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C.A. Tosses Case Against Arbitrator on Immunity Grounds
Opinion Says Retired Judge Did Not Act in ‘Clear Absence of Jurisdiction’ Despite Exceeding Authority in Awarding Attorney Fees Pursuant to Agreement Containing Illegal Fee-Shifting Provision
By a MetNews Staff Writer
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MICHAEL MARCUS arbitrator |
Div. Five of this district’s Court of Appeal has held that a complaint against an arbitrator and an arbitration service was properly dismissed on immunity grounds, finding that the retired judge did not act in such a “clear absence of jurisdiction” as to undermine those protections when he issued an award of attorney fees under an agreement containing an illegal fee-shifting provision after the purported withdrawal by the plaintiff.
The court acknowledged that the arbitrator, retired State Bar Court Judge Michael D. Marcus, acted in excess of his authority by awarding the fees but rejected the argument that the error justified a legal action against him or the arbitration services provider, ADR Services Inc.
Appealing the dismissal was plaintiff Andrew Milder who initiated arbitration proceedings in 2014 against his former attorney, Shawn Holley, and the Los Angeles-based law firm of Kinsella Weitzman Iser Krump & Aldisert (“KWISA”) after the lawyers moved to be relieved as his counsel in a criminal matter.
A retainer agreement between Milder and the law firm stated that all disputes between the parties were to be resolved by binding arbitration and called for attorney fees to be paid to the prevailing party.
Before Marcus was appointed, Milder informed ADR Services and the KWISA attorneys that he “would be filing a civil action and requested ADR Services to stay the arbitration proceedings pending the outcome of that Superior Court proceeding.”
Holley and KWIKA objected, and ADR Services informed all parties that “[t]o move forward, we need agreement from all parties.” Milder subsequently withdrew from the arbitration proceeding he had commenced and filed a complaint in Los Angeles Superior Court in May 2015.
Non-Consumer Arbitration
Within a few weeks of that filing, ADR Services assigned Marcus to serve as the arbitrator and informed the parties that a status conference would be held in October 2015.
Milder responded that he would not attend and was “compelled to object” to Marcus’ appointment.
Marcus found that Milder had waived any objection to his appointment and proceeded with the matter as a “non-consumer arbitration,” a designation of significance because Code of Civil Procedure §1284.3(a) provides:
“No neutral arbitrator or private arbitration company shall administer a consumer arbitration under any agreement…requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party if the consumer does not prevail in the arbitration.”
Arbitration proceeded in Milder’s absence and Marcus awarded Holley and KWIKA $79,598.48 in fees and costs. Los Angeles Superior Court Judge Susan Bryant-Deason confirmed the award.
On Dec. 16, 2021, Div. Five reversed, in an unpublished opinion authored by Justice Lamar W. Baker, noting that there is no statutory definition of the term “consumer” but concluding that the term covers a former legal client, reasoning that it is “not unusual to speak of ‘consumers of legal services.’ ”
Baker said that “Judge Marcus…acted in excess of his authority in requiring plaintiff to pay the fees and costs of the opposing parties when he did not prevail in the arbitration.”
Complaint Filed
Milder filed a complaint against Marcus, ADR Services, and ADR Services’ Chief Executive Officer Lucie Barron, asserting causes of action under the Unfair Competition Law, codified at Business and Professions Code §17200 et seq., and the Consumer Legal Remedies Act, found at Civil Code §1750 et seq., among other provisions.
The defendants filed a demurrer on the grounds that the common law doctrine of arbitral immunity bars each asserted cause of action. Los Angeles Superior Court Judge Teresa A. Beaudet sustained the demurrer, without leave to amend, and a judgment of dismissal was entered.
Sitting as acting presiding justice, Baker authored the unpublished opinion, filed Monday, affirming the judgment. Justice Carl H. Moor and Los Angeles Superior Court Judge Angela J. Davis, sitting by assignment, joined in the opinion.
Arbitral Immunity
Baker explained that the well-established doctrine of arbitral immunity extends the protection of judicial immunity to arbitrators because they perform the function of resolving disputes between parties and bars civil actions for acts performed in the exercise of their judicial functions, no matter how erroneous. A judge or arbitrator is immune unless he has acted in the “clear absence of all jurisdiction.”
Milder argued in his opening brief on appeal that the defendants “acted in the clear absence of jurisdiction in knowingly holding an arbitration after a lawful withdrawal” and in light of the proceedings being conducted under an agreement containing an illegal fee-shifting provision.
Unpersuaded, Baker wrote that “[t]here is no clear law establishing a party who commenced arbitration may unilaterally withdraw, and a fee-shifting provision does not impact the arbitrator’s fundamental jurisdiction.”
Fee-Shifting Provision
Milder contended that the defendants were barred by §1284.3(a) from administering an arbitration in the Holley matter.
Baker disagreed, saying:
“As a general matter, ‘if a party believes the entire contractual agreement or a provision for arbitration is illegal, it must oppose arbitration on this basis before participating in the process or forfeit the claim.’….The fact that such objections are subject to forfeiture and waiver indicates they do not undermine the arbitrator’s jurisdiction….In other words, because a party may forfeit or waive an objection based on section 1284.3, subdivision (a), an arbitrator who conducts an arbitration pursuant to an offending agreement does not act in the clear absence of all jurisdiction.”
Unpersuaded that the prohibition in §1284.3 may not be waived because it involves a public right not intended solely for his benefit, the jurist remarked:
“[L]egislative history materials for [§1284.3] confirm it was not intended to invalidate offending agreements in their entirety….Rather, section 1284.3, subdivision (a) was intended to address the possibility that a fee-shifting provision ‘may be so daunting as to deter the consumer from pursuing his or her case.’ ”
He continued:
“A construction of section 1284.3 according to which a party is entitled to initiate arbitration and later sue the arbitrator who took up the dispute would not advance this purpose. An arbitrator who awards a prevailing party fees and costs in violation of section 1284.3, subdivision (a) acts in excess of his or her authority, but not in the clear absence of all jurisdiction. In these circumstances, the losing party may seek to vacate the award—as plaintiff did—but the arbitrator is immune from civil liability for actions taken during the arbitration process.”
Purported Withdrawal
Milder also contended that “California law states that when a party refused to arbitrate, the arbitrator may proceed in their absence with a court order” and that “[d]etermining a controversy against an absent party without such a court order is in excess of jurisdiction.”
He cited Code of Civil Procedure §§1282.2(e) which provides that “[i]f a court has ordered a person to arbitrate a controversy, the arbitrators may hear and determine the controversy upon the evidence produced notwithstanding the failure of a party ordered to arbitrate, who has been duly notified, to appear.”
Unconvinced, Baker said:
“Contrary to plaintiff’s view, section 1282.2, subdivision (e) does not establish a court order is necessary to proceed in the absence of a party that initiated arbitration. Rather, it sets forth one of the consequences of a court order compelling arbitration. Holley and KWIKA did not seek such an order because plaintiff is the one who initiated the arbitration, and nothing in section 1282.2 suggests Holley and KWIKA were required to obtain an order compelling plaintiff to do what he had already done. Moreover, plaintiff’s reading of section 1282.2 also conflicts with established case law rejecting the idea that a unilateral right to withdraw from arbitration exists.”
The case is Milder v. ADR Services, Inc., B320376.
The defendants were represented by Cynthia Durham Kinney, Brian Dale Peters, and Andrew J. Waxler of the Torrance office of Kaufman Dolowich LLP. Milder was represented by San Jose-area attorney Nathaniel Gabriel Maranwe.
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