Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
San Francisco County Super. Ct. No. 505851
Siggins, J.
Jorge Montane, the Montane Family LLC, Theodore and Kazuyo Okazaki, and Ronald and Diane Fair appeal from a judgment confirming an arbitration award that dismissed their claims against securities broker Steven Hild and brokerage firm Morgan Stanley Dean Witter & Company (Morgan Stanley). Appellants argue the award should be vacated because: (1) they were denied their right to be represented by an attorney during arbitration, (2) they were not afforded an opportunity to be heard before sanctions were imposed on them, (3) in dismissing appellants’ claims, the panel of arbitrators acted in excess of their powers, and (4) the arbitrators knowingly failed to disclose circumstances that would have required their disqualification. We reject these arguments and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
In 2003, appellants submitted disputes they had with Morgan Stanley, UBS Paine Webber, Inc. (UBS), and Steven Hild to binding arbitration under the dispute resolution program administered by the National Association of Securities’ Dealers (NASD). Appellants’ amended statement of claim alleged respondents violated NASD rules and breached the fiduciary duties they owed appellants by improper management of appellants’ brokerage accounts. A panel of three arbitrators was selected and written disclosure reports containing information about their background, financial interests, and prior arbitration awards were provided to the parties. After two of the original arbitrators withdrew, they were replaced with new arbitrators selected by the NASD Director of Arbitration. Disclosure reports were also provided to the parties for the two replacement arbitrators. The relevant details of the arbitration disclosures and any omissions will be discussed in part D (at p. 10, post).
UBS was also identified as “nka UBS Financial Services, Inc.,” and was dismissed from the arbitration on June 3, 2005, pursuant to a settlement agreement.
More information about the arbitrators’ prior awards was available on the NASD website.
Appellants were represented by attorney Nancy Kay Undem and securities consultant J. Leo Federman. Respondents challenged Federman’s ability to represent appellants in the arbitration on the basis that he would be engaged in the unauthorized practice of law. Appellants opposed the motion on the basis that Federman had “specialized knowledge and extensive experience in securities and securities arbitrations.” In accordance with a position taken by NASD in other matters, and as allowed by Code of Civil Procedure section 1282.4, the panel ruled that Federman could represent appellants.
Undem initially represented Montane, while Federman represented the Okazakis and the Fairs. In January 2005, Undem notified the NASD that she and Federman would co-represent all the appellants.
All further statutory references are to the Code of Civil Procedure.
Respondents requested production of documents and sought information from appellants in October 2003, and moved to compel their production in January 2005. Arbitrator Robert Liu, the panel chair, ordered appellants to produce the documents and provide requested information by March 4, 2005. In April 2005, respondents filed a second motion to compel on the grounds that appellants failed to comply with Liu’s previous discovery order. Respondents sought sanctions and suggested that, in the event of further noncompliance, dismissal of the action with prejudice was warranted.
Federman represented appellants at the February 2005 telephone conference on the motion to compel, without Undem’s participation.
On April 20, 2005, Liu held a telephone hearing on several discovery-related issues, and “[d]ue to the disruptive behavior of the Claimants’ representative and counsel during the oral hearing, which lasted nearly five hours, the chair eventually adjourned the hearing.” The discovery motions were subsequently decided by the full panel after further briefing, and respondents renewed their request for sanctions. The panel ruled on each of the outstanding discovery requests, and assessed sanctions against appellants in connection with respondents’ motion to compel in the amount of $2,500 payable to Morgan Stanley/Hild, and $2,500 payable to UBS/Hild. Appellants were ordered to produce responses and documents and make payment by 5 p.m. on May 13.
On May 13, 2005, instead of paying the sanctions as ordered, appellants sought “clarification” of the discovery order from the arbitration panel. Appellants said they were uncertain of the purpose of the ordered payments, and that they were “withholding payment until this issue can be resolved.” On May 20, the panel denied reconsideration, but extended the time to pay the sanctions until May 27. On May 27, claimants notified Morgan Stanley that they still would not pay because “the panel’s order still does not reflect what this payment is for, and because claimants intend to petition the court to have the order vacated.” On May 31, respondents moved to dismiss appellants’ claims due to their continued refusal to comply with the panel’s sanctions order. Respondents asked that their motion be considered no later than June 6, the first scheduled day of the arbitration hearing.
Two business days before the arbitration hearing, attorney Undem requested a postponement on the grounds that she had exacerbated a previous injury to her back. Respondents opposed the postponement and argued: “Ms. Undem has had back problems for many years and should have provided for this possible occurrence. It is also my understanding that Mr. Federman has handled prior arbitrations without Ms. Undem’s attendance, including during prior back problems. [¶] A delay at this late date is very prejudicial to Respondents since their witnesses and expert have set aside the time for this hearing and spent many hours preparing for it. [¶] We further fear that this continuance will be used by Claimants to further their costly and useless ‘discovery war’ against Respondents. If the continuance is granted, the Panel should order that discovery is closed and that no further proceedings on discovery will be permitted.” Undem’s reply stated her re-injury was recent, that Federman’s qualifications were “not at issue,” and that appellants were entitled to be represented by their attorney. The panel declined to postpone the hearing.
On June 6, 2005, the first day of the arbitration hearing, appellants were represented by only Federman. In response to the respondents’ renewed request for sanctions and dismissal, the panel doubled the monetary sanctions, but did not dismiss the action. The panel ordered appellants to pay $5,000 to Morgan Stanley by June 9. If appellants failed to comply, the panel indicated it would entertain possible dismissal with prejudice at the end of the hearing. The arbitration adjourned on June 7, with the parties’ agreement, because Chairperson Liu had a family emergency. The parties stipulated that unless appellants obtained a court order vacating the sanctions, they would be paid by July 7, 2005. Federman immediately advised Undem of the increased amount of sanctions and the July 7 deadline for payment. Undem did not request additional time to comply.
Federman declares that he advised the arbitrators before the hearing began that appellants did not want to proceed without Undem present.
UBS was dismissed from the arbitration on June 3, 2005.
On June 27, 2005, appellants requested a written order from the panel regarding the sanctions ruling. On July 5, the panel issued a detailed order that explained the rationale and history of its sanctions orders. The sanctions were based on the disruptive conduct of appellants’ representatives at the April 20 discovery hearing, which was “inherently unfair and prejudicial to all respondents.” “Sanctions were awarded to restore the integrity and decorum of the proceedings.” The panel also noted that appellants’ discovery responses were provided only days before the hearing, which prejudiced respondents and deprived them of the orderly process envisioned by the NASD rules.
When appellants failed to pay the sanctions by July 7, 2005, respondents filed a motion to dismiss their claims with prejudice. Undem opposed, based on the panel’s denial of her request for a postponement of the June 6 hearing date stating that the denial also deprived appellants of their right to counsel during that proceeding. Appellants were represented by Undem and Federman at the panel’s August 2 telephonic hearing on the motion to dismiss. On August 11, the panel issued its award that granted the motion to dismiss appellants’ claims with prejudice, as a result of their repeated failure to pay the sanctions.
In her subsequent declaration in support of the petition to vacate the award, Undem stated that she thought the panel had ordered the sanctions held in abeyance as a result of the delay in issuing the July 5 order, that she had argued at the hearing that “by delaying the order until two days before the deadline, [the panel] gave the appearance of intentionally preventing [her] from filing the petition to vacate it,” and that she had asked the arbitrators to allow her time to file a petition to vacate their July 5 order. None of these matters were mentioned in Undem’s written opposition to the motion to dismiss.
Appellants filed a petition to vacate the arbitration award in superior court. Respondents filed opposition and cross-petitioned to confirm the award. The trial court denied the petition to vacate the award, confirmed the award, and directed entry of judgment under section 1287.4. Appellants timely appealed.
DISCUSSION
“This case involves securities transactions in interstate commerce and is governed by chapter 1 of the United States Arbitration Act. [Citations.] However, the United States Arbitration Act, chapter 1, does not preempt California’s statutory grounds for vacating an arbitration award.” (SWAB Financial, LLC v. E*Trade Securities, LLC (2007) 150 Cal.App.4th 1181, 1195.)
Here, the parties agree that the grounds set forth in section 1286.2 limit our ability to review a contractual arbitration award. (See Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 28.) In relevant part, section 1286.2 provides for vacatur of an award when: “(1) The award was procured by corruption, fraud or other undue means. [¶] (2) There was corruption in any of the arbitrators. [¶] (3) The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator. [¶] (4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted. [¶] (5) The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title. [¶] (6) An arbitrator making the award . . . failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware . . . .”
A. Appellants’ Right to be Represented by an Attorney in Arbitration
Appellants argue they were substantially prejudiced by the arbitrators’ refusal to postpone the hearing on the request of their attorney, because denial of the postponement deprived appellants of their right to assistance of counsel under section 1282.4 and NASD Code of Arbitration Procedure, Rule 10316. We disagree.
Section 1282.4 provides, in relevant part: “(a) A party to the arbitration has the right to be represented by an attorney at any proceeding or hearing in arbitration under this title.”
Rule 10316 provides: “All parties shall have the right to representation by counsel at any stage of the proceedings.” Subsequent references to rules are to the NASD Code of Arbitration Procedure.
While rule 10316 affords parties the right to be represented by counsel, rule 10319 gives the arbitrators discretion to “adjourn any hearing(s) either upon their own initiative or upon the request of any party to the arbitration.” California law also vests in arbitrators the discretion over whether to postpone a hearing. (§ 1282.2, subd. (b).) “[W]hen, as here, an arbitrator exercises discretion in denying a continuance request, there are two issues to be resolved in vacatur proceedings. First, the trial court must determine whether the arbitrator abused his or her discretion by refusing to postpone the hearing upon sufficient cause being shown. Second, if there was an abuse of discretion, the trial court must determine whether the moving party suffered substantial prejudice as a result. Moreover, on appeal from the trial court’s order granting or denying a request to vacate the arbitration award, our review is de novo. In other words, in this case, we must consider whether the arbitrators abused their discretion and there was substantial prejudice in denying plaintiff’s continuance motion.” (SWAB Financial, LLC v. E*Trade Securities, LLC, supra, 150 Cal.App.4th at p. 1198.)
1. Whether the Decision to Deny Appellant’s Request for a Postponement of the Hearing was an Abuse of Discretion.
In order for us to conclude the arbitration panel abused its discretion, we must determine that the denial of appellant’s request for a postponement exceeded the bounds of reason. When two or more inferences can reasonably be deduced from the facts, we have no authority to substitute our decision for that of the arbitrators. (See Shamblin v. Brattain (1988) 44 Cal.3d 474, 478-479.)
Although it is a close question, there are reasons why the arbitrators could have reasonably denied appellant’s request. Appellants sought the continuance because their counsel, Undem, had recently re-injured her back. The request was supported by a letter from Undem’s physician who stated she was limited in her ability to travel or sit for extended periods of time, and would require bed rest. But the letter discussed Undem’s recuperation from a previous back surgery and made no mention of any recent exacerbation of her condition. The request was also made on the eve of the hearing, and appellants were represented by Federman, who appeared at the hearing on their behalf. Finally, in the circumstances, it is also possible to infer from the record of discovery proceedings a lack of diligence on the part of appellants in preparing their case for hearing. This factor could have influenced the arbitrators in two ways. They could have determined appellants needed a postponement to pursue further discovery, and it would be unfair to subject respondents to further delay in such circumstances. Or, they could have inferred from the discovery history that appellants were not ready. Either inference could reasonably be drawn from the record. Moreover, the ability of Federman to proceed on appellants’ behalf also supports the exercise of discretion to deny the postponement. We cannot conclude the arbitrators’ denial of the motion to postpone the hearing was an abuse of discretion.
2. Whether Appellants were Prejudiced by the Denial of Their Request for a Postponement of the Hearing.
But even if denial of the postponement were an abuse of discretion, we cannot conclude that appellants were prejudiced by it. Although Undem did not appear on the first day of the hearing, Federman appeared on their behalf, and respondents’ initial motion to dismiss the appellants’ claims was denied that day. The deadline for payment of sanctions was extended on the first day of hearing, and the arbitrators warned appellants that if sanctions were not timely paid, they would entertain respondents’ request for dismissal with prejudice.
Federman was previously described by appellants as having “over 10 years’ experience successfully representing claimants in securities arbitration” and “extensive knowledge of the securities industry.” In February 2005, Federman alone represented appellants at a telephone conference on motions to compel filed by both parties.
Undem now contends her clients were prejudiced because she was absent from the June 6 hearing when the sanctions were increased and unlike Federman, she “never would have agreed to a 30 day time period to obtain a court ruling vacating the arbitrators’ order” on sanctions. Undem’s non-appearance at the June 6 hearing did not cause appellants hardship or prejudice. It was only many weeks later, after appellants repeatedly failed to pay or seek judicial review of the sanctions order, that the arbitrators ultimately dismissed their claims. While appellants complain that they did not receive the panel’s written ruling on sanctions until they had insufficient time to petition the court to vacate the order, appellants have not shown a likelihood of obtaining such relief. Nor does the delay in providing the written order indicate any prejudice from Undem’s absence on June 6 and 7.
Appellants have also failed to show the arbitrators’ decision to dismiss their claims would have been different if Undem had appeared along with Federman at the hearing on June 6 and 7. The dismissal of appellants’ claims was based on their repeated failure to comply with the panel’s discovery orders, both leading up to and during the hearing. Moreover, Undem fully participated and represented appellants in opposition to respondents’ renewed July 8 motion to dismiss, which led to the panel’s final award of dismissal. Appellants have failed to show they suffered substantial prejudice as a result of the denial of their request for a postponement of the June 6 hearing date. (See Hall v. Superior Court (1993) 18 Cal.App.4th 427, 438-439 [to find substantial prejudice, the court must conclude “the arbitrator might well have made a different award” absent the alleged procedural error].)
Notably, Undem’s opposition to the motion to dismiss did not request additional time to allow appellants to petition the court to set aside the sanctions order, nor did it offer an explanation for appellants’ continuing failure to make the payment originally due more than two months earlier. Instead, the opposition was based solely on the panel’s denial of appellants’ request for a continuance of the June 6 hearing, and the resulting alleged deprivation of their right to be represented by counsel at that hearing.
B. Right to be Heard Before Imposition of Sanctions
Appellants argue the arbitrators exceeded their powers and violated due process because they ordered monetary sanctions without affording appellants an opportunity to be heard and declined to clarify the basis for the sanctions order. But the record shows that appellants were repeatedly heard on the issue of sanctions, and the original order awarding sanctions was entered upon respondents’ first motion to compel discovery against appellants. No due process violation has been shown. (Cf. Barrientos v. City of Los Angeles (1994) 30 Cal.App.4th 63, 70-72 [trial court’s sua sponte imposition of sanctions without notice and an opportunity to be heard violated due process, and improperly punished counsel for failing to settle the case].)
C. Dismissal of Claims
Appellants assert that the arbitrators’ dismissal of their claims was by undue means, in excess of their powers, and as a result of misconduct. They contend the dismissal was an excessive sanction because they did not willfully withhold documents from respondents, “were merely two week[s] late in producing them under the order,” and “just needed additional time to comply.” But appellants’ claims were dismissed not simply for their initial failure to timely produce discovery as ordered by the panel, but for their repeated failure to comply with the panel’s discovery orders and related sanctions. In these circumstances, dismissal is authorized by rule 10305.
Rule 10305(b) provides: “The arbitrators may dismiss a claim, defense, or proceeding with prejudice as a sanction for willful and intentional material failure to comply with an order of the arbitrator(s) if lesser sanctions have proven ineffective.” Neither before the arbitrators, the superior court or this court have appellants contended that the arbitrators’ authority to dismiss a claim does not extend to dismissal for failure to pay monetary sanctions, as distinguished from dismissal for failure to comply with an order affecting the conduct of the proceedings. While we entertain some doubts in this regard, the contention has been waived. (Christoff v. Union Pacific Railroad Co. (2005) 134 Cal.App.4th 118, 125; In re Aaron B. (1996) 46 Cal.App.4th 843, 846.)
There is also no basis upon which we can conclude the sanctions were “in abeyance” when appellants’ claims were dismissed. The parties had stipulated that sanctions would be paid by July 7, 2005, unless the order was stayed or vacated. That deadline passed without appellants’ payment or application to stay or vacate the sanction order, and respondents only then filed their final motion to dismiss. Appellants’ broad assertions that the arbitrators “intentionally delay[ed] issuance of the order which gave the basis for the sanctions” and “intentionally misle[]d appellants into believing the sanctions were in abeyance by making this finding in the order and then dismiss[ing] the arbitration for failing to pay them” are unsupported by the record.
D. Alleged Failure by the Arbitrators to Disclose Grounds for Disqualification
Appellants argue the arbitration award should be vacated because the arbitrators did not disclose their assignments to several other pending arbitrations. Arbitrators’ written disclosure reports that included information about each arbitrator’s education, employment, training, personal accounts with financial institutions, and prior publicly available arbitration awards were provided to the parties. Many of the arbitrations listed in the disclosures involved brokerage firms, including Morgan Stanley and UBS. The respondents in a number of the prior arbitrations listed in the disclosure reports were represented by the law firm of Keesal, Young & Logan, who also represented UBS in this case.
During a February 2005 pre-hearing telephone conference in the current case, Liu also disclosed that he was familiar with Morgan Stanley’s counsel because Liu had served on another panel where a party was represented by the same counsel. During that same teleconference which was held before UBS was dismissed from the arbitration, Liu informed the parties “that UBS had recently acquired the private banking section of a firm at which he held a securities account.” Liu set a March 2, 2005, deadline for the parties to file any written motion challenging his potential bias or prejudice.
But the reports apparently did not reference other pending matters assigned to the arbitrators involving Morgan Stanley or UBS, in which they were represented by Keesal Young and Logan. In a rather summary fashion, appellants argue these omissions require vacatur because the arbitrators failed to disclose grounds for their disqualification.
Rule 10312 imposes upon arbitrators a continuing duty to disclose “[a]ny existing or past financial, business, professional, family, social, or other relationships or circumstances that are likely to affect impartiality or might reasonably create an appearance of partiality or bias. Persons requested to serve as arbitrators must disclose any such relationships or circumstances that they have with any party or its counsel, or with any individual whom they have been told will be a witness.” (Rule 10312(a)(2).) Appellants contend this rule required the arbitrators to disclose the other assigned arbitrations. They argue the arbitrators’ failure to make the disclosures is grounds to vacate the award under section 1286.2, subdivision (a)(6) because “ ‘[a]n arbitrator making the award . . . failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware . . . .” Appellants’ claim fails for two reasons.
Appellants’ opening brief provides no legal authority to support a conclusion that the failure of the arbitrators to disclose other pending arbitrations constitutes a failure to disclose grounds for disqualification within the meaning of section 1286.2 that requires vacatur. The cases we reviewed do not suggest such a bright line rule. (See Betz v. Pankow (1995) 31 Cal.App.4th 1503.) The case appellants rely upon in their reply brief to argue this point concerns a different statute. (See International Alliance of Theatrical Stage Employees, Etc. v. Laughon (2004) 118 Cal.App.4th 1380, 1385-1387 [§ 1281.9, subds. (a)(4) & (b) required disclosure of pending arbitration cases involving the same party or lawyer, within 10 days of the arbitrator’s proposed appointment].) “Fairness militates against our consideration of any arguments an appellant has chosen not to raise until its reply brief, and the authorities holding to that effect are numerous.” (Reed v. Mutual Service Corp. (2003) 106 Cal.App.4th 1359, 1372, fn. 11; see also Brown v. Boren (1999) 74 Cal.App.4th 1303, 1316 [“a litigant may not change his or her position on appeal and assert a new theory”].)
For the same reason, we do not address the arguments first raised in appellants’ reply brief, that section 1281.9 does not conflict with NASD rules that preempt California law (see Jevne v. Superior Court (2005) 35 Cal.4th 935, 958-960), and that failure to make the disclosures required by that statute constituted a form of corruption that provided a separate ground to vacate the award.
Moreover, an objective standard is used to determine whether the failure to disclose pending arbitrations was actually a failure to disclose grounds for disqualification. (Stats. 2001, ch. 362, § 8.) The test is fact specific. (Betz v. Pankow, supra, 31 Cal.App.4th at p. 1508.) “Thus, an award may be vacated if ‘. . . the record reveals facts which might create an impression of possible bias in the eyes of the hypothetical, reasonable person.’ ” (Roitz v. Coldwell Banker Residential Brokerage Co. (1998) 62 Cal.App.4th 716, 723.) An examination of this record gives us no concern that disclosure of the pending arbitrations would have revealed the arbitrators were biased in favor of respondents.
The opening brief does not specify the factual details of the allegedly “potential ongoing conflicts.” But according to appellants’ reply brief, “eight undisclosed NASD and other securities arbitrations with the same parties, same attorneys and same arbitrators were pending and completed while appellants’ arbitration was pending . . . .” Appellants do not support this statement with any citation to the record, but appellants’ reply in the trial court listed various arbitrations in which the arbitrators in this case were said to have also participated. Most of them were disclosed in the arbitrators’ written disclosure reports provided to the parties. Copies of four awards in other pending cases that do not appear to have been disclosed were also attached to appellants’ reply. In two of the cases, decided in 2004, Liu served as chair of an arbitration panel and respondent Salomon Smith Barney was represented by Keesal, Young & Logan. In the third case, also decided in 2004, Liu was a member of an arbitration panel, and Keesal Young & Logan represented Prudential Securities. In the fourth case, decided in 2005, DeTata served on an arbitration panel, and UBS was represented by Keesal, Young & Logan, while respondent Morgan Stanley was represented by separate counsel.
Of the undisclosed cases involving arbitrator Liu, only one of them was decided on the merits. He dismissed one of the claims filed against Solomon Smith Barney; the other two arbitrations involving Liu were settled by the parties. In the matter assigned to arbitrator DeTata, the claimant dismissed his claims against Morgan Stanley with prejudice, and UBS settled with the claimant before the hearing.
Liu also chaired the hearing in this case as a public arbitrator. As a lawyer, in order to qualify as a public arbitrator under the rules, Liu must have spent less than 20 percent of his time in the two years previous to his assignment on work performed for securities firms, and his law firm must have derived less than 10 percent of its annual revenue in the past two years from such work. (Rule 10308(a)(4), (5).) In the circumstances we will not conclude the arbitrators failed to disclose grounds for their disqualification.
DISPOSITION
The judgment is affirmed.
We concur:
McGuiness, P.J., Pollak, J.