Thursday, April 26, 2018
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Court of Appeal:
Receipt of Confidential Brief Invalidates Arbitration Award
By a MetNews Staff Writer
The Court of Appeal for this district yesterday held that an arbitration award ordering a law firm to refund a portion of its fees must be invalidated because the arbitrators received a confidential brief from the firm’s former client.
That, Presiding Justice Elwood Lui of Div. Two said, means the award was secured through “undue means” which, under Code of Civil Procedure §1286.2(a)(1), requires that the award be vacated.
Although the parties had agreed that the arbitration would be binding, they also agreed to be bound by arbitration rules of the Beverly Hills Bar Association which permit a challenge pursuant to §1286(a)(1) based on “corruption, fraud or other undue means.”
The victor is the Century City law firm of Baker Marquart, LLP. It and another law firm, not identified in the opinion (with the two firms jointly denominated “Baker Marquart”) represented James R. Kantor in an action against his stepmother and her accountant.
Kantor received a settlement of more than $1.6 million, and the law firm, taking out a 35 percent commission, received nearly $600,000. That percentage had been agreed upon provided nine “minimum tasks” had been performed; otherwise, the commission was to be 30 percent.
Notice Specifies Deficiences
The client then served a demand for arbitration, specifying two chores which, he claimed, had been neglected. In a brief provided to the arbitrators, and not shared with Baker Marquart, he contended that none of the nine tasks had been completed. The law firm did not see the brief until long after the arbitration had been completed.
By a majority vote, the arbitration panel ordered that $105,027.73 be handed over to Kantor. Los Angeles Superior Court Judge Gerald Rosenberg denied Baker Marquart’s motion to vacate the award and granted Kantor’s motion to confirm.
Lui wrote:
“Throughout the arbitration, Baker Marquart was operating under its belief that Kantor’s position was as stated in his demand—namely, the contingency fee rate should be reduced because Baker Marquart failed to complete tasks one and nine. This was a reasonable belief. After all, not only is that how Kantor framed the issue, Kantor never sought leave to amend his demand or otherwise alerted Baker Marquart that his demand was enlarged to include all the tasks and the issue of an accounting. Indeed, to the contrary, Kantor’s counsel reassured Baker Marquart in writing that Baker Marquart’s response to Kantor’s demand (which addressed only tasks one and nine) ‘indicates that you are well aware of the issues, here.’ Thus, not surprisingly, Baker Marquart prepared and focused its defense on tasks one and nine.”
Argument ‘Misses Mark’
The jurist continued:
“Kantor argues Baker Marquart had an adequate opportunity at the arbitration hearing to address the remaining tasks because the exhibits exchanged before the arbitration hearing suggested other tasks would be discussed, the confidential brief was based on the exchanged exhibits, the parties did discuss other tasks at the arbitration, and the panel allowed the parties to argue as long as they wanted. This misses the mark. Assuming Baker Marquart had all the documents before it and was permitted to address points made at the hearing, that does not make up for the fact that, going into the arbitration hearing and through no fault of its own, Baker Marquart was unaware the contingency rate might be reduced based on its alleged failure to perform any task other than tasks one and nine. Kantor’s ex parte confidential brief gave him an unfair advantage at the arbitration because, as a result of that brief, he and the panel were prepared to consider and to argue all the tasks as well as the issue of an accounting. Under the facts of this case, we conclude Baker Marquart had no meaningful or adequate opportunity to respond to the new claims Kantor raised for the first time in its confidential brief. This is neither fair nor proper.”
Kantor argued that it did not matter if the arbitrators thought the law firm had not completed tasks two through eight because they found a failure with respect to the tasks identified in the notice. Lui said the findings did not show that.
“To the extent it is difficult to decipher which specific task or issue the panel considered when making each of its findings,” he declared, “we conclude that the submission of and reliance on the ex parte confidential brief corrupted the arbitration proceeding and resulting award such that the entire award must be vacated.”
The case is Baker Marquart LLP v. Kantor; 2018 S.O.S. 1912.
Attorneys on appeal were Ryan G. Baker, Jaime W. Marquart and Blake D. McCay of Baker Marquart, for their firm, and Robert S. Gerstein and Eric Y. Nishizawa for Kantor.
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