New Eng. Wire Techs. Corp. v. Cooner Sales Co.

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NEW ENGLAND WIRE TECHNOLOGIES CORPORATION et al., Plaintiffs and Appellants, v. COONER SALES COMPANY, LLC et al., Defendants and Respondents.

B320514

California Court of Appeals, Second District, Fourth Division

April 27, 2023

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Los Angeles County No.21STCV43375 Stephen I. Goorvitch, Judge. Affirmed.

Grignon Law Firm, Margaret M. Grignon, Anne M. Grignon; Hill Farrer &Burrill, William A. White, G. Cresswell Templeton for Plaintiffs and Appellants.

Weinstein Law Firm and David R. Weinstein; Quintairos, Prieto, Wood &Boyer, David G. Halm; Larson, Steve E. Bledsoe, Jerry A. Behnke, Andrew J. Bedigian for Defendant and Respondent Cooner Sales Company;

Schnader Harrison Segal & Lewis, Bruce B. Kelson, Stephen H. Dye for Defendant and Respondent American Arbitration Association.

COLLINS, J.

INTRODUCTION

Appellants New England Wire Technologies Corporation and New England Electric Wire Corporation (collectively New England) have been engaged in arbitration proceedings with respondents Cooner Sales Co., LLC and Cooner Enterprises, Inc. (collectively Cooner entities) since 2009. Respondent American Arbitration Association, Inc. (AAA) is the administrator of the long-running arbitration, which has included approximately 100 evidentiary hearings before a three-arbitrator panel and resulted in four interim awards.

In 2021, New England sought to disqualify all three arbitrators based on their failure to disclose that an attorney who represented Cooner Sales from 2015 to 2019 was also an active AAA arbitrator. New England also sought supplemental disclosures regarding the business relationship between that attorney and AAA. After the arbitrators and AAA refused New England's demands, New England filed a complaint in superior court asserting causes of action for provisional remedies under Code of Civil Procedure section 1281.8,^[1] unfair competition under Business and Professions Code section 17200 et seq. (UCL), equitable severance of any provision in the arbitration agreement requiring use of AAA, and declaratory and injunctive relief including cessation of the current arbitration proceedings and starting anew with a new arbitral administrator. Respondents separately filed demurrers to the complaint.

New England subsequently moved to disqualify the law firm representing Cooner Sales. New England alleged that an attorney disqualified from the arbitration in 2014 recently joined the firm, and his affiliation precluded the firm's further participation in the superior court and arbitration proceedings. Cooner Sales opposed the motion.

The superior court sustained all three demurrers without leave to amend. On the causes of action asserted under section 1281.8, the court ruled that New England sought remedies beyond the scope of section 1281.8 and failed to show that provisional remedies were necessary in any event. It further concluded the arbitrators were not required to make the requested disclosures, and, even if they were, New England failed to timely seek disqualification. In light of these rulings, the court further concluded that there were no bases upon which to grant equitable severance or declaratory or injunctive relief. The court also rejected the UCL claim, which sounded against AAA only, as derivative of the other causes of action. The court denied New England's motion to disqualify Cooner Sales's counsel as moot.

On appeal, New England contends the court erred by sustaining the demurrers without leave to amend and by declining to address its motion to disqualify counsel. We affirm. New England has not demonstrated an entitlement to relief under section 1281.8, it failed to challenge the ruling on the equitable severance cause of action, and its other claims are derivative or subject to arbitral immunity. New England has not cited any authority requiring the superior court to resolve motions to disqualify prior to resolving other dispositive motions, and we decline to infringe on the court's wide discretion to control proceedings before it. The request for judicial notice is denied.

BACKGROUND^[2]

I. The Parties

New England designs, manufactures, and sells custom wire and cable. New England and a predecessor of the Cooner entities formed a partnership to distribute New England's products in seven western states. In 1996, that partnership became Cooner Sales, a member-managed LLC Cooner Sales is governed by an operating agreement between its two members, New England Wire Technologies Corporation and Cooner Enterprises. New England Electric Wire Corporation holds a 35 percent membership interest in Cooner Sales, and Cooner Enterprises holds the remaining 65 percent. Cooner Sales is and always has been managed by the three principals of Cooner Enterprises. AAA is a provider of arbitration services.

II. The Fifth Arbitration

The Cooner Sales operating agreement contains an arbitration provision stating that "[a]ny controversy or claim arising out of, or relating to this Agreement, or to the interpretation, breach or enforcement thereof, shall be settled by arbitration in Los Angeles, California in accordance with the rules then obtaining of the American Arbitration Association." New England and Cooner Sales have arbitrated several disputes pursuant to this provision since 1998. Cooner Sales initiated the arbitration at issue "the Fifth Arbitration," in 2009, by asserting claims against New England. New England counter-claimed against both Cooner Sales and Cooner Enterprises. AAA is the administrator of the still-ongoing Fifth Arbitration, over which AAA arbitrators Peter D. Collisson, Paul E. Burns, and Hon. James M. Slater (Ret.) (collectively "the panel" or "the arbitrators") are presiding.

The lengthy Fifth Arbitration has been divided into multiple phases, and the parties have participated in approximately 100 evidentiary hearing days, most recently on May 31, 2019. The panel has issued four interim awards, most recently on March 31, 2021. The interim awards have been a mixed bag for the parties: on the one hand, the panel has determined that Cooner Sales is entitled to "millions of dollars" in unpaid commissions and profit disgorgements from New England; on the other, it has agreed with New England that the parties' distribution agreement ended in 2016, Cooner Sales improperly paid Cooner Enterprises's legal expenses, and Cooner Sales should be dissolved unless Cooner Enterprises buys out New England Electric Wire Corporation's interest in the LLC.

III. Arbitration CounselA. Arbitrators Disqualify Cooner Entities' Counsel

In 2014, the fifth year of the Fifth Arbitration, attorney Rick Richmond and his then-law firm, Jenner &Block, associated into the arbitration as counsel of record for both Cooner entities. New England filed an action in superior court seeking to disqualify Richmond and Jenner &Block due to an alleged conflict of interest between Cooner Sales and Cooner Enterprises arising from New England's counterclaims against Cooner Sales. The superior court referred the matter to the arbitrators, who ultimately granted the motion.

B. Cooner Sales Retains O'Brien and Larson LLP

Shortly thereafter, in January 2015, attorney Robert C. O'Brien and his then-law firm Arent Fox LLP associated into the arbitration as counsel for Cooner Sales only. They filed an updated notice of appearance in April 2015. O'Brien subsequently left Arent Fox LLP to join a new firm, Larson O'Brien LLP, as a named partner. O'Brien and Larson O'Brien LLP continued to represent Cooner Sales. In September 2019, O'Brien left Larson O'Brien LLP to serve as National Security Advisor to former president Donald Trump. O'Brien withdrew as Cooner Sales's counsel at that time, although the newly renamed Larson LLP continued to represent Cooner Sales in the Fifth Arbitration.

IV. O'Brien's Alleged Conflicts

A. Disclosures Relating to O'Brien

When O'Brien initially associated into the matter in early 2015, arbitrators Collisson and Burns represented that they did not have any additional disclosures relating to O'Brien or Arent Fox LLP. Arbitrator Slater disclosed that he previously served as an arbitrator on three cases in which Arent Fox LLP represented parties. Slater stated that those previous matters would not affect his neutrality in this case.

In response to a request from Collisson that the parties advise the panel if they were aware of any relationships requiring disclosure, O'Brien sent AAA's Manager of ADR Services a letter on February 4, 2015. O'Brien's letter stated, "pursuant to AAA Commercial Arbitration Rules and Mediation Procedures, Rule R-17, Arent Fox is unaware of any circumstance likely to give rise to justifiable doubt as to the impartiality or independence of the arbitrators in this matter . . . including any bias or financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their representatives." Neither the panel nor O'Brien made any further disclosures.

B. O'Brien's Alleged Conflicts of Interest

New England alleges that, at the time O'Brien sent his disclosure letter, "(a) he was an active roster member of the AAA, which is the DRPO [dispute resolution provider organization] in the Fifth Arbitration; (b) he intended to accept arbitration matters as a AAA arbitrator while he simultaneously represented [Cooner Sales] before the AAA panel members, who were all active co-members of the AAA's arbitration roster with O'Brien; and (c) he also intended to market and promote the AAA's services and/or be one of its speakers while he was also counsel for [Cooner Sales] in the Fifth Arbitration." New England alleges that neither O'Brien, the panel, nor AAA informed it...