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May 25, 2016

Baxter v. Bock (2016) 247 Cal.App.4th 775

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The First District refuses to overturn an arbitration award on the grounds an arbitrator failed to make sufficient disclosures to reveal bias. The Court held there was no basis to award attorney’s fees for the work of a female attorney at a rate lower than that of a male attorney with similar credentials. 

Baxter filed a request for Mandatory Fee Arbitration (MFAA) against his former clients, Michael and Lorie Bock. The parties stipulated to a binding award.  Baxter appealed an award in the Bocks’ favor asserting, the arbitrator was biased.

Baxter asserted Schratz told the parties only that he had worked for an insurance company in the past, and had previously served as an arbitrator. He did not reveal he had built his reputation as a legal fee auditor.  The Court of Appeal concluded Baxter’s evidence, which comprised articles Schratz wrote about billing practices; profiles written about Schratz’s work; and a declaration of an attorney who claimed Schratz targeted attorneys, did not demonstrate disqualifying bias. 

The MFAA does not specify grounds for vacating an award, but the Court held Civil Code § 1286.2 applies. Section 1286.2 (a)(6) permits a court to vacate an arbitration award if the arbitrator fails to disclose a ground for disqualification, or fails to disqualify himself upon receipt of a timely demand.  If the facts are undisputed, determining whether an arbitrator failed to make required disclosures is reviewed on appeal de novo; if the facts are disputed, the Court must accept the trial court’s resolution when supported by substantial evidence.

Although governed by different statutes and rules, the Court determined the disclosure requirements under the California Arbitration Act (CAA) and the MFAA are essentially the same. An arbitrator must disclose all matters that could cause a knowledgeable person to reasonably entertain a doubt that the proposed neutral arbitrator could be impartial.

Impartiality entails the absence of bias or prejudice in favor of, or against, particular parties or classes of parties, and an open mind. Potential bias and prejudice must be established by an objective standard.  Arbitrators have widely varying experiences and backgrounds.  Usually those not directly related to the case or the parties do not disqualify them. This is distinct from reasons a party might reasonably prefer not to have a particular arbitrator hear a case.

An arbitrator is not required to disclose all matters a party may want to consider in deciding whether to oppose or accept the arbitrator. An arbitrator cannot reasonably be expected to identify and disclose all events in the arbitrator’s past unconnected to the parties. A party may investigate the practice of the proposed arbitrator.  Otherwise, arbitration awards would be vulnerable to after the-fact attacks by losing parties searching for potential disqualifying information.

Arbitrators are not expected to be entirely without business contacts in the particular field. They should disclose any repeated or significant contacts they have with a party to the dispute, a party’s attorney or a party’s chosen arbitrator.

Arbitrators must make disclosures about income-generating activities when their impartiality might be called into question by their economic self-interest. For example, a disclosure should be made by providers who frequently serve as neutrals in a particular industry, as they might favor “steady customer” parties in the industry who commonly appear before them.

Schratz did not fail to make required disclosures. His practice was not devoted exclusively to one side of fee disputes. Much of his fee audit work was to support losing litigants faced with prevailing party attorney fees. Many others were attorneys looking for expert support for their bills, either against their former clients or to support their fee applications.  His firm’s expertise was attorney fee review, not favoring one side or the other in fee disputes.  There was no particular economic incentive for him to rule for either Baxter or the Bocks.

Baxter failed to prove Schratz was biased against attorney fee requests. Schratz , an attorney, sometimes represented interests contrary to attorneys, but that alone did not demonstrate a bias.  There was nothing in the award or the proceedings to suggest Schratz bore animus toward Baxter.

Schratz’s background demonstrated he was an appropriate choice. Much of his career has been spent evaluating attorney bills, investigating how attorneys account for their time, and attempting to uncover methods used by attorneys to inflate or exaggerate their work.  Schratz’s writings never suggested an attorney who properly accounts for necessary services is not entitled to be paid.  His writings display concern about unethical and improper billing practices.

An attorney can still be an impartial neutral even if the attorney’s professional practice regularly involves representing one type of client against another. Many judges are former prosecutors or public defenders who regularly try criminal cases without challenge. An inference of bias arises only when the arbitrator’s private economic interests create an incentive to rule in a particular manner.  There was no evidence Schratz had prejudged the case prior to the hearing.

The trial court awarded prevailing party attorney fees to the Bocks. It did not award compensation for all the hours claimed, and set an hourly fee for Attorney Kathryn Curry at a rate lower than that of her colleague and co-counsel from the same firm, Kenneth Van Vleck.

Applying an abuse of discretion standard, the Court found it was proper for the trial court to judge the reasonable number of hours required for the representation.

The difference in hourly rate between the female and the male attorney did not withstand scrutiny. Both graduated from prestigious undergraduate and law school programs.  Curry ranked second in her law school class, and had two more years of legal experience than Van Vleck.  The Court could find no basis to compensate Van Vleck’s work at a rate significantly higher than Curry’s work.

Comment: This reinforces California’s strong policy favoring binding arbitration.  Courts are loathe to disturb an award on the grounds of arbitrator bias after the fact.  The Court implicitly disapproved of the trial court’s inexplicable application of a lower rate to compensate a female attorney against her almost identical male counterpart.

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