May 10, 2018 Practice Points

Arbitral Immunity Does Not Apply to Claim for False Advertising

By S.I. Strong

The Court of Appeals for the Ninth Circuit recently issued an interesting decision on arbitral immunity. Hopper v American Arbitration Association, No. 16-55573, (9th Cir. December 7, 2017).

Hopper involved a doctor who took his arbitration claim to the AAA pursuant to a provision in his contract with Blue Cross. Hopper chose the AAA because it promised to provide 'neutrals.' However, Hopper subsequently sued for false advertising based on his allegation that the AAA could not guarantee neutrality, given that the arbitrators were independent contractors. The district court in California dismissed the case on the grounds of arbitral immunity. However, the Ninth Circuit reversed and remanded for further proceedings, stating that:

Arbitral immunity extends to claims that arise out of a decisional act and exists to "protect the decision-maker from undue influence and protect the decision-making process from reprisals by dissatisfied litigants." Sacks v. Dietrich, 663 F.3d 1065, 1069 (9th Cir. 2011) (citation omitted). But Hopper's false advertising claim is predicated on AAA's descriptions of its arbitrators disseminated through its website and direct mail. Commercial advertisement, designed to sway individuals to choose AAA over its competitors—as Hopper alleges occurred here—is distinct and distant from the decisional act of an arbitrator. Therefore, adjudication of claims, like false advertising, that arise before a formal arbitration relationship between parties to arbitration, arbitrators, and arbitration companies like AAA will not lead to "undue influence" over the arbitration process, nor will it expose arbitrators' decisions to "reprisals by dissatisfied litigants."

The case presumably will proceed on the merits in California federal court, and the ultimate decision could have significant repercussions on the arbitral industry.

S.I. Strong is the Manley O. Hudson Professor at the University of Missouri, School of Law in Columbia, Missouri.

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