Thursday, October 14, 2010
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Court of Appeal Rules:
Arbitrator in Fee Dispute Should Have Disclosed Nature of Practice
By KENNETH OFGANG, Staff Writer
An attorney chosen to arbitrate a legal fee dispute was ethically obligated to disclose the fact that his law practice focused on those types of issues, particularly since he was involved in a major fee dispute case at the time of the arbitration, the First District Court of Appeal has ruled.
Div. Two Tuesday reversed a Contra Costa Superior Court judge’s order confirming an award of more than $100,000 to a San Francisco firm against a former client whom it had defended in a tort action.
The firm, Benjamin, Weill & Mazer, had represented Dr. Nancy Hurwitz Kors in a suit by Alette and Robert Temple. The Temples sued Kors, a psychologist and professional adoption facilitator, after a woman to whom she introduced the couple turned out to have faked her pregnancy and defrauded them out of thousands of dollars.
The suit eventually ended with a voluntary dismissal, but not before Kors incurred more than $200,000 in legal fees. Her motion to recover fees from the plaintiffs, under a Family Code section that allows a fee award to the prevailing party in an action for violation of the statutory obligations of an adoption facilitator, was denied.
That denial was affirmed by the Court of Appeal in an unpublished 2006 opinion. By the time the appeal was concluded, Benjamin Weill’s billings to Kors were close to $300,000, with nearly $70,000 outstanding.
Arbitration Ordered
After a skirmish over how the dispute should be resolved, a Contra Costa Superior Court judge ruled that the parties were bound by a provision in the fee agreement giving the Bar Association of San Francisco jurisdiction to conduct binding arbitration.
The BASF appointed three arbitrators, including Sean SeLegue, a partner at Howard Rice Nemerovski Canady Falk & Rabkin. The panel heard the case in September 2008, and six months later issued an award in favor of the law firm for $76,000 in unpaid fees and costs and $26,000 in accrued interest, for a total award of $102,000.
Kors opposed the firm’s motion to confirm the award, and moved to vacate it on several grounds, including Code of Civil Procedure Sec. 1286.2(a)(6)(A), which provides that an award shall be vacated if the arbitrator “failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware.”
Kors’ attorney argued that SeLegue’s “active and pervasive representation of law firms in disputes against clients,” particularly during the time that Kors’ case was being arbitrated, was a ground for disqualification. He explained in a declaration that he had “fortuitously” noted, in reading a recent state Supreme Court opinion, that SeLegue was counsel for a large law firm that was challenging the denial of a petition to compel arbitration of a dispute with a client over fees.
Upon further inquiry, the declarant added, he had learned that SeLuegue argued that case before the state high court six days after the arbitration hearing in Kors’ matter, and that at the time he was preparing the arbitration award in favor of Benjamin Weill, he was also working on a malpractice suit against DLA Piper US.
Contra Costa Superior Court Judge Thomas Maddock confirmed the arbitration award, ruling that the statute only required to disclose “a relationship with a party, attorneys [or a] set of facts or specific issues in the case” and that there was “no such showing here.”
But the Court of Appeal, in an opinion by Presiding Justice J. Anthony Kline, said the duty to disclose was broader.
“The widespread use in this state of referees and arbitrators selected and paid by the parties in disputes removed from the judicial system has raised issues that have long been recognized and studied, including the danger that the arbitrator’s impartiality might be compromised by economic considerations,” Kline wrote.
Substantial Involvement
He cited Advantage Medical Services, LLC v. Hoffman (2008) 160 Cal.App.4th 806, which held that an arbitrator’s substantial involvement in maritime defense should have been disclosed in a dispute related to maritime insurance.
The court reasoned that under the Ethics Standards for Neutral Arbitrators in Contractual Arbitration, adopted by the Judicial Council as mandated by Sec. 1281.9, an arbitrator is required to disclose “any matter even if it is not specifically enumerated in the standard, if it ‘[m]ight cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial.’”
Kline emphasized that the court was not itself questioning SeLegue’s impartiality. But he concluded that a reasonable person might doubt that an attorney specializing in professional responsibility, advertising that expertise on his firm’s website, and representing large law firms in major, ongoing cases of that type, would be impartial in an attorney-client fee dispute.
The case is Benjamin, Weill & Mazer v. Kors, 10 S.O.S. 5854.
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