Friday, July 16, 2010
C.A.: Failure to Disclose No Basis to Sue Arbitrator
Conflict of Interest Does Not Pierce Immunity, Panel Says
By STEVEN M. ELLIS, Staff Writer
An arbitrator who failed to disclose that he was the boyfriend of a party’s sister cannot be held personally liable, the First District Court of Appeal yesterday.
Reasoning that the conflict of interest disclosure procedure is integrally part of the arbitration process, Div. Four said San Francisco attorney Gerald Weisbach and the American Arbitration Association were protected by the common law arbitral immunity for quasi-judicial acts.
The owners and operators of a Capitola restaurant sued Weisbach and the association after learning of Weisbach’s relationship to the sister of David Baskin, who was co-counsel to Merchant Builders Inc. in a suit over its renovation of a historic building housing the restaurant.
But the Court of Appeal rejected the plaintiffs’ argument that their contract with the association gave them a business expectation that they would receive a fair hearing, plaintiffs’ counsel Scott Phillips of Phillips, Downs & Simontacchi in San Rafael told the MetNews, holding instead that the only remedy was a new trial.
La Serena Properties LLC, Casa Margaritaville Inc. and Steven Yates successfully moved to compel arbitration under a contract with Merchant Builders after the underlying dispute arose, but they later accused Merchant Builders of conspiring to appoint Weisbach without disclosing his relationship with Baskin’s sister.
Weisbach disclosed at the time that he was a personal friend of Baskin, but said that he didn’t believe that would preclude him from serving impartially. Neither party objected to his appointment, and in 2006 he denied most of the plaintiffs’ claims, but awarded them over $12,000, plus another $4,000 in attorney fees and reimbursement of more than $5,000 they had overpaid for the arbitration.
According to Phillips, both sides in the underlying dispute—which he said each paid $250,000 for the arbitration—were unsatisfied with the result, and his clients brought suit against Weisbach and the association after obtaining a copy of a letter Merchant Business’ president wrote to the association complaining about Weisbach’s failure to disclose his involvement with Baskin’s sister.
The Santa Cruz Superior Court ultimately set the arbitration award aside in 2008, and the parties settled because neither could afford to go forward with another arbitration, Phillips said.
The following year, Phillips’ clients sued Weisbach and the association in the San Francisco Superior Court for fraud, fraudulent concealment, breach of contract, unfair business practices and negligence. They also sought an award of damages, disgorgement of profits, punitive damages, prejudgment interest and costs, including attorney fees.
San Francisco Superior Court Judge Peter J. Busch, however, sustained demurrers by Weisbach and the association, and the Court of Appeal affirmed in an opinion by Presiding Justice Ignazio J. Ruvolo, who concluded that the failure to disclose fell within the absolute immunity granted to judges and extended to arbitrators.
Weisbach’s counsel, John Michael Higginbotham of Long & Levit, could not be reached for comment. Walnut Creek attorney John S. Warnlof, who represented the association, referred a request for comment to co-counsel in New York, who also could not be reached.
Phillips said the result was “not unexpected, but still disappointing,” and commented that the opinion revealed “another pitfall to opting for private arbitration.”
He said his clients were “told to pound sand” by the association when they asked for their money back, adding that “it’s not much of a remedy if it’s only to pay and do it again.”
Phillips also said he did not anticipate an appeal.
Justices Patricia K. Sepulveda and Maria P. Rivera joined Ruvolo in his opinion.
The case is La Serena Properties v. Weisbach, 10 S.O.S. 4704.
Copyright 2010, Metropolitan News Company