Honeycutt v JPMorgan Chase Bank – Opinion

Filed 8/2/18
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN

PATRICE HONEYCUTT, Plaintiff and Appellant, v. JPMORGAN CHASE BANK, N.A., et al., Defendants and Respondents.

B281982 (Los Angeles County Super. Ct. No. BC526794)

APPEAL from a judgment of the Superior Court of
Los Angeles County, Malcolm H. Mackey, Judge. Reversed.
Law Office of Twila S. White, Twila S. White and Imran A.
Rahman for Plaintiff and Appellant.
Seyfarth Shaw, Jeffrey A. Wortman, Candace Bertoldi and
Timothy M. Fisher for Defendants and Respondents JPMorgan
Chase Bank, N.A. and JPMorgan Chase & Co.
___________________________
2
INTRODUCTION
The Code of Civil Procedure and the Ethics Standards for
Neutral Arbitrators in Contractual Arbitration (Ethics
Standards) require arbitrators in contractual arbitrations to
make various disclosures about themselves, their experience, and
their activity as private judges or, as they are sometimes called,
“dispute resolution neutrals.” Failure to make required
disclosures may be a ground for disqualifying the arbitrator and,
if the arbitrator was actually aware of the ground for
disqualification, for vacating an award.
In this case, the arbitrator did not comply with several
applicable disclosure requirements, which gave rise to multiple
grounds for disqualification. Because the arbitrator was actually
aware of at least one of the grounds for disqualification, the
resulting arbitration award was subject to vacatur. Therefore,
we reverse the trial court’s order denying the petition to vacate
the award and granting the petition to confirm it.
FACTUAL AND PROCEDURAL BACKGROUND
A. Appointment and Disclosure
On November 6, 2013 Patrice Honeycutt filed this action
against her former employer, JP Morgan Chase Bank, alleging
causes of action for discrimination, retaliation, wrongful
termination, and related claims. On March 7, 2014 the trial
court granted Chase’s petition to compel arbitration of
Honeycutt’s complaint.
3
On July 17, 2014 the American Arbitration Association
(AAA), a dispute resolution provider organization,1 notified the
parties the AAA had appointed a retired judge to serve as the
arbitrator. The notice of appointment included a copy of the
AAA’s disclosure worksheet, completed by the arbitrator, which
instructed the arbitrator: “It is most important that the parties
have complete confidence in the arbitrator’s impartiality.
Therefore, please disclose any past or present relationship with
the parties, their counsel, or potential witnesses, direct or
indirect, whether financial, professional, and social or of any
other kind. This is a continuing obligation throughout your
service on the case and should any additional direct or indirect
contact arise during the course of the arbitration . . . it must also
be disclosed. Any doubts should be resolved in favor of
disclosure. If you are aware of direct or indirect contact with
such individuals, please describe it below. Failure to make
timely disclosures may forfeit your ability to collect
compensation. The AAA will call the disclosure to the attention
of the parties.”
The worksheet further advised the arbitrator: “California
Code of Civil Procedure § 1281.9 (which incorporates CCP § 170.1
and the [Ethics Standards]) . . . and CCP § 1281.95 require
certain disclosures by a person nominated or appointed as an
arbitrator. While the AAA makes this worksheet available to
neutrals appointed to cases administered by the AAA, the
1 A “dispute resolution provider organization” or “provider
organization” is a “‘nongovernmental entity that, or individual
who, coordinates, administers, or provides the services of two or
more dispute resolution neutrals.’” (Jevne v. Superior Court
(2005) 35 Cal.4th 935, 945.)
4
ultimate obligation for compliance with any statutory
requirements, Rules and/or Ethics Standards lies with the
neutral. Accordingly, please review the relevant statutory
provisions and the enclosed materials before completing this
worksheet.” The notice of appointment included a link to the
Ethics Standards on the website of the California Judicial
Branch.
The 11-page worksheet asked the arbitrator to answer a
series of questions “yes” or “no.” For example, the worksheet
asked whether the arbitrator had a significant personal or
attorney-client relationship with a party or lawyer for a party, a
financial interest in a party to or the subject matter of the
arbitration, or a professional or occupational license that had
ever been revoked. The arbitrator had answered most of the
questions “no,” and signed and dated the worksheet. At the end
of the worksheet was a summary of the general provisions of the
Ethics Standards governing an arbitrator’s disclosure obligations.
Unfortunately, the parties received only 10 of the 11 pages
of the arbitrator’s disclosure worksheet. The missing page, page
five, included Question No. 27, which asked whether the
arbitrator had any time constraints that would interfere with the
arbitrator’s ability to commence or complete the arbitration in a
timely manner, and Question No. 28, which asked whether the
arbitrator, during the pendency of the arbitration, would
“entertain offers of employment or new professional relationships
in any capacity other than as a lawyer, expert witness, or
consultant from a party or a lawyer for a party, including offers
to serve as a dispute resolution neutral in another case.” The
arbitrator answered “no” to Question No. 27 and “yes” to answer
No. 28. On page six, which the parties did receive, under the
5
heading “Please explain any ‘yes’ answer to any question above
and/or make any additional disclosures you believe are
appropriate,” the arbitrator wrote: “#28. I will entertain offers to
serve as a dispute resolution in other cases. I will evaluate any
potential conflict at that time prior to accepting [the] offer.”
The disclosure documents from the AAA also included a
document signed by the arbitrator and titled “The Arbitrator’s
Oath.” In the oath, the arbitrator attested that the arbitrator
had “conducted a conflicts check, including a thorough review of
the information” provided by the AAA about the case, and had
performed all “obligations and duties to disclose in accordance
with the Rules of the [AAA], Code of Ethics for Commercial
Arbitrators and/or all applicable statutes pertaining to arbitrator
disclosures.” The oath concluded, immediately above the
signature line, “The Arbitrator being duly sworn, hereby accepts
this appointment, and will faithfully and fairly hear and decide
the matters in controversy between the parties in accordance
with their arbitration agreement, the Code of Ethics, and the
rules of the [AAA] . . . .”2 A note at the bottom of the arbitrator’s
oath repeated the AAA’s warning that the arbitrator, not the
AAA, was responsible for complying with the disclosure
requirements.
B. Arbitration and Challenge
The arbitrator conducted a six-day arbitration in April
2016. On August 30, 2016 the arbitrator issued an interim award
in favor of Chase and against Honeycutt on all of her claims.
2 Although the oath states the arbitrator was “duly sworn,”
the date of the “sworn before me” line in the certification is blank.
6
Counsel for Honeycutt was surprised she lost. On
September 12, 2016 she wrote a letter to the AAA’s manager of
alternative dispute resolution services, stating: “It is rather
stunning that [the arbitrator] found that [Honeycutt] did not
meet her burden on every single cause of action given how strong
the evidence was in [her] favor and the presentation of [her] case
at the arbitration hearing.” Counsel for Honeycutt asked the
manager to identify every other case the arbitrator had accepted
involving Chase and its counsel of record. Counsel also stated for
the first time that she had not received all pages of the notice of
appointment in July 2014 and that the copy she received was
“missing a page, omitting questions 21 through 28 and their
responses.” Counsel wrote: “Be advised that we intend to vacate
the award and request that further proceedings are stayed until I
have received the requested information from your office.”
On September 19, 2016 the manager sent counsel for
Honeycutt the missing page of the arbitrator’s July 17, 2014
disclosure worksheet. The manager also sent counsel for
Honeycutt 10 letters from the arbitrator’s case manager stating
that, during the pendency of the arbitration between Honeycutt
and Chase, the arbitrator had been appointed to serve as an
arbitrator in eight other employment cases involving counsel for
Chase and two other cases (one of which was an employment
case) involving Chase. The parties had previously received only
four of the eight letters concerning employment cases involving
counsel for Chase.3
3 The four notices the parties previously received were dated
February 26, 2015, April 30, 2015, May 18, 2016, and August 11,
2016. The four notices the parties had not received were dated
December 16, 2014, January 12, 2016, January 22, 2016, and
7
On September 28, 2016 counsel for Honeycutt sent the
manager a formal objection to the arbitrator’s continuing to serve
in this matter and a request for the arbitrator’s “immediate
disqualification.” Citing relevant provisions of the Code of Civil
Procedure and the Ethics Standards, counsel for Honeycutt
argued, among other things, that she had not received the entire
initial disclosure by the arbitrator (because of the missing page)
and that the arbitrator “failed to disclose all cases that she
accepted from [Chase’s] counsel during the pendency of the
arbitration.” Specifically, counsel for Honeycutt asserted the
arbitrator had failed to disclose “at least four additional cases
with [Chase’s] law firm since being appointed to this matter.”
On October 10, 2016 the manager advised counsel for
Honeycutt the AAA had denied Honeycutt’s request to disqualify
the arbitrator. The manager wrote: “After careful consideration
of the parties’ contentions, the [AAA] has determined that [the
arbitrator] will be reaffirmed as an arbitrator in the . . . matter.”
On November 15, 2016 the arbitrator issued a final award
ordering Honeycutt to “take nothing on her claims,” denying
Chase’s request for costs, and ruling the $5,240 in arbitration
administrative fees and the $62,067.50 in arbitrator
compensation and expenses were “to be borne as incurred.”
C. Confirmation
Honeycutt filed a petition to vacate the arbitration award,
and Chase filed a petition to confirm it. In her petition to vacate
(and her opposition to Chase’s petition to confirm) Honeycutt
August 3, 2016. The arbitration was pending from July 2014 to
November 2016.
8
argued the arbitrator violated the Ethics Standards by failing to
disclose offers of employment, including employment as an
arbitrator or mediator in other cases involving the parties or
attorneys in the arbitration. Honeycutt repeated her argument
the arbitrator’s July 17, 2014 initial disclosure was incomplete
because it did not include the page with the question and
affirmative answer concerning whether the arbitrator would
accept offers to serve as a neutral arbitrator in other cases
involving Chase or its attorneys. Honeycutt also contended, as
she had before the AAA, the arbitrator failed to disclose four of
the eight other cases the arbitrator accepted involving counsel for
Chase while the arbitration was pending. Honeycutt argued
these and other grounds for disqualification entitled her to vacate
the arbitration award.
Chase argued the arbitrator made all initial disclosures in
a timely manner because, although the parties did not receive the
worksheet page with the question and answer regarding whether
the arbitrator would entertain offers from the parties or their
attorneys to serve as a dispute resolution neutral in other
matters, the parties did receive the page with the explanation for
the arbitrator’s answer, which stated the arbitrator would
entertain such offers. Chase also pointed out that, because “[i]t
was readily apparent that a page was missing from the
disclosures when [Honeycutt] first received the initial disclosure
statement,” her request to disqualify the arbitrator was untimely.
Chase contended Honeycutt was “well aware of the Arbitrator’s
intent to accept offers to serve as a neutral in other cases,
including cases involving the same parties and lawyers in this
case, because the Arbitrator’s handwritten note on the following
9
page alone provided [her] with all the information that she
needed to assess whether disqualification was appropriate.”
Regarding the arbitrator’s failure to disclose during the
arbitration four of the eight other matters involving counsel for
Chase, Chase asserted Honeycutt had not identified any
mandatory disclosure the arbitrator failed to make (even though
Honeycutt had identified at least four of them) and pointed to a
September 23, 2016 email from the AAA manager stating she had
“provided all supplemental disclosure letters showing the new
cases involving the Parties/Attorneys to this matter after the
initial disclosure[s] were made.”4 Citing a former version of the
Ethics Standards, Chase also argued that the arbitrator was not
required to provide supplemental disclosures of other matters in
which the arbitrator was serving as a dispute resolution neutral
involving the same parties and lawyers.
The trial court confirmed the arbitration award. When
counsel for Honeycutt argued at the hearing that the arbitrator
did not disclose the four other cases involving counsel for Chase
until after the arbitration, the court stated, “But they were
made? Okay. The petition to confirm is granted; the petition to
4 This citation was misleading. The manager’s statement
referred to providing counsel for Honeycutt, in response to her
request, the 10 disclosure letters after the arbitrator had issued
the interim award. The manager was responding to a statement
by counsel for Honeycutt that she was “awaiting a full list” of
disclosure documents “as requested” from the manager. The
manager’s September 23, 2016 email did not “confirm” the
arbitrator made all supplemental disclosures during the
pendency of the arbitration. Chase has abandoned this argument
on appeal.
10
vacate is denied.” The court also stated the “‘disclosure
requirements are intended to ensure the impartiality of’ the
arbitrator, not to mandate the disclosure of all matters that a
party might wish to consider in deciding whether to oppose or
accept[ the] selection of an arbitrator.’” The court found “the
arbitrator sufficiently made the required disclosures, as further
outlined in the opposition to the motion to vacate.” Finally, the
court found “there was no prejudice shown as to any alleged
ground to vacate.”
The trial court entered judgment confirming the arbitration
award. Honeycutt timely appealed.
DISCUSSION
A. Arbitrator Disclosure Obligations and Grounds for
Vacating an Arbitration Award
1. Disclosure Under the Ethics Standards
“Courts have long struggled with the problem of ensuring
not only the neutrality but also the perception of neutrality of
arbitrators, who wield tremendous power to decide cases and
whose actions lack, for the most part, substantive judicial
review.” (Mahnke v. Superior Court (2009) 180 Cal.App.4th
565, 573.) “‘[B]ecause arbitrators wield such mighty and largely
unchecked power, the Legislature has taken an increasingly more
active role in protecting the fairness of the process.’” (Royal
Alliance Associates, Inc. v. Liebhaber (2016) 2 Cal.App.5th
1092, 1105; see Gray v. Chiu (2013) 212 Cal.App.4th 1355, 1362
[“the Legislature has provided ‘“for judicial review in
circumstances involving serious problems with . . . the fairness of
11
the arbitration process”’”].) Indeed, “the Legislature has gone out
of its way, particularly in recent years, to regulate in the area of
arbitrator neutrality by revising the procedures relating to the
disqualification of private arbitrators and by adding, as a penalty
for noncompliance, judicial vacation of the arbitration award.”
(Azteca Const., Inc. v. ADR Consulting, Inc. (2004) 121
Cal.App.4th 1156, 1167 (Azteca).)
In 2001 the Legislature “significantly revised the disclosure
requirements and procedures for disqualifying arbitrators
pursuant to private or contractual arbitration” and directed the
Judicial Council to adopt ethical standards for neutral
arbitrators. (Azteca, supra, 121 Cal.App.4th at p. 1162; see Code
Civ. Proc., § 1281.85.)5 “The 2001 legislation arose out of a
perceived lack of rigorous ethical standards in the private
arbitration industry. Co-sponsored by the Governor and the
5 Code of Civil Procedure section 1281.85 provides that “a
person serving as a neutral arbitrator pursuant to an arbitration
agreement shall comply with the ethics standards for arbitrators
adopted by the Judicial Council pursuant to this section. The
Judicial Council shall adopt ethical standards for all neutral
arbitrators effective July 1, 2002. These standards shall be
consistent with the standards established for arbitrators in the
judicial arbitration program and may expand but may not limit
the disclosure and disqualification requirements established by
this chapter. The standards shall address the disclosure of
interests, relationships, or affiliations that may constitute
conflicts of interest, including prior service as an arbitrator or
other dispute resolution neutral entity, disqualifications,
acceptance of gifts, and establishment of future professional
relationships.” Statutory references are to the Code of Civil
Procedure.
12
Judicial Council, the bill sought to provide ‘basic measures of
consumer protection with respect to private arbitration, such as
minimum ethical standards and remedies for the arbitrator’s
failure to comply with existing disclosure requirements.’”
(Azteca, at p. 1165, fn. omitted.) The Legislature was concerned
“‘the growing use of private arbitrators—including the imposition
of mandatory pre-dispute binding arbitration contracts in
consumer and employment disputes—has given rise to a largely
unregulated private justice industry.’” (Id. at p. 1165, fn. 7; see
Hillebrand, Should California’s Ethics Rules Be Adopted
Nationwide?: Yes! They Represent Thoughtful Solutions to Real
Problems (Fall 2002) Disp. Resol. Mag. 10 [“[t]he legislature
imposed the requirement for ethics standards to ‘address
concerns arising through the increased use of private dispute
resolution, including the creation of a dual justice system’”].)
These developments evinced “an unmistakable legislative intent
to oversee and enforce ethical standards for private arbitrators.”
(Azteca, at p. 1165.)
The Judicial Council responded to the Legislature’s
directive by adopting the Ethics Standards to provide “protection
against specific conflicts of interest where they exist.”
(Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th
233, 260, fn. 8; see Ovitz v. Schulman (2005) 133 Cal.App.4th
830, 833 (Ovitz).) “Pursuant to section 1281.85, the Judicial
Council adopted ethics standards and requirements for neutral
arbitrators. Their express purpose is to establish the minimum
standards of conduct for neutral arbitrators, to ‘guide the conduct
of arbitrators, to inform and protect participants in arbitration,
and to promote public confidence in the arbitration process.’
[Citation.] The Ethics Standards obligate arbitrators to inform
13
themselves of matters subject to mandatory disclosure.” (Gray v.
Chiu, supra, 212 Cal.App.4th at pp. 1362-1363, fn. omitted.)
The Code of Civil Procedure and the Ethics Standards
impose various disclosure obligations on neutral arbitrators.
Section 1281.9, subdivision (a), provides “the arbitrator must
disclose ‘any ground specified in Section 170.1 for disqualification
of a judge,’ as well as ‘matters required to be disclosed by the
ethics standards for neutral arbitrators adopted by the Judicial
Council . . . .’” (United Health Centers of San Joaquin Valley,
Inc. v. Superior Court (2014) 229 Cal.App.4th 63, 75-76; see
Haworth v. Superior Court (2010) 50 Cal.4th 372, 381 (Haworth)
[“[t]he applicable statute and standards enumerate specific
matters that must be disclosed”]; Ovitz, supra, 133 Cal.App.4th
at p. 833 [“[t]he standards require arbitrators to make
comprehensive disclosures of potential grounds for
disqualification”].) Significantly, “an arbitrator’s duty of
disclosure is a continuing one.” (Gray v. Chiu, supra,
212 Cal.App.4th at p. 1363; accord, Ovitz, at p. 840; see also
JAMS, Arbitrators Ethics Guidelines, Guideline V(D) [“[a]n
Arbitrator’s disclosure obligations continue throughout the course
of the Arbitration”]; AAA, Code of Ethics for Arbitrators in
Commercial Disputes, Canon II(D) [“[a]ny doubt as to whether or
not disclosure is to be made should be resolved in favor of
disclosure”].)
2. Ethics Standards 7 and 12
The Ethics Standards at issue in this appeal are standards
7 and 12, which the Judicial Council adopted to address the
“‘bias, or appearance of bias, that may flow from one side in an
arbitration being a source or potential source of additional
14
employment, and thus additional income, for the arbitrator.’”
(Ovitz, supra, 133 Cal.App.4th at p. 839.) Ethics standard 7
describes the disclosure obligations of a “person nominated or
appointed as an arbitrator.” The proposed arbitrator must make
the initial disclosures listed in standard 7 in writing “[w]ithin 10
days of service of notice of the proposed nomination or
appointment” (Id., std. 7(c)(1)) and any required supplemental
written disclosures within 10 days “after the arbitrator becomes
aware of the matter” (Id., std. 7(c)(2)). Thus, although the
arbitrator initially makes the disclosures required by standard 7
at the outset of the arbitration, the arbitrator’s duty to make
these disclosures “is a continuing duty, applying from service of
the notice of the arbitrator’s proposed nomination or appointment
until the conclusion of the arbitration proceeding.” (Id., std. 7(f).)
Ethics standard 7 requires the arbitrator to “disclose all
matters that could cause a person aware of the facts to
reasonably entertain a doubt that the arbitrator would be able
to be impartial . . . .” (Ethics Standards, std. 7(d).) Ethics
standard 7(d) lists examples of such matters, including a family,
attorney-client, or “significant personal” relationship with a party
or lawyer in the arbitration, a financial or other interest in the
outcome of the arbitration, and knowledge of “disputed
evidentiary facts concerning the proceeding.” (Id., stds. 7(d)(2)-
(3), 7(d)(7), 7(d)(11)-(13).) Ethics standard 7(d)(4)(A)(i) requires
the arbitrator to disclose whether the arbitrator is serving “[a]s a
neutral arbitrator in another prior or pending . . . case involving
a party to the current arbitration or a lawyer for a party.” Ethics
standard 7(e) requires the arbitrator to disclose other matters
relating to professional discipline and the arbitrator’s inability to
conduct and complete the arbitration in a timely manner.
15
Ethics standard 12 generally describes the disclosure
obligations of an arbitrator “[f]rom the time of appointment until
the conclusion of the arbitration” (Ethics Standards, std. 12(a)),
although some of its provisions apply to the initial disclosures a
proposed arbitrator must make. For example, Ethics standard
12(b)(1) provides that, “within ten calendar days of service of
notice of the proposed nomination or appointment, a proposed
arbitrator must disclose to all parties in writing if, while that
arbitration is pending, he or she will entertain offers of
employment or new professional relationships in any capacity
other than as a lawyer, expert witness, or consultant from a party
or a lawyer for a party, including offers to serve as a dispute
resolution neutral in another case.”6 If an arbitrator in a
consumer arbitration like this one makes that disclosure,7 the
arbitrator must also state that he or she “will inform the parties
as required under [Ethics standard 12](d) if he or she
subsequently receives an offer while that arbitration is pending.”
(Ethics Standards, std. 12(b)(2)(A).)
6 Ethics standard 12(a) prohibits an arbitrator from
entertaining or accepting “any offers of employment or new
professional relationships as a lawyer, an expert witness, or a
consultant from a party or a lawyer for a party in the pending
arbitration.”
7 “Consumer arbitration” includes an arbitration pursuant to
a contract with “[a]n employee or an applicant for employment in
a dispute arising out of or relating to the employee’s employment
or the applicant’s prospective employment that is subject to the
arbitration agreement.” (Ethics Standards, std. 2(d)(1), 2(e)(4).)
There is no dispute the rules governing consumer arbitrations
apply to this arbitration.
16
Ethics standard 12(d), in turn, provides that, if the
arbitrator makes the disclosure in Ethics standard 12(b)
regarding entertaining offers to serve as a dispute resolution
neutral in another case involving the same parties or lawyers,
“the arbitrator may entertain such offers. However, in consumer
arbitrations, from the time of appointment until the conclusion of
the arbitration, the arbitrator must inform all parties to the
current arbitration of any such offer and whether it was accepted
as provided in this subdivision.” The arbitrator must notify the
parties in writing “within five days of receiving the offer and, if
the arbitrator accepts the offer, must notify the parties in writing
within five days of that acceptance. The arbitrator’s notice must
identify the party or attorney who made the offer and provide a
general description of the employment or new professional
relationship that was offered including, if the offer is to serve as a
dispute resolution neutral, whether the offer is to serve in a
single case or multiple cases.” (Ethics Standards, std. 12(d)(1);
see Knight et al., Cal. Practice Guide: Alternative Dispute
Resolution (The Rutter Group 2017) ¶¶ 7:142.2-7:142.3 [“[a]n
arbitrator in a consumer arbitration must give written notice of
any offer within five days of receipt (identifying the attorney or
party making the offer, description of the employment or
relationship offered, and if the offer is to serve as ADR neutral,
whether it is for one or multiple cases)” and, “[i]f the offer is
accepted, the arbitrator must give written notice to the parties
within five days of acceptance”].)8
8 The Judicial Council added these disclosure requirements
to Ethics standard 12(d) in 2014 because of concerns about
arbitrator neutrality and “whether the disclosure and ability to
disqualify an arbitrator under [Ethics] standard 12(b) provide[d]
17
3. Vacatur Under the Code of Civil Procedure
Judicial review of private arbitration awards is generally
limited to the statutory grounds for vacating or correcting an
award. (Moshonov v. Walsh (2000) 22 Cal.4th 771, 775;
ECC Capital Corp. v. Manatt, Phelps & Phillips, LLP (2017)
9 Cal.App.5th 885, 899-900 (ECC Capital).) One of those
statutory grounds is section 1286.2, subdivision (a)(6)(A), which
provides that, if the arbitrator fails “to disclose within the time
required for disclosure a ground for disqualification of which the
arbitrator was then aware,” the court “shall vacate the award.”
(See Haworth, at p. 381; ECC Capital, supra, 9 Cal.App.5th at p.
901; Rebmann v. Rohde (2011) 196 Cal.App.4th 1283, 1290; see
also La Serena Properties v. Weisbach (2010) 186 Cal.App.4th
893, 903 [“[s]o important is this duty to disclose potential
disqualifying relationships that a failure to disclose serves as a
basis for setting aside the arbitration award”]; Ovitz, supra, 133
Cal.App.4th at p. 833 [“[o]n a showing that the arbitrator failed
timely to disclose a ground for disqualification of which he or she
sufficient protection for parties, particularly consumer parties,
against the possibility of arbitrator bias or the appearance of bias
that may arise when the arbitrator receives offers of employment
from another party or attorney in the arbitration.” (Report to the
Judicial Council on Proposed Amendments to the Ethics
Standards for Neutral Arbitrators in Contractual Arbitration,
Sept. 19, 2013, p. 13.) The Judicial Council limited these
amendments to “consumer arbitrations, rather than all
arbitrations, because the consumer parties in these arbitrations
are typically more vulnerable, have less information and
knowledge about the arbitration process, and are less able to
exercise choices with regard to that process.” (Id. at p. 25.)
18
was aware, the California Code of Civil Procedure requires the
vacating of any award rendered by the arbitrator”].) “On its face,
the statute leaves no room for discretion. If a statutory ground
for vacating the award exists, the trial court must vacate the
award.” (Ovitz, at p. 845.)
We review de novo the trial court’s ruling on a motion to
vacate an arbitration award based on the arbitrator’s failure to
make a required disclosure. We review any factual findings or
resolutions of disputed factual issues for substantial evidence.
(See Haworth, supra, 50 Cal.4th at p. 383; Baxter v. Bock (2016)
247 Cal.App.4th 775, 785.)
B. Honeycutt Waived Her Right To Vacate the Award
Based on the Arbitrator’s Violation of Ethics
Standard 12(b)
Ethics standard 12(b) required the arbitrator to disclose,
within 10 days of the proposed appointment as an arbitrator,
whether the arbitrator would entertain offers from a lawyer or
party to the arbitration to serve as a dispute resolution neutral in
another matter. The arbitrator did not comply with this
requirement because the arbitrator’s initial disclosure did not
include the page containing the question asking whether the
arbitrator would entertain such offers and the arbitrator’s “yes”
answer, even though on the next page the arbitrator made a
handwritten notation stating the arbitrator would entertain such
offers. And despite Chase’s assertion that “the page containing
responses to AAA’s disclosure questions 20-28 was not included
with the initial disclosures, apparently as the result of clerical
error,” there is no evidence of such a clerical error.
19
Moreover, even if the arbitrator had provided counsel with
all pages of the disclosure worksheet, the arbitrator’s
handwritten explanation for the (undisclosed) answer to Question
No. 28, which the parties did receive, did not comply with Ethics
standard 12(b)(2), which requires the arbitrator in a consumer
arbitration to state that the arbitrator will inform the parties if
the arbitrator receives an offer. As noted, the arbitrator’s
handwritten explanation of the missing response to Question No.
28 did not state that the arbitrator would inform the parties if
the arbitrator received an offer, only that the arbitrator would
“evaluate any potential conflict” before accepting the offer. The
rule requires disclosure regardless of the arbitrator’s personal
evaluation of whether there is a conflict and even if the arbitrator
does not accept the offer.
Honeycutt, however, waived her right to vacate the
award based on the arbitrator’s failures to comply with Ethics
standard 12(b). A party may waive the right to disqualify an
arbitrator by failing to object to the arbitrator’s failure to disclose
a matter the Ethics Standards require the arbitrator to disclose.
Section 1281.91, subdivision (c), provides that the “right of a
party to disqualify a proposed neutral arbitrator pursuant to this
section shall be waived if the party fails to serve” a notice of
disqualification within 15 days after the arbitrator fails to comply
with the disclosure obligations under section 1281.9 or the Ethics
Standards, “unless the proposed nominee or appointee makes a
material omission or material misrepresentation in his or her
disclosure.” (See United Health Centers of San Joaquin Valley,
Inc. v. Superior Court, supra, 229 Cal.App.4th at p. 83 [section
1281.91, subdivision (c), “states that a party’s right to disqualify a
proposed neutral arbitrator ‘shall be waived’ if the party fails to
20
serve a notice of disqualification within the period set forth
therein”]; Ovitz, supra, 133 Cal.App.4th at p. 846 [“[s]ection
1281.91, subdivision (c) contains a limited provision under which
a party is deemed to have waived the right to disqualify the
arbitrator if the party fails to act within the 15-day time period
provided in section 1281.91, subdivisions (a) or (b)”].)
Honeycutt knew in July 2014, upon learning the identity of
the proposed arbitrator and receiving the incomplete disclosure
worksheet, that the arbitrator had failed to send the parties the
page containing Question Nos. 21-28. Honeycutt also knew that
the arbitrator had answered Question No. 28 and that the answer
related to a question about serving as an arbitrator or mediator
in other cases. Honeycutt even knew the answer to Question
No. 28 did not comply with Ethics standard 12(b)(2)(A) because
the arbitrator’s answer did not state the arbitrator would inform
the parties of offers and acceptances while the arbitration was
pending. By failing to serve a notice of disqualification within
15 days of receiving the arbitrator’s defective disclosure,
Honeycutt waived her right to disqualify the arbitrator. (See
Dornbirer v. Kaiser Foundation Health Plan, Inc. (2008)
166 Cal.App.4th 831, 846 [under section 1281.91, subdivision (c),
a claimant waives the right to disqualify the arbitrator by
“consent[ing] to proceed with the arbitration despite being aware
of the deficiencies in [the arbitrator’s] disclosure” and cannot
“challenge the arbitration award on the ground that [the
arbitrator’s] failure to provide” sufficient information in the
disclosure “constitutes a ‘ground for disqualification’”].)
Honeycutt’s remedy for the arbitrator’s violations of Ethics
standard 12(b) was to object to the defective disclosures, demand
the arbitrator make complete and compliant disclosures, or move
21
to disqualify the arbitrator at the time. Honeycutt was not
entitled to wait and see how the arbitration turned out before
raising these issues. (See ECC Capital, supra, 9 Cal.App.5th
at p. 906 [“‘[t]hose who are aware of a basis for finding the
arbitration process invalid must raise it at the outset or as soon
as they learn of it so that prompt judicial resolution may take
place before wasting the time of the adjudicator(s) and the
parties’”]; Mt. Holyoke Homes, L.P. v. Jeffer Mangels Butler &
Mitchell, LLP (2013) 219 Cal.App.4th 1299, 1314 (Mt. Holyoke)
[“if the arbitrator disclosed information or a party had actual
knowledge of information putting the party on notice of a ground
for disqualification, yet the party failed to inquire further, the
arbitrator’s failure to provide additional information regarding
the same matter does not justify vacating the award”];
Cummings v. Future Nissan (2005) 128 Cal.App.4th 321, 329
[“a party who knowingly participates in the arbitration process
without disclosing a ground for declaring it invalid is properly
cast into the outer darkness of forfeiture”].) As the court stated
in United Health Centers of San Joaquin Valley, Inc. v. Superior
Court, supra, 229 Cal.App.4th 63, in words equally applicable to
Honeycutt: “While an arbitrator has a duty to disclose all of the
details required to be disclosed pursuant to section 1281.9 and
the Ethics Standards, a party aware that a disclosure is
incomplete or otherwise fails to meet the statutory disclosure
requirements cannot passively reserve the issue for consideration
after the arbitration has concluded. Instead, the party must
disqualify the arbitrator on that basis before the arbitration
begins.” (Id. at p. 85.) To hold otherwise would allow Honeycutt
to “‘“play games” with the arbitration and not raise the issue’”
until she lost. (Cummings at p. 328; see Caminetti v. Pacific Mut.
22
Life Ins. Co. of Cal. (1943) 22 Cal.2d 386, 392 [“‘[i]t would seem
. . . intolerable to permit a party to play fast and loose with the
administration of justice by deliberately standing by without
making an objection of which he is aware and thereby permitting
the proceedings to go to a conclusion which he may acquiesce in,
if favorable, and which he may avoid, if not’”].)
C. Honeycutt Was Entitled To Vacate the Award Based
on the Arbitrator’s Violation of Ethics Standard 7(d)
1. The Arbitrator Did Not Comply with Ethics
Standards 12(d) and 7(d)
As noted, Ethics standard 12(d) provides that, if the
arbitrator makes the initial disclosure under Ethics standard
12(b) that the arbitrator will entertain offers to serve as an
arbitrator or mediator in another case involving the same parties
or lawyers, the arbitrator may entertain such offers. And in
consumer arbitrations, the arbitrator must also disclose (1) the
offer (within five days of the offer) and (2) any acceptance (within
five days of acceptance). (Ethics Standards, std. 12(d)(1).)
Chase does not dispute the arbitrator violated Ethics
standard 12(d). The arbitrator accepted offers to serve as a
neutral in eight other cases involving Chase’s attorneys and
disclosed only four of them. Chase concedes “[i]t appears that
four supplemental disclosures regarding appointment of [the
arbitrator] to arbitrations or mediations in which [counsel for
Chase] was counsel were . . . not promptly distributed . . . to the
23
parties.”9 Nor does Chase dispute that the arbitrator’s failure to
disclose the four cases was “a failure to comply with the
arbitrator’s” disclosure obligations under the Ethics Standards.
Moreover, although not argued by Honeycutt, even the four
disclosure letters the arbitrator sent the parties did not satisfy
the arbitrator’s disclosure obligations under Ethics standard
12(d) because they disclosed acceptances, but not offers, of
employment as a dispute resolution neutral. All four of the
arbitrator’s disclosure letters stated that the arbitrator “has been
appointed by the parties to serve as an Arbitrator in a new
Employment case in which [counsel for Chase] is involved.”10
There is no evidence the arbitrator ever disclosed, within five
days as required by Ethics standard 12(d)(1) or otherwise, the
four offers that preceded these appointments, the other four
offers that preceded the undisclosed appointments, or any other
offers of employment from counsel for Chase to serve as a dispute
resolution neutral in other cases the arbitrator may have
entertained but not accepted.
9 “Not promptly” is a euphemism for “not until after the
arbitration.” As noted, the manager did not give the parties
notice of the four other cases involving Chase’s attorneys until
after the arbitrator had issued the interim award in favor of
Chase, and after counsel for Honeycutt had formally asked for
copies of the missing page of the initial disclosures and of all
supplemental disclosures.
10 The four disclosure letters also stated: “The Arbitrator
believes that his/her participation in the new case will not affect
his/her neutrality in the current case.” Disclosure of such a belief
is neither required nor sufficient.
24
The arbitrator also violated Ethics standard 7(d). As Chase
concedes, one of the matters on the non-exclusive list of matters
in Ethics standard 7(d) that an arbitrator has a continuing duty
to disclose is service as an arbitrator in another pending case
involving a party or lawyer for a party in the current arbitration.
(Ethics Standard, stds. 7(d)(4), 7(f).) By not disclosing the four
pending arbitrations with counsel for Chase, the arbitrator
violated the continuing disclosure duties under Ethics standard
7(d).
2. The Arbitration Award Must Be Vacated
An arbitrator’s violation of his or her disclosure obligations
under the Ethics Standards, however, does not necessarily entitle
a party challenging an arbitration award to an order vacating the
award. As we noted in ECC Capital, the “statute requires
vacating an award only when an arbitrator fails to disclose a
ground for disqualification of which he or she was actually aware.
Section 1286.2, subdivision (a)(6)(A), requires actual awareness,
not inquiry or constructive awareness.” (ECC Capital, supra,
9 Cal.App.5th at p. 903.) As the party challenging the arbitration
award, Honeycutt had the burden of proving actual awareness.
(See Rebmann v. Rohde, supra, 196 Cal.App.4th at p. 1290;
Guseinov v. Burns (2006) 145 Cal.App.4th 944, 957.) The trial
court made no finding on whether the arbitrator was aware of the
ground for disqualification.11
11 The trial court did not reach the issue whether the
arbitrator was actually aware of a ground for disqualification
because the trial court stated it was enough the arbitrator
eventually made a disclosure after the arbitration.
25
The parties dispute whether Honeycutt had the burden to
show the arbitrator was aware of the four arbitrations with
counsel for Chase or, instead, to show the arbitrator was aware of
the failure to disclose the offers and acceptances of the four
arbitrations with counsel for Chase. Honeycutt argues it was the
former, asserting it is “inconceivable” the arbitrator was unaware
of the other arbitrations involving counsel for Chase. Chase
argues it was the latter, asserting there was no evidence the
arbitrator “was aware of any non-disclosure under Standard
12(d)(1),” which, “in turn, results in [Honeycutt’s] failure to meet
the scienter requirement for vacating the award under section
1286[.2, subdivision] (a)(6)(A).” Chase asserts that, although the
four missing disclosures “were timely prepared,” through “some
inadvertence . . . they did not reach the parties.” Chase suggests
that the arbitrator worked with the AAA and another dispute
resolution provider organization and that the AAA received the
four missing disclosure letters from the other provider
organization but did not send them to the parties.”12
12 There is no evidence that anyone at either provider
organization timely prepared the four (actually, including the
offers, 12) missing disclosure letters or that the arbitrator, the
case manager, or anyone else at the AAA inadvertently failed to
send out the notices. We also question whether an arbitrator,
unlike an attorney, can blame a case manager, assistant, or
secretary for an arbitrator’s failure to comply with the Ethical
Standards. (See Layton v. State Bar (1990) 50 Cal.3d 889, 900
[an attorney “cannot escape responsibility for his failure . . . by
blaming his secretary” because “[a]n attorney has an obligation to
adequately supervise his employees”]; Vaughn v. State Bar (1972)
6 Cal.3d 847, 857 [“though an attorney cannot be held responsible
for every detail of office procedure, he must accept responsibility
to supervise the work of his staff”].)
26
Honeycutt is correct. If the arbitrator complies with the
disclosure requirements of Ethics standard 12(d), the arbitrator
does not also have to make the same disclosures under Ethics
standard 7. Ethics standard 12(d)(3)(B) provides that, “[i]f an
arbitrator has informed the parties in a pending arbitration
under [Ethics standard 12(d)](1),” the “arbitrator is not also
required to disclose that offer or its acceptance under [Ethics]
standard 7.”13 But if the arbitrator does not make the required
disclosures under Ethics standard 12(d), the arbitrator must still
comply with the disclosure obligations of Ethics standard 7,
which, as noted, are continuing. Therefore, where the arbitrator
fails to comply with the disclosure requirements of Ethics
standard 12(d), a party seeking to vacate an award does not have
to show the arbitrator was actually aware of the failure to
disclose because, in that situation, Ethics standard 7(d) governs
the arbitrator’s disclosure obligations.
Under Ethics standard 7(d), an arbitrator must disclose
“matters that could cause a person aware of the facts to
reasonably entertain a doubt that the arbitrator would be able to
be impartial,” including service as an arbitrator for a party or
lawyer for a party. (Ethics Standards, std. 7(d)(4)(A)(i).) Under
section 1281.91, subdivision (b)(1), the pending arbitrations were
grounds for disqualification of the arbitrator because they were
“matters required to be disclosed by the [Ethics Standards].”
13 Ethics standard 7(b)(2)(b) similarly provides that, if the
arbitrator “has informed the parties in the pending arbitration
about any such offer and the acceptance of any such offer as
required by subdivision (d) of standard 12, the arbitrator is not
also required under this standard to disclose that offer or the
acceptance of that offer to the parties in that arbitration.”
27
(§ 1281.9, subd. (a)(2).) The arbitrator here was actually aware of
the four other pending arbitrations involving counsel for Chase.
Therefore, under section 1286.2, the arbitrator’s failure to
disclose the four arbitrations with counsel for Chase was a failure
“to disclose within the time required for disclosure a ground for
disqualification of which the arbitrator was then aware,” which
requires vacatur of the award. (See Mt. Holyoke, supra,
219 Cal.App.4th at p. 1315 [arbitrator’s “failure to timely disclose
[a] ground for disqualification of which he was then aware
compels the vacation of the arbitrator’s award”]; Comment to
Standard 7 [“[f]ailure to disclose, within the time required for
disclosure, a ground for disqualification of which the arbitrator
was then aware is a ground for vacatur of the arbitrator’s
award”].)
To vacate an arbitration award under section 1286.2 for a
violation of Ethics standard 7(d), the party challenging the award
must show that the arbitrator was aware he or she was serving
as an arbitrator in a pending arbitration involving the same
parties or lawyers. Service as an arbitrator is the “matter” the
arbitrator must disclose within 10 days of becoming aware of it
under Ethics standard 7(c)(2) and the ground for disqualification
under sections 1281.9, subdivision (a)(1), and 1281.91. An
arbitrator may be unaware a case manager failed to send out a
notice, an assistant accidently deleted an attorney from a proof of
service, or an envelope or email was incorrectly addressed or lost
in the mail or cyberspace. But an arbitrator knows he or she has
an arbitration, and knows the parties and attorneys involved in
that arbitration. (Cf. Ovitz, supra, 133 Cal.App.4th at p. 845 [an
arbitrator is “aware of his own intent to entertain” offers of
employment].)
28
Finally, Honeycutt did not waive her right to vacate the
award based on the arbitrator’s failure to make required
disclosures under Ethics standard 7(d). The arbitrator did not
disclose the four other matters involving counsel for Chase in
which the arbitrator served as a dispute resolution neutral until
after the arbitrator had completed the arbitration hearing and
issued an interim award (and the arbitrator never disclosed any
offers of employment to serve as a neutral). A party cannot waive
a right she does not know she has. (See Earl v. Saks & Co. (1951)
36 Cal.2d 602, 609 [“‘[o]ne cannot waive or acquiesce in a wrong
while ignorant thereof’”]; Tremaine v. Phoenix Assur. Co. (1935)
6 Cal.App.2d 552, 557 [“‘a person cannot waive that which he
does not know’”].) The waiver provision in section 1281.91,
subdivision (c), “applies only when the proposed arbitrator has
made the requisite disclosure. This is made clear by the
exception to the waiver rule posited in the last clause of the first
sentence of the subdivision: ‘. . . unless the proposed nominee or
appointee makes a material omission or material
misrepresentation in his or her disclosure.’” (International
Alliance of Theatrical Stage Employees, etc. v. Laughon (2004)
118 Cal.App.4th 1380, 1392; see Ovitz, supra, 133 Cal.App.4th
at p. 846 [no waiver of the right to vacate an arbitration award
where the arbitrator’s disclosure contained a material omission];
see also Gray v. Chiu, supra, 212 Cal.App.4th at p. 1366
[rejecting waiver and estoppel arguments because the evidence of
what the arbitrator failed to disclose “surfaced long after the . . .
disclosure period” and because the arguments “assume[ed] that
someone other than the neutral arbitrator can effectively” make
the disclosure].) When the AAA manager belatedly sent counsel
for Honeycutt notice of the four arbitrations on September 19,
29
2016, Honeycutt moved to disqualify the arbitrator on September
28, 2016, within the 15 days required by section 1281.91,
subdivision (c).
The arbitrator disclosure rules are strict and unforgiving.
And for good reason. Although dispute resolution provider
organizations may be in the business of justice, they are still in
business. The public deserves and needs to know that the system
of private justice that has taken over large portions of California
law produces fair and just results from neutral decisionmakers.
(See Gray v. Chiu, supra, 212 Cal.App.4th at p. 1366 [while the
rule under section 1286.2 requiring the court to vacate the award
“seems harsh, it is necessary to preserve the integrity of the
arbitration process”]; Advantage Medical Services, LLC v.
Hoffman (2008) 160 Cal.App.4th 806, 822 [“‘neutrality of the
arbitrator [was of] . . . crucial importance’” to the Legislature];
Azteca, supra, 121 Cal.App.4th at p. 1168 (“[o]nly by adherence to
the [Arbitration] Act’s prophylactic remedies can the parties have
confidence that neutrality has not taken a back seat to
expediency”].) Although the disclosure rules the arbitrator
violated here may seem technical, they are part of the
Legislature’s effort to ensure that private arbitrations are not
only fair, but appear fair. (See Ceriale v. AMCO Ins. Co. (1996)
48 Cal.App.4th 500, 504 [arbitration award may be vacated
where “the record reveals facts which might create an impression
of possible bias in the eyes of the hypothetical, reasonable
person”].) “That all may drink with confidence from their waters,
the rivers of justice,” whether they flow through our public or
private systems of dispute resolution, “must not only be clean and
pure, they must appear so to all reasonable men and women.”
(U.S. v. State of Ala. (11th Cir. 1987) 828 F.2d 1532, 1552.)
30
DISPOSITION
The judgment is reversed and remanded with directions for
the trial court to vacate its order granting the petition to confirm
the arbitration award and denying the petition to vacate it, and
to enter a new order denying the petition to confirm the award
and granting the petition to vacate it. Honeycutt is to recover her
costs on appeal.
SEGAL, J.
We concur:
PERLUSS, P. J.
FEUER, J.