Luce, Forward, Hamilton & Scripps, LLP v. Koch
Issue Discussed: Bias/Evident Partiality
Submitted by Mary Kay Vyskocil
Date Promulgated: April 30, 2008
Issue Decided: Arbitrator’s Duties of Disclosure
The reinsurance arbitration industry involves a relatively small group of companies and individuals, and participants in reinsurance arbitrations know that it is common practice at the organizational meeting for the arbitrators to disclose that they know a party representative or counsel in the arbitration through professional organizations such as ARIAS. In Luce, Forward, Hamilton & Scripps, LLP v. Koch, 75 Cal. Rptr. 3d 869 (Cal. Ct. App. 2008), a California court of appeals addressed the issue – in a case not involving insurance or reinsurance – of the extent to which disclosures of this nature were legally required under California arbitration law or, even if not required, conferred on the parties an automatic right to disqualify a neutral arbitrator once made.
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Under California arbitration 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. 1281.9(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). See also ARIAS Code of Conduct, Cannon IV, comment 1 (“Before accepting an arbitration appointment, candidates should make a reasonable effort to identify and disclose any direct or indirect financial or personal interest in the outcome of the proceeding or any existing or past financial, business, professional, family or social relationship that others could reasonably believe would be likely to affect their judgment, including any relationship with persons they are told will be potential witnesses.”).
In Luce, Forward, a neutral arbitrator disclosed at the outset of the arbitration 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 mediations. Luce, Forward, 75 Cal. Rptr. 3d at 872. Neither party sought to disqualify the arbitrator on this basis.
Later, in the course of preparing for the hearing, the arbitrator discovered that a Luce Forward partner with whom he has served on the board of the Business Trial Lawyers Association (“ABTL”) was listed as counsel on Luce Forward’s hearing brief. He had also served on the ABTL with Luce Forward’s rebuttal expert witness. Id. In response to this discovery, the arbitrator disclosed that he had served with these individuals on the ABTL board, and that at any given time the ABTL had three dozen board members and between 500 to 700 members. Id. The arbitrator further disclosed that he had served with the same Luce Forward partner on the board of American Inns of Court and stated that in his view, neither of these contacts would affect his ability to be fair and impartial to both parties in the case. In addition, the arbitrator noted that he had not read the rebuttal expert report at issue, would not do so, and would strike this expert from the witness list.
In response to these disclosures Koch moved to disqualify the arbitrator for cause, which motion the arbitrator denied. Id. at 873. The hearing went forward as scheduled and in June 2006 the arbitrator issued a final award in favor of Luce Forward. The defendants petitioned to vacate the award on the grounds that the arbitrator was disqualified based on his disclosures, which petition was denied. Id. at 873-74.
On appeal, the court addressed the issues of whether the neutral’s disclosures were required – in which case the parties agreed he was subject to disqualification – or, even if not required, triggered the parties’ right to disqualify the arbitrator once the disclosures were voluntarily made. See id. at 875-76.
Addressing first the issue of whether the neutral was required to disclose the fact that he was professionally acquainted with an attorney involved in the case and a rebuttal expert witness, the court concluded that while the neutral’s candor was “commendable,” he was not legally required to disclose these relationships, which did not involve personal or business relationships or close friendships and only involved “slight or attenuated” contacts. Id. at 879. Cf. Nationwide Mutual Ins. Co. v. Home Ins. Co., 278 F.3d 621, 625 (6th Cir. 2002) (fact that umpire served as Chairman of the Board of company with “run-off” relationship with Home, and was involved in discussions concerning a dispute over a “relatively small” amount, not a sufficient basis to find umpire was partial to Nationwide). The court noted: “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.” Luce, Forward, 75 Cal. Rptr. 3d at 879.
Moreover, 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, see Cal. Code Civ. Proc. 1281.91, the court refused to interpret these statutes to grant such an absolute right of disqualification where a disclosure is not legally required but is instead made out of an abundance of caution. Luce, Forward, 75 Cal. Rptr. 3d at 880.
* Mary Kay Vyskocil is a partner at Simpson Thacher & Bartlett LLP. She has handled a number of leading insurance cases, including several jury trials (most recently the Silverstein WTC trial) and argued several precedentially important reinsurance cases. She is the co-author of Modern Reinsurance Law & Practice, and is listed in Chambers Guide to America’s Leading Business Lawyers, Euromoney’s Guide to the World’s Leading Insurance and Reinsurance Lawyers (as one of Top 10 Lawyers in U.S.), and NLJ’s America’s Top 50 Women Litigators.