Wednesday, December 27, 2017
Arbitral Immunity Does Not Apply to False Advertising Claim
By a MetNews Staff Writer
The fact that the defendant in a civil action is an arbitration firm does not mean that arbitral immunity necessarily attaches, the Ninth U.S. Circuit Court of Appeals held yesterday, ordering reinstatement of an action against American Arbitration Association, Inc. for false advertising.
A memorandum opinion—in a case heard by Circuit Judges Kim Wardlaw and Ronald Gould, joined by Chief District Judge Raner C. Collins of the District of Arizona, sitting by designation—reverses a dismissal of an action by District Judge R. Gary Klausner of the Central District of California.
The dispute stems from a state-court suit by a medical doctor, Douglas Hopper, against Blue Cross over it having allegedly “forcibly recouped from payments due to him for the treatment of current patients.” At issue was about $34,000.
Arbitration was required by Hopper’s contract with Blue Cross, and he chose the Arbitration Association of America (“AAA”) based on representations in its ads concerning its “neutrals.”
Suing in the New York-based U.S. District Court for the Southern District of New York, Hopper alleged that while it promises to provide “neutrals,” AAA cannot guarantee the neutrality of those whose services it provides because they are independent contractors. Hopper sought $101,000 in compensatory damages—the amount he paid in arbitration fees—and $1 million in punitive damages.
The action was transferred by the court in New York to here, and it was assigned to Klausner, who said in his order of dismissal:
“Courts have recognized that, similar to judicial proceedings, arbitration proceedings require the need for independent judgments that are free from fear of legal action….To that end, both California and federal courts have held that an arbitrator—and by extension, his or her sponsoring organization—is immune from liability for ‘partiality’ or bias.”
Dismissal, Klausner wrote, “conforms to the parameters of the doctrine, as allegations of bias necessarily implicate the arbitrator’s decisional acts.”
He went on to say:
“Finding otherwise would allow litigants to circumvent arbitral immunity and the protections it affords by asserting a claim for bias that is merely cloaked as a false advertising claim.”
Lawyer Quotes Klausner
At oral argument on Dec. 7, Hopper’s lawyer, Margarita Salazar, quoted that last sentence, and told the panel:
“This is error, as a matter of law.”
She said the test of arbitrability is whether the wrong that is claimed arising from a “decisional act.” Salazar said that Klausner did not make that inquiry.
“Had the court properly applied the test,” she declared, “it would necessarily have seen that Dr. Hopper’s claims here for false advertising against the American Arbitration Association, neither arise out of, nor seek to challenge, any decisional act of any arbitrator or the Arbitration Association.”
The false advertising, she said, took place “long before” the arbitrators were chosen.
Stephen Backus, representing AAA, insisted that his client’s maintenance of a national roster of neutrals is part of the arbitration process and is covered by the immunity.
He insisted that in maintaining a roster and indicating qualifications of those listed “is not advertising.”
Ninth Circuit’s Opinion
The Ninth Circuit agreed with Salazar. Yesterday’s opinion says:
“Arbitral immunity extends to claims that arise out of a decisional act and exists to ‘protect the decision-maker from undue influence and protect the decision-making process from reprisals by dissatisfied litigants.’…But Hopper’s false advertising claim is predicated on AAA’s descriptions of its arbitrators disseminated through its website and direct mail. Commercial advertisement, designed to sway individuals to choose AAA over its competitors—as Hopper alleges occurred here—is distinct and distant from the decisional act of an arbitrator. Therefore, adjudication of claims, like false advertising, that arise before a formal arbitration relationship between parties to arbitration, arbitrators, and arbitration companies like AAA will not lead to ‘undue influence’ over the arbitration process, nor will it expose arbitrators’ decisions to ‘reprisals by dissatisfied litigants.’ ”
The case is Hopper v. American Arbitration Association, Inc., 16-55573
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