Metropolitan News-Enterprise


Friday, August 27, 2004


Page 3


C.A.: State Arbitration Law Prevails Over AAA Rules In Disqualification Dispute


By a MetNews Staff Writer


Provisions of state law permitting a party to disqualify an arbitrator were not waived where the parties agreed to private arbitration under rules giving the American Arbitration Association power to decide when an arbitrator should be disqualified, the Third District Court of Appeal has ruled.

“The provisions for arbitrator disqualification established by the California Legislature may not be waived or superseded by a private contract,” Justice M. Kathleen Butz explained in an opinion filed late Wednesday.

Justices Coleman A. Blease and Fred K. Morrison concurred.

The dispute involved a consulting contract between Azteca Construction, Inc.and  ADR Consulting, Inc. which called for arbitration under the AAA’s Construction Industry Arbitration Rules. Those rules make the AAA the sole judge of whether an arbitrator should be disqualified.

But the California Arbitration Act permits parties to disqualify an arbitrator within 15 days after receiving the arbitrator’s disclosure statement. The 2001 revisions to the statute do not require good cause for the disqualification, and make an arbitrator’s failure to step down a basis for vacating the arbitration award.

Those provisions take precedence over the terms of the agreement to arbitrate, Butz said, and Sacramento Superior Court Judge Loren E. McMaster was wrong to confirm the $39,000 award made by the designated arbitrator, attorney Paul W. Taylor.Azteca, she noted, made a timely objection to Taylor after his disclosure statement revealed he had been employed by the same construction company as ADR’s counsel. But the AAA, after conducting an investigation, ruled Taylor should not be disqualified.

Code of Civil Procedure Sec. 1281.91(b)(1) “confers on both parties the unqualified right to remove a proposed arbitrator based on any disclosure required by law which could affect his or her neutrality,” Butz explained.

She cited Civil Code Sec. 3513, which provides that anyone may “waive the advantage of a law intended solely for his benefit,” but goes on to say that “a law established for a public reason cannot be contravened by a private agreement.”

“[T]here is no doubt,” she wrote, that the Arbitration Act provisions “were enacted primarily for a public purpose.”

She added:

“We need not express an opinion on the correctness of the AAA’s refusal to remove Taylor if viewed as a ruling upon a challenge for cause. Under the circumstances here, Azteca had no independent burden to demonstrate that a reasonable person would doubt Taylor’s capacity to be impartial.”

It was enough, Butz said, that the disqualification was based on matters Taylor was required to disclose under the provisions of the act.

The case is Azteca Construction, Inc. v. ADR Consulting, Inc., 04 S.O.S. 4721.


Copyright 2004, Metropolitan News Company