard 9(c).
        Arbitrators also should be sure to advise parties and their attorneys in their disclosure attachment as to whether they will entertain offers to serve as dispute resolution neutrals in other cases while the current arbitration is pending. Ethics Standard 12(b).
        A party has the right to disqualify the arbitrator based on this disclosure. However, if the arbitrator does not so advise the parties within 10 calendar days of service of notice of appointment, the arbitrator may not enter into any new neutral professional relationship with any of the same lawyers or parties for the duration of the case, which often, in complex arbitrations, may be for an extended period.
        Because the obligation to disclose conflicts is a continuing one, arbitrators should require parties and attorneys to provide them with lists of witnesses and experts as soon as possible. This will enable arbitrators to determine whether they are aware of any connection they have to the witnesses, especially experts, and thereby allow them to make relevant disclosures as soon as possible.
        Again, an arbitrator may be disqualified based on any such disclosures. Code of Civil Procedure Section 1281.91.
        While an arbitrator's life experiences may not immediately come to mind for disclosure purposes, a recent case suggests that it could become an issue to be considered. O'Flaherty v. Belgum, 115 Cal.App.4th 1044 (2004).
        The arbitration of this bitter law-firm partnership breakup predated the adoption of the Ethics Standards, and the award was vacated for other reasons, but the parties who obtained the vacatur sued the arbitrator for failing to disclose that he had once been voted out of a law-firm partnership.
        The suit, which is being litigated, could be based on whether a reasonable person would doubt the arbitrator's ability to be impartial, had that information been made known.
        The Ethics Standards impose a duty for an arbitrator to decline an appointment if the arbitrator is not able to be impartial. Ethics Standard 6. Therefore, arbitrators would be wise to consider and disclose any life experience which might cast a doubt about their ability to be impartial.
        The arbitrators may state a belief that this life experience would not affect their impartiality, but the parties would decide whether to disqualify based on this disclosure. This is a hard call because arbitrators tend to be older and have any number of life experiences that later could be targeted by a losing party as a sign of partiality in an effort to overturn an award.
        Again, waiver language in an attachment to the disclosures including information such as the arbitrator's prior experience as a plaintiff or defense attorney would be advisable.
        Another case that predates the Ethics Standards instructs arbitrators on the importance of keeping up-to-date and accurate records. In International Alliance of Theatrical Employees v. Laughon, 118 Cal.App.4th 1380 (2004), the arbitrator failed to disclose serving as a neutral arbitrator in a prior commercial arbitration in which the law firm for the union represented a client.
        This arbitrator had served in public-sector labor disputes with the same law firm, and these cases were exempt from disclosure by standard 3(b)(H), but he failed to disclose at the time of appointment the one prior commercial arbitration in which he had served.
        Even though the prior commercial arbitration was put into the record during the Laughon hearing, the appellate court ruled that the arbitrator failed to make the proper disclosure under Code of Civil Procedure Section 1281.9, and the failure deprived Laughon of the ability to object to the arbitrator's continued service.
        Therefore, even though certain arbitrations such as labor arbitrations are exempt from the Ethics Standards, arbitrators might want to discipline themselves by documenting them, anyway, for their own records in order to protect against the failure to record and subsequently disclose the commercial and consumer arbitrations that must be disclosed.
        As these cases demonstrate, the finality of commercial arbitrations between parties of equal bargaining power may be more at risk than those of consumer arbitrations arising out of contracts of adhesion. The new arbitration regulations were enacted to protect consumers but may end up changing the landscape of commercial arbitrations conducted in the state.
        As accumulating case law demonstrates, arbitrators must pay careful attention to their obligation to disclose. There is no filter yet on whether the failure to disclose was prejudicial to the outcome of the case, because each of these cases was fact-specific. California Dispute Resolution Council, the statewide organization of dispute resolution neutrals, has voiced the need in Sacramento for such a standard.
        It will be interesting to see whether the courts will do what the Legislature has been unable to do: articulate a consistent standard of materiality of information and a consistent standard of whether the failure to disclose that information was prejudicial to the outcome of the case.
        Ruth V. Glick, a full-time arbitrator and mediator in Burlingame, is an adjunct professor of arbitration law at Hastings College of the Law and a past president of California Dispute Resolution Council.