Johnson v. Gruma Corp.
(9th Cir. (Cal.) Aug. 13, 2010)
The Ninth Circuit recently refused to vacate an arbitration award on the ground that the arbitrator failed to disclose his wife’s former professional relationship with the law firm ultimately retained to represent the defendant in the arbitration.
The plaintiff filed suit against Gruma Corporation in 2001, alleging that Gruma misrepresented to the plaintiff and other class members that they were independent contractors when they were, in fact, Gruma employees. The complaint contained causes of action sounding in breach of contract, labor code violations, and unfair business practices. Upon Gruma’s motion, the district court ordered the claims submitted to binding arbitration. The arbitrator found for Gruma, concluding that the class members were properly classified as independent contractors rather than employees. The district court confirmed the arbitration award and the plaintiff appealed.
The plaintiff argued that the arbitration clause in the parties’ agreement required the district court to apply the California Arbitration Act (“CAA”) disclosure and vacatur standards rather than those of the Federal Arbitration Act. The Ninth Circuit agreed, finding that the arbitration clause in the parties’ agreement was more than a general choice-of-law provision and indicated that the parties intended to be governed by the CAA’s rules.
The plaintiff next argued that a mandatory vacatur of the arbitration award was required because the arbitrator failed to disclose that his wife had been a partner at the law firm that became Gruma’s counsel five years into the arbitration. The court concluded that the arbitrator complied with the CAA’s rules governing initial disclosures since his wife’s former law firm was not counsel for Gruma when the arbitration commenced in 2002.
As for supplemental disclosure, the court noted that the CAA’s supplemental disclosure rules did not require the arbitrator to disclose the relationship between Gruma’s counsel and his wife. To this end, the court found that the arbitrator’s wife ended her employment at the subject law firm two years before the law firm (and her former colleague) became involved in the arbitration. The court also noted that the plaintiff failed to demonstrate that the relationship between Gruma’s counsel and the arbitrator’s wife would create a reasonable impression of partiality on the part of the arbitrator. Even if it did, however, the court held that the plaintiff waived his objection to the disclosure by not raising it until after the arbitration award was issued despite knowing of the relationship “a year or two” before the arbitrator rendered his decision.
For a copy of the case, click here
Carrie Appler and Sharon Angelino