ALTERNATIVE DISPUTE RES. • Nov. 26, 2004
New Advice for Arbitrators: Disclose, Disclose, Disclose
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
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
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
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
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.