PROPERTIES v. WEISBACH

186 Cal.App.4th 893

112 Cal.Rptr.3d 597

LA SERENA PROPERTIES et al., Plaintiffs and Appellants,

v.Gerald WEISBACH et al., Defendants and Respondents.

No. A126283.

Court of Appeal, First District, Division 4, California.

July 15, 2010.

As Modified Aug. 4, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Phillips, Downs & Simontacchi, Scott M. Phillips, San Rafael, for Plaintiffs and Appellants.

Long & Levit, John Michael Higginbotham, San Francisco, for Defendant and Respondent Gerald Weisbach.

John S. Warnlof, Walnut Creek, for Defendant and Respondent American Arbitration Association.

RUVOLO, P.J.

I. INTRODUCTION

Plaintiffs La Serena Properties, LLC, Casa Margaritaville, Inc., and Steven Yates (appellants) appeal from a judgment entered after the trial court sustained the demurrers of defendants Gerald Weisbach (Weisbach) and the American Arbitration Association (AAA) (respondents) without leave to amend. Appellants sued respondents for damages, as well as other relief, alleging five separate causes of action, all of which arise out of the alleged failure of arbitrator Weisbach to disclose a certain conflict of interest during the appointment process.

We agree with the trial court that the alleged claims of misconduct, no matter how pleaded, all arise out of the conflict of interest disclosure procedure that is integrally part of the arbitration process. Thus, respondents are protected from liability by the common law arbitral immunity for quasi-judicial acts. Accordingly, we affirm the judgment.

II. FACTUAL AND PROCEDURAL BACKGROUNDS

When considering an appeal from a judgment entered after the trial court sustained a demurrer without leave to amend, we “accept as true all well-pleaded facts in the complaint and give a reasonable construction to the complaint as a whole.” ( Animal Legal Defense Fund v. Mendes (2008) 160 Cal.App.4th 136, 140, fn. 1, 72 Cal.Rptr.3d 553, citing Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) In addition, we may consider matters that are properly the subject of judicial notice, and were considered by the trial court. ( Buesa v. City of Los Angeles (2009) 177 Cal.App.4th 1537, 1543, 100 Cal.Rptr.3d 86.) Therefore, our factual summary is derived from the complaint, including Exhibits A through F incorporated by reference in that pleading. ( Holland v. Morse Diesel Internat., Inc. (2001) 86 Cal.App.4th 1443, 1447, 104 Cal.Rptr.2d 239.) ¹ The complaint alleges that appellants entered into a construction contract and a subsequent promissory note with Merchant Builders, Inc. (MBI) in 2002, both of which included mandatory AAA arbitration provisions. Subsequently, a dispute arose between appellants and MBI, and appellants demanded arbitration under the AAA arbitration clauses contained in the contract and note. MBI refused to arbitrate, and appellants filed a motion to compel arbitration. The motion was granted.

After being compelled to go to arbitration, it is alleged that MBI's lawyers conspired among themselves to persuade appellants to accept Weisbach as the arbitrator, without disclosing that Weisbach had a longstanding “family relationship” with one of MBI's counsel, David Baskin (Baskin), in that Weisbach was the “boyfriend” of Baskin's sister. Appellants then “tentatively agreed” to Weisbach serving as the arbitrator.

A “Notice of Appointment” was sent to Weisbach by AAA, indicating that he had been selected as arbitrator. The notice included a conflicts of interest disclosure form, which AAA directed Weisbach to complete. Weisbach was informed in the notice and disclosure form that he would not be able to serve as arbitrator until the form had been duly executed and was on file with AAA. The form included the following admonition and instruction:

“It is most important that the parties have complete confidence in the arbitrator's impartiality. Therefore, please disclose any past or present relationship [ sic ] with the parties, their counsel, or potential witnesses, direct or indirect, whether financial, professional, social or of any other kind. This is a continuing obligation throughout your service on the case and should any additional direct or indirect contact arise during the course of the arbitration, or if there is any change at any time in the biographical information that you have provided to the AAA, it must also be disclosed. Any doubt should be resolved in favor of disclosure. If you are aware of direct or indirect contact with such individuals, please describe it below. Failure to make timely disclosure may forfeit your ability to collect compensation. The Association will call the disclosure to the attention of the parties.”

Weisbach completed the form disclosing only a former association with Gerald K. Carroll, an attorney who worked with Long & Levit while Weisbach served as “of counsel” to the firm. Weisbach dated the disclosure form September 7, 2005, and signed it.

The complaint also alleges that Weisbach joined the conspiracy with MBI's counsel at “some time prior to September 12.” “Hours later,” on September 12, 2005, Weisbach sent an email to AAA stating that he had just received a call from Baskin informing Weisbach that Baskin was representing MBI in the dispute. Weisbach then stated: “David is a personal friend. While I do not believe that our relationship would prejudice my hearing of this matter, this relationship does present a potential conflict. Please so inform the parties and advise.” A copy of the email was faxed to counsel in the case, along with a cover letter from AAA, asking that AAA be advised within 15 days if there was any objection to the appointment of Weisbach. Apparently, neither side then objected to Weisbach's service as arbitrator.

With the agreement of MBI's counsel, Weisbach did not disclose his “familial” relationship with Baskin, or the “depth and character of his relationship with the Baskin family,” including the fact that he “was in a romantic relationship with Baskin's sister.” Appellants claim that the partial disclosures of Weisbach's relationship with Carroll and Baskin were intended to appear as if complete disclosures had been made when the full nature of the conflict was concealed from appellants.

The arbitration commenced on March 26, 2006, and extended over 10 days. MBI was represented by Baskin and his son, Caleb Baskin. An arbitration award was issued by Weisbach on July 20, 2006, and was clarified in an amended award on September 26, 2006. The final award denied more than 20 claims made by appellants against MBI, including eight fraud claims, but awarded appellants a total of $12,336.44 for two claims. Appellants were also awarded $4,112.15 in attorney fees, and reimbursement of $5,250.01, which they previously had paid in excess of their allocated 50 percent share of the costs of the arbitration.

Almost two years later, on May 28, 2008, the president of MBI wrote to the AAA, complaining about the failure of Weisbach to disclose his “intimate” involvement with Baskin's sister. MBI complained that this conflict caused Weisbach to struggle to render an impartial “verdict,” and ultimately resulted in a “ ‘non-decision’ ” or “ ‘split verdict.’ ” Appellants alleged that prior to their receipt of their copy of this letter they had no knowledge of this relationship and Weisbach's failure to disclose it.

Subsequently, court proceedings were commenced in the Santa Cruz County Superior Court seeking to set aside the arbitration award. That relief was ultimately granted on October 16, 2008.

Appellants filed the complaint in this action on January 13, 2009. ² The causes of action alleged against respondents included fraud, fraudulent concealment, breach of contract, unfair business practices, and negligence. Appellants sought an award of damages, disgorgement of profits, punitive damages, prejudgment interest, and costs, including attorney fees.

The first cause of action alleged that Weisbach and AAA had committed fraud because they failed to disclose Weisbach's relationship with Baskin's sister, which fraudulently induced appellants to select him as the arbitrator. In the second cause of action alleging fraudulent concealment, appellants alleged that Weisbach deliberately concealed his relationship with Baskin's sister in order to secure appellants' consent for Weisbach to serve as the arbitrator. This same claim is asserted against AAA, which allegedly “ratified” Weisbach's intentional misconduct.

The third cause of action for breach of contract is alleged only against AAA and claimed that AAA breached its arbitration contract with appellants by failing to make a full and complete disclosure of its arbitrator's “qualifications and fitness to serve as a fair and neutral arbitrator.” This same claim similarly alleged that AAA failed to supervise Weisbach in connection with his service as an arbitrator. The fourth cause of action claimed violations of Business and Professions Code sections 17200 and 17500 and alleged that AAA engaged in false and misleading advertising by advertising to the public that it maintains a panel of “ qualified and neutral arbitrators,” and by providing parties with completed disclosure forms falsely attesting to its “rigorous investigation into the prospective arbitrator's impartiality for their particular dispute.” The fifth cause of action for negligence is alleged only against AAA and claimed that AAA failed to use reasonable care to ensure that proper disclosures were made by Weisbach.

Separate demurrers were filed by respondents, contending that the absolute arbitral immunity for quasi-judicial acts barred appellants' suit. Both demurrers also asserted that, pursuant to AAA's arbitration rules to which appellants agreed to be bound, vacation of the arbitration award was the sole remedy for any alleged misconduct committed by respondents arising from the proceedings. The demurrers were opposed by appellants,...