Opinion
B322021
05-01-2024
CHANG WOOK ROH et al., Plaintiffs and Appellants, v. BANK OF HOPE, Defendant and Respondent.
Balaban & Spielberger, Daniel K. Balaban, Andrew J. Spielberger; Greene Broillet & Wheeler, Browne Green, Bruce A. Broillet, Alan Van Gelder; J. Kim, Johnny Kim; Esner, Chang & Boyer, Stuart B. Esner, Kathleen J. Becket; Esner, Chang, Boyer & Murphy and Stuart B. Esner for Plaintiffs and Appellants. Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow, Ekwan E. Rhow, Thomas V. Reichert, and Kate S. Shin for Defendant and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, No. BC628303 Lia Martin, Judge.
Balaban & Spielberger, Daniel K. Balaban, Andrew J. Spielberger; Greene Broillet & Wheeler, Browne Green, Bruce A. Broillet, Alan Van Gelder; J. Kim, Johnny Kim; Esner, Chang & Boyer, Stuart B. Esner, Kathleen J. Becket; Esner, Chang, Boyer & Murphy and Stuart B. Esner for Plaintiffs and Appellants.
Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow, Ekwan E. Rhow, Thomas V. Reichert, and Kate S. Shin for Defendant and Respondent.
STRATTON, P. J.
Plaintiffs are 18 Korean citizens who lost money they had entrusted to California attorney Justin Lee as part of their application process for obtaining United States investor visas. They brought two actions against the Bank of Hope (Bank) only, alleging the Bank had failed to protect their funds, which were or should have been in escrow accounts at the Bank. While this action was pending in superior court, the parties in the two consolidated cases entered into an arbitration agreement and selected JAMS as their arbitration provider. The arbitrator ruled in favor of the Bank. Plaintiffs moved to vacate the award pursuant to Code of Civil Procedure section 1286.2, on the ground that the neutral arbitrator was required to, but did not, disclose that JAMS had entered into new, additional arbitration relationships with the Bank and its counsel in other matters during the pendency of the arbitration. The trial court denied the motion to vacate the arbitration award.
Plaintiffs sued Bank of Hope as the successor to Wilshire Bank. Attorney Justin Lee is not a defendant in this action. Plaintiffs allege that Lee was arrested, tried and convicted of criminal charges arising from their losses and is in prison in South Korea.
Undesignated statutory references are to the Code of Civil Procedure.
Plaintiffs appeal, contending the trial court erred because both California law and their arbitration agreement required such disclosure, and the failure to make a required disclosure mandates vacation of the arbitration award. We affirm the judgment.
Before we discuss the issues on appeal, we must address the Bank's motion to dismiss the appeal. The Bank contends plaintiffs waived their right to appeal the denial of the motion to vacate as part of the Binding Arbitration Agreement (Agreement). That Agreement provides: "The parties further agree that there will be no appeal from the court's ruling under section 1285 except for any ruling vacating the arbitration award."
" 'Waiver is the intentional relinquishment of a known right after full knowledge of the facts and depends upon the intention of one party only.'" (Old Republic Ins. Co. v. FSR Brokerage, Inc. (2000) 80 Cal.App.4th 666, 678; Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 31.)" '[T]he valid waiver of a right presupposes an actual and demonstrable knowledge of the very right being waived.'" (People v. Vargas (1993) 13 Cal.App.4th 1653, 1662.)
The Bank has not shown that plaintiffs were aware they were giving up a known right, that is, the right to appeal. A person's agreement not to take an action does not support an inference that the person was aware that he had a right to take that action. The reference to section 1285 does not show such an awareness; the section is not concerned with appellate matters. It simply provides: "Any party to an arbitration in which an award has been made may petition the court to confirm, correct or vacate the award." (§ 1285.) We deny the motion to dismiss the appeal.
BACKGROUND
"Seeking to provide' "minimum ethical standards and remedies for the arbitrator's failure to comply with existing disclosure requirements"' [citation], in 2001 the California Legislature enacted revisions to the statutory duties of disclosure imposed on arbitrators in contractual arbitration. [Citation.] As part of this revamping, the Legislature directed the California Judicial Council to 'adopt ethical standards for all neutral arbitrators' effective July 1, 2002. (§ 1281.85, subd. (a).)
Further, the Legislature amended section 1281.9, subdivision (a) to provide that '[i]n any arbitration pursuant to an arbitration agreement, when a person is to serve as a neutral arbitrator, the proposed neutral arbitrator shall disclose all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial . . . .' Among the statutory list of required disclosures in section 1281.9 is for '[a]ny matters required to be disclosed by the ethics standards for neutral arbitrators adopted by the Judicial Council pursuant to this chapter.' (§ 1281.9, subd. (a)(2).)" (Ovitz v. Schulman (2005) 133 Cal.App.4th 830, 838 (Ovitz).)
The standards subsequently adopted by the Judicial Council are found in the California Rules of Court, Ethics Standards for Neutral Arbitrators in Contractual Arbitration (Ethics Standards).
"The Judicial Council responded to the Legislature's mandate by adopting the [Ethics] Standards effective July 1, 2002, later revised effective January 1, 2003. The [Ethics Standards] 'establish the minimum standards of conduct for neutral arbitrators' in contractual arbitration, and 'are intended to guide the conduct of arbitrators, to inform and protect participants in arbitration, and to promote public confidence in the arbitration process.' ([Ethics Standards, std.] 1(a).) They contain detailed disclosure requirements (see [id.,] stds. 7, 8, & 12), which supplement and expand the statutory listing of required disclosures contained in section 1281.9, subdivision (a). (§ 1281.85, subd. (a); [Ethics Standards,] std. 7(a); see also [Advisory] Com.[ com.], 23 pt. 4 West's Ann. Cal. Rules of Court[ (2005 ed.)], foll. std. 7, p. 577.)" (Ovitz, supra, 133 Cal.App.4th at p. 839.)
Both the neutral arbitrator and JAMS made prearbitration disclosures in this nonconsumer arbitration matter. It is undisputed that the arbitrator complied with his duty under the Ethics Standards concerning his own relationships with parties and attorneys; he disclosed his past and any current work with them and also disclosed that he would entertain offers of employment from them during the pendency of this matter. Although not expressly required to do so by the Ethics Standards in this nonconsumer arbitration, the arbitrator disclosed his ownership interest in JAMS and, in his declaration at the end of his disclosure form, the arbitrator stated, "because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future."
Although there is no specific requirement under California law that a provider organization itself disclose its relationships with the parties and their attorneys in a nonconsumer arbitration matter, JAMS disclosed all such relationships with the parties and their attorneys for all of its approximately 400 arbitrators for the five years preceding the start of this arbitration. This disclosure showed that plaintiffs' attorneys collectively had participated in about 84 matters with JAMS during that period while the Bank had about 6 and the Bank's attorneys collectively had about 152.
JAMS made the additional following disclosure in its cover letter: "JAMS administers approximately 15,000 cases per year.... JAMS has approximately 400 neutrals on its panel, and a little over one quarter of JAMS neutrals have an ownership share in the company. Each owner has one share. [¶] Owners are not privy to information regarding the number of cases or revenue related to cases assigned to other panelists. No shareholder's distribution has ever exceeded 0.1% of JAMS total revenue in a given year. Shareholders are not informed about how their profit distributions are impacted by any particular client, lawyer or law firm and shareholders do not receive credit for the creation or retention of client relationships. JAMS typically serves this report on the parties at the commencement of a JAMS matter. This report is not provided to JAMS[] neutrals and will not be provided to the neutral eventually selected for this matter. JAMS neutrals are not informed about matters handled by other neutrals and are not privy to the numbers of matters involving any particular company, lawyer or law firm other than matters in which they have previously served as a neutral."
It is undisputed that neither the arbitrator nor JAMS made any additional disclosures during the six months that the arbitration was pending. Whether the arbitrator or JAMS should have done so is the issue before us in this appeal.
After losing in arbitration, plaintiffs sent correspondence to JAMS and the Bank's law firm demanding disclosure of any new relationships which were formed between JAMS and the Bank or its attorneys. The law firm disclosed that attorneys at the firm had entered into eight new relationships with JAMS and the Bank had entered into two new relationships.
Plaintiffs then moved to vacate the arbitration award on the ground that the neutral arbitrator's ownership interest in JAMS required him to disclose these new relationships involving other arbitrators at JAMS. They based this argument primarily but not exclusively on paragraph 3 of the parties' Agreement, which provides: "All arbitrators shall be impartial, independent, and will make full disclosures to the parties regarding any actual or potential conflict of interest in adjudicating all issues submitted in this action for final determination."
The trial court denied the motion to vacate, granted the Bank's motion to affirm the arbitration award, and entered judgment in favor of the Bank. This appeal followed.
DISCUSSION
A court may vacate an arbitration award only on the grounds set forth in section 1286.2. (Moncharsh v. Heily & blasé (1992) 3 Cal.4th 1, 12-13.) The trial court found: "As an initial matter, Plaintiffs do not specifically argue that any of the circumstances outlined in [section] 1286.2 are present here. If there is any argument pursuant to [section] 1286.2, it is that the Arbitrator failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware ([§] 1286.2 (6)(b)). However, even this argument, if it is in fact being made, is unpersuasive." The trial court explained: "Section 1286.2 explicitly provides that the ground for disqualification must be one which the arbitrator is aware. 'An award will not be vacated for the arbitrator's failure to disclose facts of which he or she was reasonably unaware.' (Betz v. Pankow (1995) 31 Cal.App.4th 1503, 1511-1512.) Plaintiffs have not pointed to any evidence establishing that [Arbitrator] Judge Friedman was aware of any of the post-initiation engagements between JAMS and Defendant Bank of Hope and/or Defendant's counsel, Bird Marella, as Judge Friedman was not individually engaged in any of these matters." The court added: "Further, Plaintiffs do not make the argument that these postcommencement engagements between JAMS and Defense Counsel or Defendant would be grounds for Judge Friedman's disqualification. Rather, the failure to disclose the engagements merely prevented Plaintiffs opportunity to 'evaluate the new business relationships.' "
We read the motion to vacate slightly differently than the trial court did. The trial court is correct that plaintiffs stated they were denied "the ability to evaluate the quality of these new business relationships . . . [and] the ability to determine if these new business relationships-combined with the prior disclosed business relationships-changed the character of the relationship between the Neutral Arbitrator and the Defendant[] in a way that would have drawn an objection from the Plaintiffs." In the very next sentence, however, plaintiffs did convey that the nondisclosure was a ground for disqualification, stating that "the Neutral Arbitrator and his company (JAMS) failed to comply with Paragraph 3 of the Binding Arbitration Agreement which requires disclosure of any potential conflict . . . and the instant Petition To Vacate must be granted."
While we agree with the court that the word "aware" is significant in section 1286.2, subdivision (a)(6), the only case cited by the court on the topic of awareness predates the creation of the Ethics Standards. Those Ethics Standards require that an arbitrator in a consumer arbitration discloses a provider organization's relationships with the parties and their attorneys for the two years preceding the arbitration. (Ethics Standards, std. 8.) There is no requirement that the arbitrator have actual knowledge of the other relationships and no exemption from disclosure on the ground that the arbitrator had not worked on any of the other matters and so was reasonably unaware of the relationships. (If there were, the disclosure requirement would be meaningless, at least at a large provider organization.) Ethics Standard, standard 8, permits the arbitrator to rely on information supplied by the provider organization, as long as "the provider organization represents that the information the arbitrator is relying on is current through the end of the immediately preceding calendar quarter or more recent." (Id., std. 8(a)(1).) Thus, at least for the only expressly required disclosure of relationships by a provider organization with the parties and their attorneys, "aware" does not require actual knowledge of each specific relationship.
Accordingly, we turn to the issue which the trial court did not reach: whether the arbitrator had such a duty of disclosure under either California law or the Agreement. Because the material facts are not in dispute, the question of whether the arbitrator was required to make certain disclosures is "a mixed question of fact and law that should be reviewed de novo." (Haworth v. Superior Court (2010) 50 Cal.4th 372, 385.)
A. The Arbitrator In a Nonconsumer Arbitration Does Not Have a Legal Duty to Disclose the Provider Organization's Relationships.
Plaintiffs contend that the arbitrator's financial interest in JAMS gives rise to a continuing duty on the part of the arbitrator under section 1281.9, subdivision (a) and Ethics Standards, standard 7(d)(15)(A), to disclose the new business relationships formed between other arbitrators at JAMS and the parties and their counsel during the pendency of the arbitration, as those relationships are formed.
Section 1281.9 provides that the neutral arbitrator shall "disclose all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial." (§ 1281.9, subd. (a).) Section 1281.9 as a whole focuses on initial disclosures and does not expressly impose a continuing duty of disclosure.
Plaintiffs rely on Ethics Standards, standard 7 for a continuing duty. Ethics Standards, standard 7(d)(15)(A) mirrors section 1281.9, subdivision (a), and requires disclosure of "Any other matter that: [¶] (A) Might cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial." (Ethics Standards, std. 7(d)(15)(A).) Under Ethics Standards, standard 7, a duty to disclose under subdivision (d) continues during the pendency of an arbitration. (Id., std. 7(f).)
We begin our analysis by stating what should be obvious: neither section 1281.9, subdivision (a) nor Ethics Standards, standard 7(d)(15)(A) creates any specific duties to disclose, or any categories of information which must be disclosed. Put differently, those provisions do not create an express duty on the part of the neutral arbitrator (or the provider organization) to disclose the provider organization's new business relationships.
The Judicial Council, at the request of the Legislature, did create express and specific disclosure requirements for arbitrators in the Ethics Standards, including standard 7, and those requirements do not include the disclosure requirement sought by plaintiffs. The Judicial Council was concerned with the" 'bias, or appearance of bias, that may flow from one side in an arbitration being a source or potential source of additional employment, and thus additional income, for the arbitrator.' (Rep. to Judicial Council from General Counsel Michael Bergeisen (Dec. 3, 2002) Ethics Standards for Neutral Arbitrators in Contractual Arbitration (amending Cal. Rules of Court, div. VI of appen.) p. 61 (Bergeisen Report).)" (Ovitz, supra, 133 Cal.App.4th at p. 839.) The Judicial Council "initially dealt with" the issue of potential bias arising from additional income in former Ethics Standards, standard 10, now Ethics Standards, standard 12, entitled "Duties and limitations regarding future professional relationships or employment." (Ovitz, at p. 839; Ethics Standards, std. 12.)
"The provisions of [Ethics Standards,] standard 12 (and corresponding changes to std. 7), as amended effective July 1, 2014, distinguishing consumer and nonconsumer arbitrations and protecting neutrals who fully comply with the standard's disclosure requirements represented a middle ground among the competing views of the various stakeholders involved in the private dispute resolution industry. (See Judicial Council of Cal., Rep. and Recommendations from Civil and Small Claims Advisory Com. (Sept. 19, 2013) pp. 16-19, 25.)" (Jolie v. Superior Court (2021) 66 Cal.App.5th 1025, 1048 (Jolie).) We would add that Ethics Standards, standard 8, which applies to disclosures in consumer arbitrations, is also part of this disclosure structure.
Since 2003, Ethics Standards, standard 8(b)(1), has required the arbitrator in consumer arbitrations to make an initial disclosure of "[a]ny significant past, present, or currently expected financial or professional relationship or affiliation between the administering dispute resolution provider organization and a party or lawyer in the arbitration." (Ethics Standards, std. 8(b)(1), italics added.) This duty applies whether or not the arbitrator has a financial interest in the provider organization. There is no corresponding express duty to disclose provider organization relationships in nonconsumer arbitrations, even after the 2013 amendments to Ethics Standards, standards 7 and 12.
Ethics Standards, standard 8(b) provides that disclosure must be made on the timeline specified in standard 7(c)(1). Ethics Standards, standard 7(c)(1) sets the time for prearbitration disclosure.
For nonconsumer arbitrations, Ethics Standards, standard 7, does require the arbitrator to disclose his own current or past relationships with the parties and their attorneys, but does not require an arbitrator to disclose even his own new relationships formed with the parties or their attorneys during the pendency of the arbitration, as long as he discloses prearbitration his intent to entertain such offers of employment.
Ethics Standards, standard 7(b)(2)(A), provides that in a nonconsumer arbitration "if an arbitrator has disclosed to the parties in an arbitration that he or she will entertain offers of employment or of professional relationships from a party or lawyer for a party while the arbitration is pending as required by subdivision (b) of [Ethics Standards,] standard 12, the arbitrator is not also required under this standard to disclose to the parties in that arbitration any such offer from a party or lawyer for a party that he or she subsequently receives or accepts while that arbitration is pending." (Ethics Standards, std. 7(b)(2)(A).) Under Ethics Standards, standard 12(b)(2)(B), "the disclosure must also state that the arbitrator will not inform the parties if he or she subsequently receives an offer while that arbitration is pending." (Ethics Standard, std. 12(b)(2)(B).) It is undisputed that the arbitrator in this case complied with those provisions.
We strongly doubt that the Legislature or the Judicial Council intended the catch-all provisions cited by plaintiffs to override the carefully calibrated middle ground of Ethics Standards, standards 7 and 12, and to create a new category of information (new business relationships between the provider organization and any party or attorney who is involved in an ongoing arbitration) which must be disclosed by a newly defined subset of arbitrators (those who have an ownership interest in a provider organization) on a continuing basis, apparently applicable in both consumer and nonconsumer arbitrations. It would be especially incongruous to upset this balance in order to impose a duty on an arbitrator to disclose the provider organization's new relationships which is greater than the duty to disclose his own relationships. This new duty would lack the procedural guidelines set forth in Ethics Standards, standards 7, 8 and 12, which make the disclosure standards workable and also further the goal of finality in arbitration awards.
Further, plaintiffs' proposed disclosure duty would conflict with the express provisions of Ethics Standards, standard 8 in two ways. First, Ethics Standards, standard 8 requires disclosure of the provider organization's business relationships, but specifically requires only an initial prearbitration disclosure. (Ethics Standards, std. 8(b); see id., std. 7(c)(1).) Plaintiffs seek to override that provision and add a continuing duty to disclose. Second, Ethics Standards, standard 8(a)(2) makes clear that disclosure of information under standard 8 "is not subject to mandatory disclosure in nonconsumer arbitrations." (Speier v. The Advantage Fund, LLC (2021) 63 Cal.App.5th 134, 149-150 (Speier).) Plaintiffs seek to effectively override that provision and make disclosure of provider organization information mandatory in nonconsumer arbitrations and on a larger scale than required by Ethics Standards, standard 8.
Despite our skepticism, we will assume for the sake of argument that under certain unusual facts and circumstances, an arbitrator might have a duty under section 1281.9 and Ethics Standards, standard 7(d) to disclose business relationships formed by the provider organization during the pendency of the arbitration. We see no such facts and circumstances here.
Both section 1281.9 and Ethics Standards, standard 7 employ a reasonable person standard." 'Courts apply an objective test in determining whether under section 1281.9, subdivision (a) neutral arbitrators must disclose matters that could reasonably cause a person aware of the facts to entertain a doubt that the proposed arbitrator would be impartial. [Citation.] The "objective test . . . focuses on a reasonable person's perception of bias and does not require actual bias." '" (Speier, supra, 63 Cal.App.5th at pp. 147-148.) "These statutes and standards do not provide for the disclosure of any additional information a party might find relevant to its determination whether to select a particular arbitrator." (Id. at p. 151.)
Thus, in considering whether an arbitrator has a duty to disclose specific information, we ask whether "under the specific facts and circumstances of [the] case, the information could reasonably raise a doubt in a person aware of the facts about the arbitrator's impartiality." (Speier, supra, 63 Cal.App.5th at p. 150.)
The cornerstone of plaintiffs' argument that the arbitrator had a duty to disclose the provider organization's new business relationships is the arbitrator's ownership interest in the provider organization. We consider not merely the fact of ownership, but the amount of ownership. Here, the arbitrator's ownership interest gave him at most 0.1 percent of the revenue of JAMS. We agree with the court in Speier that, in nonconsumer arbitrations administered by JAMS, additional facts and circumstances are necessary to "show how the arbitrator's receipt of a distribution of not more than 0.1 percent of JAMS's total revenue in a given year in any way favors one party or party's law firm over the other." (Speier, supra, 63 Cal.App.5th at p. 150.) Put differently, absent additional facts, the existence of an ownership interest providing such a tiny distribution would not alone cause a person aware of the distribution to reasonably entertain a doubt that the arbitrator would be able to be impartial. Additional facts would include the dollar amount, which could be tiny or huge, depending on the number and length of the proceedings conducted as a result of the new business relationships.
Our conclusion that the arbitrator's financial ownership in a provider organization is not sufficient to trigger a duty to disclose information about the provider organization is reinforced by the disclosure rules created by the Judicial Council. Ethics Standards, standard 7(d) requires disclosure of a long list of specified relationships and interests, (including some financial interests), but does not require the arbitrator to disclose his ownership interest in the provider organization in nonconsumer arbitrations. Disclosure of a financial interest is required under Ethics Standards, standard 8, which imposes heightened disclosure requirements in consumer arbitrations, but standard 8(a)(2) makes it clear that disclosure of an ownership interest "is not subject to mandatory disclosure in nonconsumer arbitrations." (Speier, supra, 63 Cal.App.5th at pp. 149-150.) As we have discussed, Ethics Standards, standard 8 does require some limited disclosure of the provider organization's business relationships. It is difficult to reconcile the Judicial Council's express exemption of disclosure of an arbitrator's ownership interest in a provider organization in nonconsumer arbitration with plaintiffs' core contention that an arbitrator's ownership interest alone creates the possibility of bias or the appearance of bias due to income from the organization.
See Ethics Standards, standard 7(d)(10), (11).
Plaintiffs point to only two additional facts to support their claim of a duty to disclose: the lack of "advance disclosure that . . . offers of employment would be entertained or accepted" by other JAMS arbitrators and the number of new relationships formed by JAMS.
The arbitrator did give such advance notice. In his declaration at the end of his disclosure form, the arbitrator stated that "because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future." (Italics added.) The number of new relationships is potentially significant, as a very small percentage of the revenue from a large number of new relationships could amount to a significant sum of money. That does not appear to be the case here. Plaintiffs give the number of JAMS's new relationships as two with the Bank and eight with the Bank's law firm in the six-month period this arbitration was pending, for a total of ten. Annualized, this would be 20 new cases, or 0.0013 percent of the JAMS 15,000 annual case load. Even assuming for the sake of argument that the neutral arbitrator somehow learned about these new cases, we cannot find that a person aware of these numbers would reasonably entertain a doubt that the arbitrator would be able to be impartial.
Plaintiffs have not provided information about the number of new relationships their attorneys formed with JAMS in that same period. For purposes of our analysis, we have assumed for the sake of argument that the number is zero. We note, however, that plaintiffs' attorneys are not one-time users of JAMS services. They used JAMS 84 times in the five years preceding this arbitration. Their number of new relationships with JAMS could be equal to or greater than the combined total of the Bank and its attorneys for this six-month period. A person who learned that both parties had an equal or approximately equal number of new relationships with the provider organization could not reasonably determine that the arbitrator might be biased toward one of the parties.
Plaintiffs attempt to buttress their arguments for disclosure with reference to the concept of "repeat players." Plaintiffs' references to repeat players trace back to a Ninth Circuit case applying federal law: Monster Energy Co. v. City Beverages, LLC (9th Cir. 2019) 940 F.3d 1130 (Monster Energy). Plaintiffs echo an argument allegedly made in defense counsel's brief in Monster Energy that "a neutral observer would understand that when both one party and the arbitration provider are repeat institutional players in the system, while the other party is a one-time participant, there can be an appearance of coziness and, also, a potential for the arbitrator to favor the repeat player in order to obtain more business-or, conversely, not to issue rulings that will send the repeat player looking elsewhere when it dictates the arbitration provider in its future contracts."
Assuming for the sake of argument that California's disclosure laws would view "repeat players" in the same manner as the Monster Energy court, the possibility that a party is a repeat player would be shown by the relationships formed in the years preceding the arbitration, not those formed during the brief pendency of one arbitration. Past relationships were in fact the focus of Monster Energy; there was no discussion of new relationships formed during the pendency of the arbitration. The court labelled Monster Energy a repeat player with JAMS because JAMS had administered 97 cases involving Monster Energy in the five years preceding the subject arbitration. (Monster Energy, supra, 940 F.3d at p. 1136.)
As the Bank points out, a different panel of the Ninth Circuit indicated Monster Energy should be limited to its facts. (EHM Productions, Inc. v. Starline Tours of Hollywood, Inc. (9th Cir. 2021) 1 F.4th 1164 (EHM Productions).) As the EHM Productions court explained: "The Monster Energy court was . . . concerned with the potential bias created by repeat payors in the arbitral forum, as opposed to merely repeat players. With that context, it makes sense that the court continually referred to disclosing business dealings with parties only-i.e., those who actually pay the arbitration bill-as opposed to parties and counsel. [Citation.] ('[T]o support vacatur of an arbitration award, the arbitrator's undisclosed interest in an entity must be substantial, and that entity's business dealings with a party to the arbitration must be nontrivial.' (second [italics] added)). We decline to stretch the Monster Energy opinion to require disclosure of nontrivial business dealings with counsel." (EHM Productions, at p. 1172, fn. omitted.)
Although neither the Monster Energy court nor the EHM Productions court discussed what number would be small enough to constitute trivial dealings, we have no trouble concluding that the Bank's six prior cases in five years qualifies as trivial. Thus, the Bank would not be a repeat player/payor under Ninth Circuit law, and JAMS and the arbitrator would have no duty to disclose the arbitrator's ownership interest in JAMS, or past dealings by JAMS with the Bank even under federal law. We again note the arbitrator and JAMS in fact voluntarily made both these disclosures before arbitration began.
Plaintiffs also rely on Jolie, supra, 66 Cal.App.5th 1025. This case might assist plaintiffs if they had established a duty to disclose, but they have not. The court in Jolie was in no way concerned with whether the temporary judge in that case had a duty to disclose new professional engagements involving a provider organization and its parties or their attorneys. It was undisputed that under the rules applicable to temporary judges, the judge in Jolie had a continuing duty to disclose his own new professional engagements with the parties or their attorneys. It was essentially undisputed that the temporary judge did not make such disclosures. The issue in Jolie was thus whether the failure to make a required disclosure would cause a temporary judge to be disqualified. The Court of Appeal found this failure "must be judged by the might-reasonably-entertain-a-doubt standard of section 170.1, subdivision (a)(6)(A)(iii), and [the California Code of Judicial Ethics,] canon 6D(3)(a)(vii)(C). Whether disqualification is required in any particular instance in which the temporary judge fails to make mandatory disclosures, therefore, must be evaluated in light of the circumstances of that case, not on the basis of the 'strict and unforgiving' provisions [applicable to neutral arbitrators] we enforced in Honeycutt [v. JPMorgan Chase Bank, N.A. (2018) 25 Cal.App.5th 909]." (Jolie, at p. 1049.)
A temporary judge is not subject to the Ethics Standards applicable to an arbitrator. Instead he or she must comply with" 'applicable provisions of canon 6 of the [California] Code of Judicial Ethics and the California Rules of Court.' (Cal. Rules of Court, rule 2.831(b).)" (Jolie, supra, 66 Cal.App.5th at p. 1038.) "[The California Code of Judicial Ethics,] canon 6D(2), (5)(a) requires a temporary judge to disclose information reasonably relevant to the question of disqualification, specifically including personal or professional relationships with a party or lawyer in the current proceeding, 'from the time of notice and acceptance of appointment until termination of the appointment.' The [California] Code of Judicial Ethics could not make any clearer that this is a continuing obligation. New professional engagements to hear a case as a neutral or temporary judge in which the lawyer for a party in a pending case is also counsel of record in the new case must be disclosed." (Jolie, at pp. 10431044.)
B. The Arbitration Agreement Does Not Impose a Duty to Disclose JAMS's Relationships.
Paragraph 3 of the Agreement provides: "All arbitrators shall be impartial, independent, and will make full disclosures to the parties regarding any actual or potential conflict of interest in adjudicating all issues submitted in this action for final determination."
Plaintiffs contend this provision controlled the arbitration of the matter and imposed "more stringent standards" than the Ethics Standards. They contend these more stringent standards required the arbitrator to disclose new employment relationships between JAMS and the Bank or its attorneys during the pendency of the arbitration.
It is unclear whether plaintiffs are claiming that the arbitrator must comply with both the Ethics Standards and paragraph 3 of the Agreement, or whether they believe the Agreement alone controls. The effect of plaintiffs' interpretation of the Agreement is clear, however. Their interpretation would effectively displace California laws and guidelines on disclosure. These same requirements in the Agreement would also be in conflict with Ethics Standards, standard 8, and so would also have the effect of displacing that standard 8. Further, although plaintiffs' claim only that the use of the word "any" creates a requirement for the arbitrator to disclose new relationships formed by other arbitrators at JAMS during the pendency of the arbitration, the language of the Agreement is not so limited. If plaintiffs were correct, the arbitrator would have the same continuing disclosure requirements for his own new relationships. This would override the provisions of Ethics Standards, standard 7, which provide that an arbitrator who discloses an intent to entertain offers of employment need not disclose offers or acceptances made during the pendency of the arbitration.
"Under California law, ordinary rules of contract interpretation apply to arbitration agreements. . . .' "The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. (Civ. Code, § 1636.) If contractual language is clear and explicit, it governs. (Civ. Code, § 1638.)" (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264 [10 Cal.Rptr.2d 538, 833 P.2d 545].)'" (Hotels Nevada, LLC v. Bridge Banc, LLC (2005) 130 Cal.App.4th 1431, 1435.)
The language of the Agreement is not clear and explicit. Under plaintiffs' interpretation of paragraph 3, California law would not govern. Paragraph 3, however, does not state that it is intended to displace California disclosure law. Further, it conflicts with paragraph 13, which provides in pertinent part: "California Law shall govern in all respects." Plaintiffs make no effort to reconcile these two provisions.
Paragraph 13 provides in full: "The parties agree that the California Evidence Code applies to the introduction of evidence at the arbitration and that California Law shall govern in all respects. The arbitrator shall determine the admissibility, relevance, materiality and weight of the evidence offered by any party."
If we were to interpret paragraph 3 as imposing disclosure requirements untethered to California law, we would run afoul of the requirement that a contract be interpreted so as to make it "lawful, operative, definite, reasonable, and capable of being carried into effect." (Civ. Code, § 1643)
Plaintiffs contend that "any" means "all" and so creates a continuing duty to disclose. They rely on the rule that" '[u]nless given some special meaning by the parties, the words of a contract are to be understood in their "ordinary and popular sense," focusing on the usual and ordinary meaning of the language used and the circumstances under which the agreement was made.' (City of Bell v. Superior Court (2013) 220 Cal.App.4th 236, 248.)"
While we agree that "any" may be understood to mean "all," none of the definitions cited by plaintiffs impart a clear temporal element to the word "all." As that word is commonly used, it may be limited to a moment in time (as when a robber demands that his victim hand over all his money) or to imply a continuing action (as when a person vows to give away all their income to help the poor). The intended time frame depends on context, which is lacking here. The only context for "all" conflicts of interest is the requirement of "full" disclosure of those conflicts. Plaintiffs do not offer a dictionary definition of that term, but we find it even more lacking in temporal meaning than "all." Thus, the phrase "full disclosures . . . regarding any actual or potential conflict of interest" is not definite as to time, and so there would be no limit as to how far back an arbitrator would be expected to go in making his disclosures and no clear cut-off for when the arbitrator could stop making disclosures. This interpretation of paragraph 3 is not definite, reasonable or capable of being carried into effect.
Perhaps more importantly, "conflict of interest" is not a defined term in the Agreement, and plaintiffs do not offer any usual or ordinary meaning for the term "conflict of interest." It might be possible to find such a definition at a very broad level, but the devil is in the details, and those are missing. As we have discussed above, the Ninth Circuit has perceived a potential conflict when parties are repeat players with a provider organization, but such a conflict exists only when the repeat player is a party and does nontrivial business with the provider organization. California relieves the arbitrator in a nonconsumer arbitration from any disclosure concerning the provider organization's other business, strongly indicating that such business does not usually give rise to a conflict of interest. An agreement which requires the arbitrator to determine whether he has conflicts of interest without providing a definition and without reference to any particular existing law is not definite, reasonable or capable of being carried into effect.
Plaintiffs contend that it is "clearly" at least a potential conflict of interest for the arbitrator to be making money from the Bank while the owner is acting as a neutral arbitrator in an ongoing arbitration. We see nothing clear about this. As we have discussed above, the Ethics Standards expressly require disclosure of an arbitrator's ownership interest in a provider organization and the provider organization's relationships only in consumer arbitrations and expressly exempt an arbitrator from such disclosures in a nonconsumer arbitration. We view this as a very strong indication that it is not "clearly" a potential conflict of interest.
Even if this were true for this particular situation, it would not help plaintiffs with the broader problem of the lack of conflict of interest guidelines or definitions in paragraph 3. A provider organization's relationships are not the only possible conflict of interest for an arbitrator. Plaintiffs do not discuss other potential conflicts of interest, no doubt because the arbitrator made very detailed disclosures about his own interests and relationships. The arbitrator, however, indicated that he did so either in reliance on the Ethics Standards or JAMS disclosure forms. The Agreement does not refer to, much less incorporate those requirements into the Agreement. Thus, the problem of a lack of guidance remains a fatal flaw in the Agreement.
To support their argument that it is a potential conflict of interest, plaintiffs rely on the rule that in construing the terms of a contract, the construction given to it by the acts and conduct of the parties with knowledge of its terms is admissible on the parties' intent. (Universal Sales Corp. v. California Press Mfg. Co. (1942) 20 Cal.2d 751, 761.) They then point to disclosure by JAMS of all cases which it had administered in the last five years involving any party, lawyer or firm in this matter to show that a disclosure of such matters administered by JAMS was required. They point to this disclosure again in their reply brief to claim that that they are not urging an "eye-of-the-beholder standard."
There are several problems with this argument. JAMS is not a party to and did not negotiate the Agreement, so it cannot have had any "intent" concerning the meaning of the phrase. There is no evidence that plaintiffs conveyed their understanding of the Agreement to the neutral arbitrator or JAMS at any time before the arbitration award. Thus, we fail to see how conduct by JAMS can reflect any understanding of the parties' intent or understanding on this issue. Nothing in the JAMS disclosure letter suggests that JAMS believed the disclosure was required by the Agreement or by law. The language of the disclosure suggests that this was a disclosure JAMS made in all cases.
Even assuming that JAMS believes that such disclosure is required by law or the Agreement, the disclosure was made prearbitration. A belief in the need to disclose information prearbitration does not show a belief in the need for continuing disclosure. Nothing in the disclosure form suggests that further disclosures will be forthcoming.
If we were to consider the parties' conduct in order to discern their intent, we would find that plaintiffs' conduct does not support a belief that the neutral arbitrator had a continuing duty to disclose. The JAMS disclosure form gives no indication that further disclosures will be forthcoming. Further, JAMS expressly states in its disclosure that it does not provide such information to the neutral arbitrator, which suggests that the arbitrator has no information to disclose. The neutral arbitrator himself stated that the parties should presume that other arbitrators at JAMS would likely take cases involving the parties or their attorneys, phrasing which suggests no additional information on this topic will be forthcoming. Plaintiffs gave no indication that these initial disclosure indications did not conform with their intent in entering the Agreement, and that they expected ongoing disclosure. Similarly, in his own disclosure form, the neutral arbitrator states his own intent to entertain offers of employment, and that he does not disclose any offers or acceptances. Again, plaintiffs gave no indication that this initial disclosure caveat would not conform with their intent in entering into the Agreement.
Over the six-month period that the arbitration was pending, plaintiffs received no disclosures, but never once made any inquiries about the lack of disclosure. This is certainly an indication that they did not expect any disclosures.
These behaviors are true of the Bank as well, but in the Bank's case, this behavior is consistent with its claimed intent, which is that paragraph 3 did not impose any disclosure obligations beyond those imposed by California law. Under that law, as we have explained, no continuing disclosure was required.
Our interpretation of paragraph 3 in the context of its plain language and the Agreement as a whole is reasonable, definite and capable of being carried into effect. The parties intended California law to apply to the subject of disclosure of conflicts of interest. That gives meaning to paragraph 13 and provides the necessary guidance missing from paragraph 3. It is also consistent with the intent of the parties as shown by their conduct and statements.
DISPOSITION
The judgment is affirmed. Plaintiffs to bear costs on appeal.
We concur: GRIMES, J., WILEY, J.