A Proposed Arbitrator In A Legal Malpractice Case Properly Disclosed Any Matter He Was Required To Disclose

Nemecek & Cole v. Horn
(Cal. Ct. of App., 2d Dist.), filed July 23, 2012

KEY FACTS

Henry and Janelle Hoffman hired attorney Steven Horn to represent them in a lot line dispute with their neighbors. The Hoffmans lost at trial. They hired a different attorney to represent them on appeal. The judgment was reversed on appeal.

Horn sued the Hoffmans for unpaid fees and the Hoffmans counter-claimed for fraud, alleging that Horn materially misrepresented his experience in real estate matters, improperly billed the Hoffmans and failed to timely tender a cross-complaint to their homeowners insurance.

Horn retained Nemecek & Cole to represent him in the matter against the Hoffmans. The jury returned a verdict of $42,282.56 to Horn on his fee claim against the Hoffmans and an identical amount to the Hoffmans on their fraud action against Horn.

The Hoffmans appealed. The Court of Appeal determined that they were entitled to attorney fees from Horn since they were the prevailing defendants on Horn’s complaint. On remand, the trial court ordered Horn to pay approximately $380,000 in attorney fees to the Hoffmans.

Horn believed Nemecek’s negligence was the cause of the “disastrous results” in his claim against the Hoffmans. He demanded Nemecek submit to arbitration with the Judicial Arbitration and Mediation Service (JAMS) as specified in their retainer agreement. Nemecek filed a counter-claim against Horn for unpaid attorney fees and costs.

The parties chose retired U.S. District Judge George Schiavelli as the arbitrator. The arbitrator presented his disclosure statement to the parties and Horn requested additional disclosure of all matters in which Nemecek appeared before the Arbitrator. JAMS responded that no case was found.

The evidentiary hearing lasted five days, with each party submitting testimony and briefing. In an extensive opinion, the arbitrator noted that issues of credibility were very important and “found Horn’s credibility lacking.” The arbitrator ordered the parties to take nothing on their respective claims but allowed either party to claim attorney fees if they wished to do so.

Both parties submitted claims for attorney fees. The arbitrator found Nemecek was entitled to $289,028.85 in attorney fees as the prevailing defendant.

Horn hired a private investigator to determine whether there existed any undisclosed relationships between the arbitrator and Nemecek, its counsel or its witnesses. The private investigator discovered the following: the arbitrator and the head of Nemecek’s appellate department, Mark Schaeffer, were both members of the Los Angeles County Bar Association’s Appellate Executive Committee Section; the arbitrator and Edith Matthai, Nemecek’s expert witness in the arbitration, appeared together as panelists for various seminars and were both members of the board of governors of the Association of Business Trial Lawyers; the arbitrator was employed as an attorney at the firm of Brown, White & Newhouse, which represents lawyers in malpractice actions; and Nemecek attorneys appeared before the arbitrator when he was a district court judge in 2006. Based on these “undisclosed relationships,” Horn petitioned to vacate the arbitration award. The trial court entered judgment in favor of Nemecek.

HOLDING & REASONING

The Court of Appeal affirmed.

The court recognized that a proposed neutral arbitrator must disclose to the parties within 10 days of being chosen “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[.]” These disclosures include “[a]ny professional or significant personal relationship the proposed neutral arbitrator or his or her spouse or minor child living in the household has or has had with any party to the arbitration proceeding or lawyer for a party.”

The court then turned to Horn’s specific complaints. They were that the arbitrator was required, but failed, to disclose: (1) his professional relationship with Mark Schaeffer; (2) his professional relationship with Edith Matthai; (3) Nemecek’s appearance before him while he was a district court judge; and (4) his work for Brown, White & Newhouse.

The court concluded the arbitrator’s participation in the Los Angeles County Bar Association’s Appellate Executive Committee Section, a group comprised of 186 members, of which Schaeffer was one, did not require disclosure. It concluded that the arbitrator’s membership with Schaeffer in the committee was too “slight or attenuated” to require disclosure. And, it noted that there was no indication of any personal or other professional relationship between them.

The court held that the arbitrator’s participation in the same panels or bar association committees as Edith Matthai or her late husband, Jim Robie, did not provide a credible basis for inferring an impression of bias.

The court next held that the arbitrator’s role as “of counsel” at Brown, White & Newhouse was not a basis for vacating the arbitration award. The evidence was that Brown, White & Newhouse handles criminal defense and civil litigation and, since its founding, had represented plaintiffs in two legal malpractice cases and a defendant in one other and the arbitrator had not worked on any legal malpractice matter for that firm.

The court rejected Horn’s argument that the arbitrator should have disclosed that Nemecek attorneys had appeared before him in one case while he was on the district court bench, saying that it “borders on frivolous.”

ANALYSIS

This opinion seems to recognize that if arbitrator conflicts are taken to an extreme, few people will be able to serve as arbitrators.