A California appellate court vacated an arbitration award because the arbitrator’s witness credibility findings created an impression of bias. The court held that the arbitrator’s adverse determinations, which arose out of the witness’s use of a translator during arbitration, amounted to misconduct. ABA Litigation Section leaders acknowledge that this case both showcases the fact-intensive inquiry that courts apply when reviewing an arbitrator’s decision and highlights the importance of developing a detailed record that includes a well-reasoned arbitration award.
The California Court of Appeals in the Fourth Appellate District reviewed the trial court’s confirmation of an arbitration award of nearly ten million dollars. The dispute underlying FCM Investments, LLC v. Grove Pham, LLC arose out of a foiled real estate transaction. Mediation of the dispute ensued in accordance with the parties’ purchase agreement. Soon after a successful mediation, the deal floundered once more, leading to arbitration before a retired California judge.
During the two-day arbitration proceeding, the arbitrator was asked to determine whether the seller breached its contractual obligations, thereby justifying the buyer’s termination of the transaction. The arbitrator sided with the buyer and ordered an award just less than 10 million dollars.
In her barebones decision, the arbitrator cited a lack of witness credibility, stating that the case was unique “both in 12 years of doing arbitration and 24½ years on the Los Angeles County Superior Court, in that the lack of credibility issues are so rampant and obvious.” This perceived lack of credibility stemmed from the seller’s, an immigrant, use of an interpreter. The arbitrator wrote that the seller’s “use of an interpreter appeared to the Arbitrator to be a ploy to appear less sophisticated than she really is. She has been in the country for decades, has engaged in sophisticated business transactions and has herself functioned as an interpreter.”
The buyer then petitioned the trial court to confirm the award, while the seller moved to vacate. The trial court denied the seller’s motion and entered judgment for buyer, thereby confirming the arbitration award.
On appeal, the appellate court focused on the arbitrator’s adverse credibility finding. The court acknowledged the exceedingly narrow scope of judicial review generally applied to arbitration awards, noting that “when parties agree to private arbitration, they bargain for very limited judicial review.” Citing California law, the court wrote that judicial review is necessary, however, and an award must be vacated when “the rights of the party were substantially prejudiced by misconduct of a neutral arbitrator.”
The court concluded that the arbitrator’s award created a reasonable impression of possible bias that amounted to arbitrator misconduct. The test applied by the court was not whether there was a showing of actual bias but “whether a hypothetical reasonable person… would form an impression of possible bias on the part of the arbitrator” (emphasis added). Applying this standard, the court reasoned that the arbitrator’s award relied on uninformed misconceptions about English proficiency and language acquisition. According to the court, such misconceptions raised questions of linguistic and national origin bias that implicated both public interest and due administration of justice concerns.
The court’s analysis included statistics on California’s multilingual populace, including that 40 percent of Californians speak a non-English language at home, that there are greater than 200 languages and dialects spoken, and that about 20 percent of Californians have English limitations. With this backdrop, the court discounted the arbitrator’s credibility findings and the support proffered in furtherance of such adverse conclusions.
The buyer argued that the seller forfeited her claim of arbitrator bias by failing to raise the issue before the trial court. In dismissing this argument, the appellate court concluded that two exceptions to the forfeiture doctrine applied. The first being that the doctrine does not apply to a question of law that can be decided “from facts which are not only uncontroverted in the record, but which could not be altered by the presentation of additional evidence.” The second exception applies when matters of public interest or the due administration of justice are at issue. The court applied both exceptions but further concluded that even if they didn’t apply, “we would exercise our discretion to reach the claim given the interests at stake.”
“This case underscores how fact-specific and often unique the facts are in these kinds of challenges to arbitrator awards,” observes Harout J. Samra, Miami, FL, cochair of the Litigation Section’s International Litigation & Dispute Resolution Committee. “What stood out to me the most, and factored clearly in the appellate court’s analysis, was the fact that there was no record or transcription of the hearing and that the award was not reasoned,” Samra adds.
Section leaders suggest that the court’s decision might have been different if the arbitrator had more fully explained the basis of her decision. “The arbitrator’s expressed basis for the credibility finding and nothing else was the reason for the decision reversing the award,” notes Kelly O. Johnson, Tallahassee, FL, cochair of the Section’s Alternative Dispute Resolution Committee. “The arbitrator could have based her credibility findings on other or additional things the witness did to appear less sophisticated,” explains Johnson. The arbitrator’s brief decision “created a factual vacuum in a rather significant commercial case,” opines Samra.
