ECC Capital Corp. v. Manatt, Phelps & Phillips, LLP , 215 Cal. Rptr. 3d 492 ( 2017 )

Filed 3/15/17
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
ECC CAPITAL CORPORATION et al., B265760
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC429484)
v.
MANATT, PHELPS & PHILLIPS, LLP,
Defendant and Respondent.
APPEAL from judgment of the Superior Court of
Los Angeles County, Mark Mooney, Judge. Affirmed.
Law Office of Julie M. McCoy, Julie M. McCoy; Sall
Spencer Callas & Krueger, Robert K. Sall, Lara A.S. Callas;
Lane Powell and Paul George for Plaintiffs and Appellants.
Kendall Brill & Kelly, Alan Jay Weil, Corey E. Klein and
Richard M. Simon for Defendant and Respondent.
____________________
INTRODUCTION
ECC Capital Corporation and its subsidiary, Performance
Credit, LLC, formerly known as Encore Credit Corp.,
(collectively, ECC) appeal from a judgment confirming a final
arbitration award of almost $7 million against them and in favor
of Manatt, Phelps & Phillips, LLP (Manatt). The award was for
attorneys’ fees, expert fees, and costs incurred by Manatt as the
prevailing party in an arbitration of legal malpractice claims
ECC brought against Manatt.
ECC contends the trial court erred in confirming the
arbitrator’s interim award denying ECC’s claims because the
arbitrator violated mandatory disclosure rules governing
arbitrations. ECC also contends the trial court erred in
confirming the final award because Manatt’s engagement
agreement was illegal, Manatt obtained the award by fraud, and
the arbitrator limited ECC’s rights to take discovery and present
evidence at the arbitration on the issue of Manatt’s conflict of
interest. Because we conclude ECC’s arguments are either
meritless or forfeited, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. ECC Contracts with and Then Sues Bear Stearns
In October 2006 ECC Capital and Bear Stearns Residential
Mortgage Corporation (Bear Stearns)1 entered into an Asset
1 Two other entities affiliated with Bear Stearns Residential
Mortgage Corporation played a role in this transaction: Bear
Stearns Mortgage Capital Corporation and EMC Mortgage
Corporation. Except where we need to distinguish among them,
2
Purchase Agreement (APA) providing that Bear Stearns would
buy ECC Capital’s subprime mortgage loan origination business,
Encore Credit Corp (Encore). The APA required Encore to
originate a minimum average of $400 million in mortgage loans
per month for as many months as it took the parties to close the
transaction, a period they expected to last approximately three
months. The APA required Bear Stearns to purchase and
securitize the loans Encore originated during this “pre-closing
period.”
ECC Capital hired Latham & Watkins (Latham) as “deal
counsel” for this transaction. ECC Capital also hired Manatt
partner Ellen Marshall to help negotiate and draft Section 7 of
the APA, the portion of the agreement governing Bear Stearns’
obligation to purchase and securitize the loans Encore originated
during the pre-closing period. According to ECC Capital, Bear
Stearns had agreed, and ECC Capital understood and intended,
that Bear Stearns would purchase those loans before the
borrowers’ first payments were due, so that Bear Stearns would
assume all risk of early defaults. ECC Capital claimed it
communicated its intention on this point to Marshall and, based
we will refer to these three entities, collectively and
interchangeably, as “Bear Stearns.” We will refer separately to
another affiliated entity, Bear Stearns & Co., Inc., which is one of
the many subsidiaries of The Bear Stearns Companies, Inc. We
note that throughout these proceedings, and as quoted in this
opinion, the parties and other participants have often referred to
“Bear Stearns” or simply “Bear” without specifying the entity
intended.
3
on conversations with her, understood the final draft of Section 7
reflected that intention.2
By December 2006, however, a dispute had arisen between
ECC Capital and Bear Stearns about the timing of Bear Stearns’
obligation to purchase the loans Encore originated. Roque Santi,
President of ECC Capital and Encore, felt Bear Stearns was “not
living up to the spirit of the deal” because Bear Stearns was not
purchasing all of the loans “promptly upon origination.” Bear
Stearns’ position was that the APA did not obligate it to purchase
the loans before the first payments were due, but did prohibit it,
after purchasing a loan, from requiring Encore to repurchase the
loan in the event of an early payment default (or breach of a
representation or warranty), as Bear Stearns had required when
previously purchasing loans from Encore.
2 Section 7 provided, in relevant part: “The parties
further agree that an Affiliate of [Bear Stearns] shall be the
sole lead underwriter for all securitizations relating to the
Mortgage Loans . . . and in connection therewith, all parties
acknowledge that such securitizations shall occur on a
monthly basis. . . . In connection with a [delay in
securitization by ECC Capital, ECC Capital] shall bear all
economic risk relating to the Mortgage Loans or otherwise
related to the proposed securitization, including, but not
limited to, defaults, prepayments and breaches of
representations and warranties relating thereto.” This
quotation comes from the arbitrator’s interim award ruling,
and the bracketed term “[Bear Stearns]” is the arbitrator’s,
who in the ruling used “Bear Stearns” to refer, collectively,
to Bear Stearns & Co., Inc. and Bear Stearns Residential
Mortgage Corporation.
4
ECC Capital and Bear Stearns ultimately closed the
transaction contemplated by the APA on February 9, 2007.
Approximately two months later, ECC filed suit in federal court
against Bear Stearns, seeking damages for Bear Stearns’ alleged
breach of the APA by, among other things, not buying all of the
loans Encore originated during the pre-closing period before the
due dates of the loans’ first payments. The case settled in July
2009, with ECC receiving $15 million.
B. ECC Sues Latham and Manatt, Who Compel
Arbitration
In January 2010 ECC filed this action in state court
against Latham and Manatt, asserting causes of action for legal
malpractice, breach of contract, breach of fiduciary duty, and
breach of the implied covenant of good faith and fair dealing.
ECC alleged that poor drafting by Latham and Manatt of Section
7 of the APA had enabled Bear Stearns to refuse to buy loans
promptly during the pre-closing period, forced ECC to sue Bear
Stearns to recover ECC’s resulting losses, and weakened ECC’s
position in that litigation, leaving ECC to settle for much less
than the $48 million it sought. ECC also asserted Latham and
Manatt “failed to make full written disclosure of conflicting
interests to [ECC] and to obtain [ECC’s] informed written
consent,” but made no specific factual allegations to support this
assertion.
Manatt moved to compel arbitration, citing arbitration
provisions in an April 2003 engagement agreement between
Manatt and Encore and a January 2007 engagement agreement
between Manatt and ECC Capital. Latham also moved to compel
arbitration, citing an arbitration provision in a March 2005
5
engagement agreement between Latham and ECC Capital,
although Latham conceded it lacked a fully executed copy of that
agreement. Latham also argued it could compel arbitration
under ECC’s engagement agreements with Manatt because ECC
alleged Latham acted as Manatt’s agent (and vice versa) in
providing legal services to ECC.
In opposing the motions, ECC did not dispute the validity
of the engagement agreements or arbitration provisions cited by
Manatt. Rather, ECC argued it had no enforceable arbitration
agreement with Latham and, because ECC’s claims against
Latham and Manatt arose out of the same transaction, the court
should try the claims against both defendants pursuant to Code
of Civil Procedure section 1281.2, subdivision (c),3 to avoid
conflicting rulings on common issues of law and fact. The court
granted the motions to compel arbitration “under the Manatt
contract.”
In October 2010 ECC initiated arbitration against Latham
and Manatt before the American Arbitration Association (AAA),
asserting the same claims it had asserted in court.4 Shortly
before the arbitration hearing began in January 2013, ECC
settled with Latham.
3 Undesignated statutory references are to the Code of Civil
Procedure.
4 As ECC had alleged in its complaint, ECC alleged in its
arbitration demand, on information and belief and without
supporting factual allegations, “that the Manatt Respondents
failed to make full written disclosure of conflicting interests to
[ECC] and to obtain [ECC’s] informed written consent.” The
arbitration demand also asked for attorneys’ fees and costs
“pursuant to the terms of the 2007 Manatt Engagement Letter.”
6
C. ECC Takes Discovery on Manatt’s Alleged
Conflict of Interest
The arbitrator limited discovery to requests for production
of documents and depositions. One category of documents ECC
requested from Manatt was “[a]ll DOCUMENTS concerning
[Manatt’s] COMMUNICATIONS or analysis of conflicts of
interest concerning the representation of ECC in connection with
the BEAR STEARNS TRANSACTION.” ECC also requested
billing records for any legal services Manatt provided to The Bear
Stearns Companies, Inc. and its affiliates, including Bear Stearns
Residential Mortgage Corporation and EMC Mortgage
Corporation, from 2004 through 2008.
When Manatt objected to these requests, ECC sought to
compel the production of responsive documents on the grounds
that the documents were necessary to discover whether Manatt
had a conflict of interest, arising from legal services provided to
Bear Stearns when Manatt represented ECC in the sale of
Encore, and whether Manatt had obtained conflict waivers. ECC
cited a September 2006 email exchange among Marshall, Manatt
partner Robert Sherman, and ECC Capital’s general counsel,
Alanna Darling, in which Darling asked Marshall and Sherman
to provide comments on Bear Stearns’ proposed amendments to
an agreement relating to the transaction for the sale of Encore.
In doing so, Darling commented, “I think you have a waiver for
these agreements but if not, let me know.” Sherman responded
that he was “not aware of any waiver from Bear.” Marshall
replied, “I think we talked about getting a waiver the last time
this came up, but because of the timing we did not do the work.
At least that’s what I recall. I think we could get the waiver
readily. (Rob, the best person to connect with Bear on this is
7
[Manatt partner] Barbara Polsky.)” Darling responded, “Please
do try to get a waiver.”5
After holding at least two hearings on these and other
discovery issues, the arbitrator sustained Manatt’s objection to
ECC’s request for Manatt’s billing records. And although the
arbitrator directed Manatt to supplement its response to ECC’s
request for communications or analyses concerning conflicts of
interest in connection with representing ECC in its sale of
Encore, the arbitrator ruled Manatt did not have to search
Barbara Polsky’s emails or use her name as a search term when
searching the email accounts of other custodians of record.6
5 At her deposition on January 10, 2012, Darling recalled
that during the negotiation of the sale of Encore the “issue” of a
conflict waiver “came up” with both Latham and Manatt because
both firms had an attorney-client relationship with “Bear.”
Darling stated that such an issue was “pretty standard with a
large company like Bear, that they would be conflicted. There . . .
would need to be a conflict waiver at some point.”
6 The arbitrator did not state his reasons for these rulings.
The record suggests, however, that the ruling regarding the
search of Polsky’s email account and use of her name as a search
term was based, at least in part, on Manatt’s assertions that (a)
Polsky provided no legal services to ECC, (b) searching her email
and using her name as a search term when searching other email
accounts would generate “an enormous number” of nonresponsive
documents and privileged communications with other Manatt
clients, and (c) “any relevant emails between the Manatt lawyers
who actually worked on the APA Transaction and Ms. Polsky . . .
would be collected through searching the mailboxes of the Manatt
lawyers who worked on the APA transaction using search terms
relevant to the case.”
8
When ECC later deposed Sherman, counsel questioned him
about his September 2006 email exchange with Darling and
Marshall, the conflict waiver referred to in the exchange, and any
communications he may have had with Polsky concerning the
issue. Sherman could not recall communicating with Polsky
about such a waiver or actually seeing one, but he believed
Manatt obtained one because Manatt was “not in the habit of
doing work when we had a conflict without getting a waiver.”
Counsel for ECC asked similar questions when deposing
Marshall. When asked whether “Bear had historically been a
client of Manatt,” Marshall answered, “From time to time,”
including at the time of the September 2006 email exchange with
Darling. Marshall stated she recalled Manatt sought and
obtained a conflict waiver from ECC in connection with the sale
of Encore to Bear Stearns. She also stated that in February
2007, when ECC began considering litigation against Bear
Stearns to enforce ECC’s understanding of Section 7 of the APA,
Marshall told ECC she could not bring one of Manatt’s litigation
partners to a meeting to discuss the issue because Manatt’s
conflict waiver from “Bear” excluded litigation work.
ECC did not seek to depose Polsky or any other Manatt
attorneys, though the arbitrator did not prohibit ECC from doing
so. Nor did ECC call Polsky as a witness at the arbitration
hearing.
ECC designated Robert Kehr as its expert on issues of
standard of care, professional ethics, and professional
responsibility. When counsel for Manatt asked Kehr during his
deposition whether he was giving any opinion in the case
regarding a conflict of interest on the part of Manatt, Kehr said
he was not. Consistent with this answer, Kehr gave no opinion
9
during the arbitration hearing that Manatt had any conflict of
interest.
D. The Arbitration Hearing and the Interim Award
The arbitration hearing was held from January 15 to
March 1, 2013. In advance of the hearing, ECC submitted a brief
setting forth all its contentions, including its principal contention
that Manatt was negligent in drafting the APA because, among
other reasons, Manatt failed to include a provision obligating
Bear Stearns to purchase the loans Encore originated before the
first payments on those loans were due. ECC’s brief did not
contend Manatt had any conflict of interest or fraudulently
induced or coerced ECC to sign the 2007 engagement agreement.
The arbitrator heard testimony from numerous witnesses
and considered approximately 2,000 pages of deposition
testimony. At no time did ECC argue or seek to present evidence
that Manatt had a conflict of interest or induced ECC through
any inappropriate means to sign the 2007 engagement
agreement. In fact, during the hearing, counsel for ECC
“expressly disavowed that [ECC] was seeking testimony to claim
that Manatt had a conflict or breached some fiduciary duty with
respect to conflicts.” At the conclusion of the hearing, the parties
submitted closing briefs, and on May 14, 2013 the arbitrator
heard closing arguments. Again, ECC made no mention of any
conflict of interest, fraud, or coercion on the part of Manatt.
On August 1, 2013 the arbitrator issued a 49-page interim
arbitration award, denying all of ECC’s claims against Manatt.
The arbitrator found ECC had not proved by a preponderance of
the evidence that Manatt was negligent in drafting Section 7 or
that any losses ECC may have incurred in the transaction with
10
Bear Stearns were the fault of Manatt. The arbitrator deemed
Manatt the prevailing party in the arbitration and directed it to
submit an application to recover its reasonable attorneys’ fees,
expert fees, and costs, as provided in the 2007 engagement
agreement.
E. ECC Requests Disqualification of the Arbitrator
On October 30, 2013, before Manatt filed its application for
fees and costs, ECC wrote the arbitrator and AAA requesting the
arbitrator’s disqualification from the proceeding and suggesting
there were grounds to vacate the interim award. ECC contended
the arbitrator failed to comply with his disclosure obligations by
not disclosing his “role as a Panelist in a prior matter involving
[Manatt] that took place in 2006.” ECC identified that matter as
Tom Leykis v. Damian Macafee dba QTK Internet Name Proxy, a
Uniform Domain Name Dispute Resolution Policy (UDRP)
proceeding before the National Arbitration Forum in which the
arbitrator served as a panelist and the claimant was represented
by Jill M. Pietrini, an attorney who at that time (and until
approximately January 2012) worked for Manatt.7 ECC stated it
“only recently” discovered these facts and believed the arbitrator
failed to disclose “other matters” he was statutorily required to
disclose. In letters to AAA in October and November 2013,
Manatt responded to ECC’s contentions and asked the arbitrator
not to disqualify himself.
On November 12, 2013 the arbitrator notified the parties
by letter that he did not intend to disqualify himself. The
arbitrator stated that, at the time he undertook the present
7 UDRP proceedings, as we will discuss in more detail,
involve disputes over the use of Internet domain names.
11
matter in December 2010, “[he] was unaware that an attorney
from [Manatt] had been listed as counsel in an uncontested,
documents only domain name dispute arbitration, in which [he]
served as an arbitrator almost five years previously.” He stated
that since 2000 he had served approximately 450-500 times as an
“arbitrator” in UDRP proceedings administered by the National
Arbitration Forum, almost all of which were, like the Leykis
matter, uncontested.
The arbitrator explained his involvement with those
proceedings: “These cases are documents only matters in which,
as an arbitrator, I have no direct contact with the parties or their
representatives. In fact, my total involvement in preparing a
decision takes well less than one hour. When an uncontested
matter is assigned to me, I access a web-based portal where I can
download the documents pertaining to the matter. The
complaining party files a complaint online, there is[]in addition a
letter assigning the matter to an arbitrator, a staff memorandum
proposing a resolution to the matter, and a template of the
decision. [¶] . . . I do not add [the names of the parties or their
representatives] to the template or give any consideration to the
names, if any, of a party representative. . . . The staff
memorandum proposes a resolution to all of the issues. . . . In the
case of uncontested matters, like the Leykis case, the resolutions
proposed in the staff memorandum are almost always adopted
with only modest editing.”
The arbitrator further explained: “Because of the sheer
volume of these cases, the fact that they are uncontested,
documents only matters, in which no consideration is given to
any one listed as a party representative, I can state with absolute
certainty that when I filled out the disclosure information in this
12
case I was unaware that an attorney from the Manatt firm had
been listed as a party representative in one of those matters. [¶]
I do maintain an excel spreadsheet where I record contested
arbitrations and mediations. I do not include in that excel
spreadsheet these domain name matters because they are
uncontested, documents only matters, where identification of a
party, or a party representative, is completely irrelevant to the
resolution of the dispute. So, when I did my customary due
diligence by reviewing the excel spreadsheet, the Manatt firm did
not appear.”
On November 18, 2013 ECC sent a second letter to AAA,
requesting AAA disqualify the arbitrator and vacate the interim
award, and describing “additional pertinent evidence.” ECC
stated that after receiving the arbitrator’s letter it searched the
National Arbitration Forum’s online database and discovered
that in 2002 the arbitrator was a panelist in Kevin Spacey v.
Alberta Hot Rods, a contested proceeding in which the claimant,
represented by Manatt, prevailed. ECC conceded the Spacey
matter was “not within the five year disclosure period,” but
argued it was relevant to ECC’s consideration of whether to allow
the arbitrator to serve in this case, and ECC would have
discovered and considered it had the arbitrator disclosed the
Leykis matter as ECC contended was required. On December
11, 2013 AAA notified the parties it was denying ECC’s request
to disqualify the arbitrator.
F. The Trial Court Confirms the Interim Award
In December 2013 ECC filed a petition to vacate the
interim award and disqualify the arbitrator, contending the
arbitrator failed to comply with his statutory disclosure
13
obligations. In January 2014 Manatt filed a competing petition
to confirm the interim award. In February 2014 ECC amended
its petition to include a request to vacate the orders compelling
arbitration.
In its amended petition ECC argued the court should
vacate the orders compelling arbitration and the interim award
because ECC’s 2007 engagement agreement with Manatt, which
ECC referred to as “the Arbitration Agreement,”8 was procured
by Manatt’s “fraud [and] coercion.” ECC contended the evidence
of Manatt’s fraud and coercion emerged only during the
arbitration hearing, when Marshall testified Section 7 of the APA
was (in ECC’s words) “drafted to provide only a discretionary
obligation on the part of Bear.” According to ECC, this testimony
conflicted with Marshall’s previous statements indicating she
shared ECC’s view that Section 7 “required Bear to purchase and
securitize monthly all the loans originated during the pre-closing
period.” This testimony also established, according to ECC, that
Manatt engaged in fraud and coercion when it requested ECC to
sign an engagement agreement in January 2007, “on the eve of”
ECC and Bear’s closing their transaction under the APA. ECC
8 ECC stated in a footnote: “Plaintiff Performance Credit
LLC, then known as Encore Credit Corporation, had signed an
engagement letter with Manatt in April 2003, with different
arbitration provisions than the ECC agreement, and not calling
for AAA arbitration. That fee agreement pertained to a different
representation matter. The Court ordered both Performance
Credit and ECC to AAA arbitration.” This is the only
explanation in the record or the briefs for why the parties do not
address what effect, if any, the 2003 engagement agreement
between Manatt and Encore might have on the issues in this
appeal.
14
contended Marshall’s testimony demonstrated that, at the time
Manatt asked ECC to sign the engagement agreement, Marshall
knew “she had not performed the job she was specifically hired to
do,” “was concealing her belief that Bear’s obligations were
‘discretionary,’” and knew “a potential claim [for legal
malpractice] would be likely.”
ECC also argued the court should vacate the interim award
and the orders to compel arbitration because the 2007
engagement agreement was “illegal.” ECC argued the agreement
was illegal because Manatt had an undisclosed conflict of interest
arising from its dual representation of ECC and “Bear,” for which
Manatt had not obtained a written waiver from ECC.
On March 12, 2014 the trial court denied ECC’s amended
petition. The court also granted Manatt’s petition to confirm the
interim award.
G. The Arbitrator Issues His Final Award
In March 2014 Manatt presented the arbitrator with its
application for more than $8 million in attorneys’ fees, expert
fees, and costs as the prevailing party in the arbitration. ECC
opposed the application on several grounds, including that the
2007 engagement agreement under which Manatt sought fees
and costs was unenforceable because Manatt committed ethical
violations in obtaining it. ECC again contended Manatt had an
undisclosed conflict of interest.
In January 2015 the arbitrator issued his final award,
granting Manatt’s application for attorneys’ fees, expert fees, and
costs in the amount of $6,982,621. In his 23-page ruling, the
arbitrator discussed at length ECC’s contention that the 2007
engagement agreement was unenforceable. The arbitrator
15
rejected that contention because there was no evidence Manatt
had a conflict of interest, ECC had forfeited the argument by
failing to raise it during the arbitration hearing, and ECC had
sought to enforce the terms of the 2007 engagement agreement
when it requested attorneys’ fees, expert fees, and costs in its
arbitration demand.
In concluding Manatt had no conflict of interest, the
arbitrator noted Marshall had submitted a declaration to the
effect that “Manatt never represented any of the companies
affiliated with [Bear Stearns & Co., Inc.] involved in the APA:
[Bear Stearns Residential Mortgage Corporation], EMC
[Mortgage Corporation], and Bear Stearns Mortgage Capital
Corporation,” but that “Manatt did represent previously [Bear
Stearns & Co., Inc.] in unrelated matters.” The arbitrator stated
that, because of the importance of these facts to the issues ECC
raised, he had directed counsel for Manatt to conduct further
inquiry, and after consulting with Manatt’s managing partner,
counsel for Manatt had sent an email to the arbitrator and
counsel for ECC stating the following:
“‘During the period 1987-89, but not thereafter, Manatt
represented an entity named Bear Stearns Mortgage Capital,
which apparently was one of the many Bear subsidiaries. The
counterparty to the repo agreement in the APA transaction was
an entity named Bear Stearns Mortgage Capital Corp. We do not
yet know if the two entities are the same entity with a name
change, or different entities. I have also been informed that
Manatt represented PMG Securities Corporation (not a Bear
entity) in an NASD arbitration in which another Bear affiliate,
Bear Stearns Securities Corp., was a co-defendant. I am
informed that PMG Securities Corporation indemnified Bear
16
Stearns Securities Corp. and that Manatt appeared in the
arbitration as counsel for both.’”
“Thus,” the arbitrator observed, “counsel for Manatt
acknowledged that Ms. Marshall’s declaration was false.”9 The
arbitrator then noted he had asked the parties during the
hearing on Manatt’s application for attorneys’ fees “whether they
believed further investigation and/or an evidentiary hearing was
necessary to establish the precise nature of Manatt’s prior
representation of any Bear Stearns affiliated entity. Counsel for
the parties stated they were satisfied with the record as it stood,
taking into account this most recent communication from
Manatt’s counsel.”
The arbitrator concluded, “Although it appears Manatt
previously had an attorney client relationship with [Bear Stearns
& Co., Inc.] and Bear Stearns Mortgage Capital (potentially the
same entity as one of the parties engaged in the negotiation of
the APA), no such relationships existed in 2006 when Manatt
represented ECC in drafting portions of the APA. To the extent
there are unknown issues regarding the nature of these
relationships or the reason why Manatt obtained a waiver letter
from Bear Stearns, the gap in the evidence was caused by the
delay on the part of ECC in raising its allegations of unethical
conduct.” (Fns. omitted.)
The arbitrator also rejected ECC’s argument that Manatt’s
agreement not to represent ECC in litigation relating to the APA
constituted a conflict. The arbitrator noted that, in response to
9 This appears to be an overstatement. The email from
counsel for Manatt leaves open the possibility Marshall was
correct in stating Manatt never represented any of the three Bear
Stearns entities involved with the APA.
17
the September 2006 email exchange in which Darling requested
that Sherman and Marshall “[p]lease do try to get a waiver,”
Manatt prepared a conflict waiver letter that a senior managing
director of Bear Stearns & Co., Inc. subsequently signed.10 It
was this conflict waiver letter to which Marshall was referring
when in January 2007, in response to a request from ECC that
she bring a litigator to a meeting to discuss disputes over the
APA, Marshall wrote: “I took a look at the conflict waiver letter
that we got from Bear Stearns, and it specifically excludes
representation in a litigation.” The arbitrator concluded the
conflict waiver letter thus “amounted to a ‘relationship’ with
[Bear Stearns & Co., Inc.] which apparently extended to [Bear
Stearns Residential Mortgage Corporation] wherein Manatt
agreed not to engage in any litigation relating to the APA.”
The arbitrator determined this “relationship,” however, did
not constitute a conflict of interest because there was no evidence
it materially and adversely affected Manatt’s representation of
ECC or ECC’s interests. The arbitrator noted the 2007
engagement agreement between ECC and Manatt defined the
“matter” for which ECC was retaining Manatt as “general
corporate advice” and all the evidence in the arbitration “showed
that Manatt’s role was limited to drafting and negotiating
selected portions of the APA documentation.” In addition, the
arbitrator observed, ECC “promptly retained extremely
10 The arbitrator noted the letter was not part of the record of
the proceeding because counsel for Manatt contended it was
privileged, and “Manatt has not been able to identify anyone with
the current holder of the privilege, JP Morgan Chase, to
authorize release of the letter.”
18
competent counsel” to represent it in litigation with Bear
Stearns.
H. The Trial Court Confirms the Final Award
On February 24, 2015 ECC and Manatt filed respective
petitions to vacate and confirm the final arbitration award. ECC
argued the trial court should vacate the final award under
section 1286.2, subdivision (a), because, among other reasons, the
arbitrator exceeded his powers by awarding fees and costs
pursuant to an illegal agreement, the final award was procured
by “fraud, coercion and/or undue means,” and the arbitrator
failed to disclose a ground for disqualification of which he was
aware.
On March 23, 2015 the trial court denied ECC’s petition to
vacate the final award and granted Manatt’s petition to confirm
it. Neither party requested a statement of decision. On July 13,
2015 the trial court entered judgment in favor of Manatt and
against ECC in the amount of $6,982,621. ECC timely appealed.
DISCUSSION
ECC argues the trial court erred in confirming the interim
award because the arbitrator violated mandatory disclosure
rules. ECC also contends the trial court erred in confirming the
final award because the arbitrator exceeded his powers by
enforcing an illegal agreement, Manatt procured the final award
by fraud or undue means, and the arbitrator refused to allow
ECC to take discovery and present evidence relating to Manatt’s
alleged conflict of interest.
19
A. Standard of Review
Judicial review of an arbitration award is ordinarily limited
to the statutory grounds for vacating an award under section
1286.2 and correcting an award under section 1286.6.
(Moncharsh v. Heily & Blase (1992) 3 Cal. 4th 1, 12-13; Sunline
Transit Agency v. Amalgamated Transit Union, Local 1277 (2010)
189 Cal. App. 4th 292, 303.) “In relatively rare instances the court
may also vacate or correct an arbitration award, ‘[w]here
“according finality to the arbitrator’s decision would be
incompatible with the protection of a statutory right” or where
the award contravenes “an explicit legislative expression of public
policy.”’” (Sunline Transit Agency, at p. 303; see Singerlewak
LLP v. Gantman (2015) 241 Cal. App. 4th 610, 615-617.)
“‘On appeal from an order confirming an arbitration award,
we review the trial court’s order (not the arbitration award)
under a de novo standard. [Citations.] To the extent that the
trial court’s ruling rests upon a determination of disputed factual
issues, we apply the substantial evidence test to those issues.’”
(Toal v. Tardif (2009) 178 Cal. App. 4th 1208, 1217; accord,
Condon v. Daland Nissan, Inc. (2016) 6 Cal.App.5th 263, 267; see
Sunline Transit Agency, supra, 189 Cal.App.4th at p. 303 [“‘“the
general rule [is] that ‘an arbitrator’s decision cannot be reviewed
for errors of fact or law’”’”].) “[T]he question whether the
arbitrator exceeded his powers and thus whether we should
vacate his award on that basis is generally reviewed on appeal de
novo.” (Richey v. AutoNation, Inc. (2015) 60 Cal. 4th 909, 918, fn.
1.)
Although there is a split of authority on whether a
statement of decision is required on a petition to confirm an
20
arbitration award when a party requests one,11 courts uniformly
hold that a statement of decision is not required when there is no
such request. (See Carbajal v. CWPSC, Inc. (2016) 245
Cal. App. 4th 227, 237 [“[w]hen a trial court denies a motion to
compel arbitration, a party may request the court to provide a
statement of decision explaining the factual and legal basis for its
decision,” but “[n]o statement of decision is required if the parties
fail to request one”]; Agri-Systems, Inc. v. Foster Poultry Farms
(2008) 168 Cal. App. 4th 1128, 1134 [trial court confirming an
arbitration award “has no obligation to prepare a statement of
decision unless a party requests one”].) Where, as here, neither
side asked for, and the trial court did not issue, a statement of
decision, “the appellate court will infer the trial court made
implied factual findings favorable to the prevailing party on all
issues necessary to support the judgment, including the omitted
or ambiguously resolved issues. [Citations.] The appellate court
then reviews the implied factual findings under the substantial
evidence standard.” (Fladeboe v. American Isuzu Motors Inc.
(2007) 150 Cal. App. 4th 42, 60; see In re Marriage of Arceneaux
(1990) 51 Cal. 3d 1130, 1133-1135; Agri-Systems, Inc., at p. 1135
[applying the rule to an order confirming an arbitration award].)
11 Compare Rebmann v. Rohde (2011) 196 Cal. App. 4th 1283,
1294 [a statement of decision is not required for an order
granting or denying a petition to confirm an arbitration award]
with Metis Development LLC v. Bohacek (2011) 200 Cal. App. 4th
679, 687 [“the Legislature intended to require the trial court to
issue a statement of decision, upon proper request under section
632, when denying a petition to compel arbitration”].
21
B. ECC Did Not Establish the Arbitrator Violated
Mandatory Disclosure Rules
Section 1286.2, subdivision (a)(6)(A), provides the court
must vacate an arbitration award if the arbitrator “failed to
disclose within the time required for disclosure a ground for
disqualification of which the arbitrator was then aware.” (See
Haworth v. Superior Court (2010) 50 Cal. 4th 372, 394 [under
section 1286.2, subdivision (a)(6), “an arbitrator’s failure to make
a required disclosure requires vacation of the award, without a
showing of prejudice”].) Specifically, as relevant here, “[w]ithin
10 days of receiving notice of his or her nomination to serve as a
neutral arbitrator, the proposed arbitrator is required, generally,
to ‘disclose all matters that could cause a person aware of the
facts to reasonably entertain a doubt that the proposed neutral
arbitrator would be able to be impartial.’” (Haworth, at p. 381,
quoting § 1281.9, subd. (a); accord, United Health Centers of
San Joaquin Valley, Inc. v. Superior Court (2014) 229
Cal. App. 4th 63, 75; see § 1281.9, subds. (a), (b).)
Section 1281.9, subdivision (a), enumerates specific matters
the arbitrator must disclose. (See Haworth, supra, 50 Cal.4th at
p. 381; United Health Centers, supra, 229 Cal.App.4th at p. 75.)
Subdivision (a)(4) of that section requires disclosure of “[t]he
names of the parties to all prior or pending noncollective
bargaining cases involving any party to the arbitration or lawyer
for a party for which the proposed neutral arbitrator served or is
serving as neutral arbitrator, and the results of each case
arbitrated to conclusion, including the date of the arbitration
award, identification of the prevailing party, the names of the
parties’ attorneys and the amount of monetary damages awarded,
if any.” “Prior cases” in this description means “noncollective
22
bargaining cases in which an arbitration award was rendered
within five years prior to the date of the proposed nomination or
appointment.” (Id., subd. (d).) “Lawyer for a party” means “any
lawyer or law firm currently associated in the practice of law
with the lawyer hired to represent a party.” (Id., subd. (c).)
To similar effect, subdivision (a)(2) of section 1281.9
requires the arbitrator to disclose “[a]ny matters required to be
disclosed by the ethics standards for neutral arbitrators adopted
by the Judicial Council pursuant to this chapter.” Those Ethics
Standards require an arbitrator to disclose whether he or she “is
serving or, within the preceding five years, has served . . . [a]s a
neutral arbitrator in another prior or pending noncollective
bargaining case involving a party to the current arbitration or a
lawyer for a party.” (Ethics Standards, std. 7(d)(4)(A)(i); see
United Health Centers, supra, 229 Cal.App.4th at p. 76, fn. 4.)
ECC contends the Leykis matter—the UDRP proceeding in
which the arbitrator participated within the previous five years
and a Manatt lawyer represented the claimant—was a prior
noncollective bargaining case that section 1281.9, subdivisions
(a)(2) and (a)(4), required him to disclose within 10 days of his
proposed appointment to serve as arbitrator in this case.
Because he failed to do so, ECC argues, the trial court erred in
not vacating the interim award pursuant to section 1286.2,
subdivision (a)(6)(A).
As Manatt points out, however, section 1286.2, subdivision
(a)(6)(A), provides for vacatur only where the arbitrator fails to
disclose a ground for disqualification “of which the arbitrator was
then aware.” Casden Park La Brea Retail LLC v. Ross Dress For
Less, Inc. (2008) 162 Cal. App. 4th 468 illustrates this knowledge
requirement. After the trial court in that case vacated an
23
arbitration award because the court found the neutral arbitrator
improperly failed to disclose business dealings between his
employer and a party (and that party’s arbitrator), the Court of
Appeal reversed. (Id. at p. 470.) Acknowledging section 1281.9,
subdivision (a)(6), required disclosure of “‘[a]ny professional or
significant personal relationship the proposed neutral arbitrator
. . . has or has had with any party to the arbitration proceeding,’”
the court in Casden nevertheless held vacating the arbitration
award under section 1286.2, subdivision (a)(6), was improper
because the arbitrator did not know of the business dealings
when he made his disclosures. (Casden, at pp. 476-477.) The
court explained: “[A]n arbitration award may be vacated only
upon a finding that a neutral arbitrator failed to disclose a
ground for disqualification ‘of which the arbitrator was then
aware’ [citation], and this requirement of scienter is a deliberate
expression of the Legislature’s intent to prevent the undoing of
an arbitration award based upon an arbitrator’s unknowing
failure to disclose information.” (Id. at p. 477.) Because no one
disputed the arbitrator was unaware of the business dealings, the
court observed, “it follows that [the arbitrator] had no duty to
disclose those transactions.” (Id. at pp. 477-478.)
The parties here similarly do not dispute that at the time of
his disclosures the arbitrator was not aware a former Manatt
lawyer had participated in the Leykis UDRP matter. As the
arbitrator stated in his letter responding to ECC’s request that
he disqualify himself: “[L]et me state unequivocally that at the
time I undertook this matter in December 2010 I was unaware
that an attorney from [Manatt] had been listed as counsel in [the
Lyekis matter]. The letter I received from [ECC] was the first,
and only time, I became aware that an attorney from Manatt had
24
been listed as a party representative in [that] matter.” Because
the arbitrator was not aware a former Manatt lawyer
participated in the Leykis UDRP proceeding, his failure to
disclose that matter is not a ground for vacating the interim
award under section 1286.2, subdivision (a)(6)(A).
ECC argues that, although the arbitrator may not have
been aware a Manatt lawyer participated in the Leykis UDRP
proceeding, he should have been aware, and therefore his failure
to disclose the matter requires vacating the interim award. As
ECC puts it: “An arbitrator cannot render himself ‘unaware’ of
arbitrations he is required to disclose by failing to inform himself
before making disclosures.” ECC points to what the court in
Advantage Medical Services, LLC v. Hoffman (2008) 160
Cal. App. 4th 806 referred to as a “duty of inquiry” imposed by the
Ethics Standards. (Id. at p. 819.) The court in Advantage
Medical Services noted: “Standard 9(a) of the Standards clearly
states: ‘A person who is nominated or appointed as an arbitrator
must make a reasonable effort to inform himself or herself of
matters that must be disclosed under standards 7 and 8.’”12 (Id.
at p. 818.) ECC argues these authorities required the arbitrator
to inform himself of the Leykis matter by reviewing the UDRP
proceedings in which he participated, and ECC contends his
failure to do so (and resulting failure to discover and disclose the
Leykis matter) requires vacatur.
There are two problems with ECC’s argument, one legal
and one factual. As a legal matter, ECC does not explain how the
arbitrator’s failure to disclose a ground for disqualification of
which the arbitrator was not aware but reasonably should have
12 The only disclosure requirement under standards 7 and 8
that ECC identifies as applicable is standard 7(d)(4)(A).
25
been requires vacating an award under section 1286.2,
subdivision (a)(6)(A), when that statute requires vacating an
award only when an arbitrator fails to disclose a ground for
disqualification of which he or she was actually aware. Section
1286.2, subdivision (a)(6)(A), requires actual awareness, not
inquiry or constructive awareness. (See Knight et al., Cal.
Practice Guide: Alternative Dispute Resolution (The Rutter
Group 2016) ¶ 7:50 [“[t]he arbitrator’s duty to investigate for
conflicts is narrower than the duty to disclose known conflicts”].)
As a factual matter, because the trial court did not issue a
statement of decision, we must presume the court found the
arbitrator made a reasonable effort to inform himself of matters
he was required to disclose and therefore it was not unreasonable
for him to exclude the UDRP proceedings from his pre-disclosure
review.
That implied factual finding is supported by substantial
evidence. The arbitrator explained it was not his practice to
include the UDRP proceedings in his review because of the
nature and number of those proceedings, and he stated this
practice comported with his “understanding of [his] ethical duties
and disclosure obligations under California law.” Manatt
submitted declarations from three people with relevant
experience and expertise who concurred with the arbitrator’s
approach. One of those, David E. Sorkin, a panelist in
approximately 400 UDRP proceedings and an arbitrator in
approximately 90 private contractual arbitrations, is a law
professor whose scholarship focuses on “Internet law, UDRP
mandatory administrative proceedings[,] and arbitration laws
and practices.” Sorkin explained that any person contesting
another person’s Internet domain name registration can initiate
26
a UDRP proceeding. He then highlighted what he considered
important differences between such a proceeding and those
proceedings an arbitrator would normally recognize as
“arbitrations” subject to the disclosure requirements under
section 1281.9 and the Ethics Standards. For example, UDRP
rules refer to UDRP proceedings as “mandatory administrative
proceedings,” not “arbitrations,” and refer to the people who
decide such disputes as “panelists,” not “arbitrators.” UDRP
proceedings are non-binding, in that “[e]ither side can file a court
action at any time, before, during or after a decision.” And UDRP
proceedings “typically involve no in-person or telephonic
hearings, no witnesses, no discovery, and no contact with the
panelist.” Given these characteristics, Sorkin opined, “it would
be reasonable for an arbitrator to believe that serving as a
panelist in a UDRP mandatory administrative proceeding would
not trigger a required arbitration disclosure under California’s
Ethics Standards or [section] 1281.9.” The other two expert
declarations on this subject included similar statements.
ECC cites no authority suggesting the arbitrator’s
understanding of his disclosure obligation was unreasonable. In
fact, ECC suggests whether a UDRP proceeding is, as it contends,
an “arbitration” subject to mandatory disclosure under section
1281.9, subdivision (a)(4), and the Ethics Standards, is an issue
of first impression in California. That ECC has found cases
where arbitrators and some federal courts outside California may
have referred to UDRP proceedings as “arbitrations,” without
addressing and analyzing whether that label is appropriate, is
not dispositive. (See, e.g., Storey v. Cello Holdings, L.L.C. (2d
Cir. 2003) 347 F.3d 370, 381, 393; Retail Services, Inc. v. Freebies
Pub. (E.D.Va. 2003) 247 F. Supp. 2d 822, 825; see also Borikas v.
27
Alameda Unified School District (2013) 214 Cal. App. 4th 135, 164,
fn. 34 [“a case is not authority for a proposition it does not
address”].) Moreover, although there are no cases addressing
whether a UDRP proceeding is an “arbitration” subject to
disclosure under the provisions of the California Arbitration Act
(§ 1280 et seq.), federal cases addressing whether a UDRP
proceeding is an “arbitration” under the Federal Arbitration Act
(9 U.S.C. § 1 et seq.) have concluded it is not. (See Dluhos v.
Strasberg (3d Cir. 2003) 321 F.3d 365, 370-373; Parisi v.
Netlearning, Inc. (E.D.Va. 2001) 139 F. Supp. 2d 745, 751-753; see
also Speidel, ICANN Domain Name Dispute Resolution, the
Revised Uniform Arbitration Act, and the Limitations of Modern
Arbitration Law (2002) 6 J. Small & Emerging Bus. L. 167, 171-
172 [“the UDRP is not an arbitration within the scope of
American statutory arbitration law, whether that law is found in
international treaties, the FAA, or state arbitration law”], fns.
omitted.)
Finally, ECC suggests the arbitrator should have disclosed,
at a minimum, that he had participated in numerous UDRP
proceedings that he did not review for required disclosures, so
that the parties could have undertaken their own review of and
investigation into those matters. That might have been a better
arbitrator disclosure practice. But ECC cites no authority for
vacating an arbitration award on that ground. The trial court did
not err when it denied ECC’s petition to vacate the interim award
based on the arbitrator’s alleged failure to make mandatory
disclosures.
28
C. ECC Forfeited Its Argument the 2007
Engagement Agreement Was Illegal
Section 1286.2, subdivision (a)(4), requires a court to vacate
an arbitration award if it determines “[t]he arbitrators exceeded
their powers and the award cannot be corrected without affecting
the merits of the decision upon the controversy submitted.” ECC
contends the trial court erred in refusing to vacate the final
award because, in making the award, the arbitrator exceeded his
powers and violated a well-defined public policy by “enforcing an
illegal agreement.” Specifically, ECC argues that, in awarding
fees and costs under the 2007 engagement agreement, the
arbitrator gave effect to a contract that was illegal because
Manatt procured it in violation of Rules 3-310(B) and 3-310(C) of
the Rules of Professional Conduct and section 6106 of the
Business & Professions Code.
Rule 3-310(B) of the Rules of Professional Conduct
prohibits a lawyer from, among other things, accepting or
continuing “representation of a client without providing written
disclosure to the client where . . . [the lawyer] has a legal,
business, financial, professional, or personal relationship with a
party or witness in the same matter.” (Rules Prof. Conduct, rule
3-310(B)(1).) ECC contends Manatt violated this rule because it
represented ECC without providing written disclosure that
“Manatt had entered into a ‘legal, business . . . or professional
relationship’ with Bear in 2006 when it contractually committed
that it would not represent ECC in litigation.”
Rule 3-310(C) of the Rules of Professional Conduct provides
that a lawyer must not, “without the informed written consent of
each client[,] . . . [a]ccept representation of more than one client
in a matter in which the interests of the clients potentially
29
conflict” or “[a]ccept or continue representation of more than one
client in a matter in which the interests of the clients actually
conflict.” (Rules Prof. Conduct, rule 3-310(C)(1)-(2).) ECC
contends Manatt violated these provisions by failing to obtain
ECC’s informed written consent to Manatt’s “dual
representation” of ECC and “Bear.”
ECC also contends Manatt’s violation of these Rules of
Professional Conduct “means that the [2007 engagement
agreement] was obtained in violation of Business & Professions
Code Section 6106.” That section provides, in relevant part, that
a lawyer’s “commission of any act involving moral turpitude,
dishonesty or corruption . . . constitutes a cause for disbarment or
suspension.” (Bus. & Prof. Code, § 6106.)
We agree with Manatt, the arbitrator, and the trial court
that ECC forfeited these arguments by failing to raise them
earlier in the proceedings. Cummings v. Future Nissan (2005)
128 Cal. App. 4th 321 is instructive. In that case, the appellant
received a favorable result at the first level of a “two-tiered”
arbitration proceeding, but had that result reversed at the
second, “review” level. (Id. at p. 323.) After the trial court
confirmed the final award, the appellant urged the Court of
Appeal to vacate it on the ground the arbitration provision in her
employment contract was unconscionable and therefore
unenforceable, an argument she had raised for the first time only
after losing at the review level of the arbitration. (Id. at pp. 323,
327.) The court in Cummings held the appellant forfeited the
argument because she failed to raise it in her opposition to the
motion to compel arbitration. (Id. at pp. 329-330.) The court
explained: “The forfeiture rule exists to avoid the waste of scarce
dispute resolution resources, and to thwart game-playing
30
litigants who would conceal an ace up their sleeves for use in the
event of an adverse outcome. . . . Those who are aware of a basis
for finding the arbitration process invalid must raise it at the
outset or as soon as they learn of it so that prompt judicial
resolution may take place before wasting the time of the
adjudicator(s) and the parties. . . . . [A] party who knowingly
participates in the arbitration process without disclosing a
ground for declaring it invalid is properly cast into the outer
darkness of forfeiture.” (Id. at pp. 328-329, fns. omitted.)
In reaching its conclusion, the court in Cummings cited
Moncharsh, supra, 3 Cal. 4th 1: “Moncharsh held that 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.”
(Cummings, supra, 128 Cal.App.4th at p. 328.) As the Supreme
Court stated in Moncharsh, “we cannot permit a party to sit on
his rights, content in the knowledge that should he suffer an
adverse decision, he could then raise the illegality issue in a
motion to vacate the arbitrator’s award. A contrary rule would
condone a level of ‘procedural gamesmanship’ that we have
condemned as ‘undermining the advantages of arbitration.’”
(Moncharsh, at p. 30; see Reed v. Mutual Service Corp. (2003) 106
Cal. App. 4th 1359, 1372-1373 [“[a]ny claim of illegality must be
raised before the arbitrator or it is deemed waived” because “[a]
contrary rule might tempt a party to ‘play games’ with the
arbitration and not raise the issue of illegality until and unless it
lost”]; see also Mitchel v. City of Santa Rosa (N.D.Cal. 2010) 695
F. Supp. 2d 1001, 1007 [under Moncharsh “a plaintiff who argues
that a fee-splitting provision in an arbitration agreement is
31
illegal and in violation of public policy must raise that argument
before the arbitration panel or risk waiver of the claim”].)
These principles apply with equal if not greater force in
this case. Not only did ECC not oppose the motions to compel
arbitration on the ground the 2007 engagement agreement was
illegal or otherwise unenforceable, ECC gave every indication
going into the arbitration hearing it was abandoning its previous
assertion that Manatt had an undisclosed conflict of interest, and
during the hearing ECC represented it was not going to present
any evidence to establish what it now claims as the basis of its
illegality argument. This procedural gamesmanship, as the
arbitrator noted, deprived Manatt of the opportunity “during the
evidentiary portion of this arbitration to make a record on this
issue or retain its own expert on the issue of conflict of interest.”
ECC maintains “a claim that a contract is illegal is never
waived.” Not according to the Supreme Court, which in
Moncharsh stated: “We thus hold that unless a party is claiming
(i) the entire contract is illegal, or (ii) the arbitration agreement
itself is illegal, he or she need not raise the illegality question
prior to participating in the arbitration process, so long as the
issue is raised before the arbitrator. Failure to raise the claim
before the arbitrator, however, waives the claim for any future
judicial review.” (Moncharsh, supra, 3 Cal.4th at p. 31; see id. at
pp. 29-31.) In fact, as the Supreme Court has also stated, “the
maxim that the illegality of a contract . . . is never waived”
appears to concern “the procedural issue whether a defense is
waived by failure to assert it in a timely fashion once a lawsuit
has commenced,” and “it is not clear that all issues of illegality in
a contract fall within the unwaivable category.” (Styne v. Stevens
(2001) 26 Cal. 4th 42, 54, fn. 5; see Yoo v. Robi (2005) 126
32
Cal. App. 4th 1089, 1103 [“there may be some exceptions to the
rule of unwaivablility”].)
The cases ECC cites are distinguishable for that reason:
They concern a failure to raise the illegality of a contract as an
affirmative defense to a suit on the contract. (See, e.g., Fewel &
Dawes v. Pratt (1941) 17 Cal. 2d 85, 92; Yoo v. Robi, supra, 126
Cal.App.4th at p. 1103 [“a defense of illegality based on public
policy is not waived by the defendant’s failure to include it as an
affirmative defense in the answer to the complaint”]; In re
Guardianship of Prieto’s Estate (1966) 243 Cal. App. 2d 79, 86.) As
one court explained: “This rule [of non-waiver] applies because,
unlike other affirmative defenses which may be waived if not
pled, ‘when the evidence shows that the plaintiff in substance
seeks to enforce an illegal contract or recover compensation for an
illegal act, the court has both the power and duty to ascertain the
true facts in order that it may not unwittingly lend its assistance
to the consummation or encouragement of what public policy
forbids.’” (Yoo, at p. 1103, fn. omitted.)
In stark contrast, in this case it was ECC that sued on a
contract, lost, and only then argued illegality in an attempt to
avoid paying fees and costs, despite the fact it was aware of the
facts offered in support of that argument from the outset of the
case. Such tactics were not present in the cases ECC cites, and, if
permitted to succeed here, would severely “‘undermin[e] the
advantages of arbitration.’” (Moncharsh, supra, 3 Cal.4th at p.
30.) Under these circumstances, we are not “unwittingly lend[ing
our] assistance to the consummation or encouragement of what
public policy forbids.” (Yoo v. Robi, supra, 126 Cal.App.4th at p.
1103.)
33
D. ECC Did Not Establish Manatt Procured the Final
Award by Fraud or Undue Means
ECC also argues the trial court should have vacated the
final award under section 1286.2, subdivision (a)(1), which
requires vacatur when an award “was procured by corruption,
fraud or other undue means.” ECC suggests Manatt procured the
award by fraud or undue means “because Ellen Marshall’s
perjured testimony that no conflict of interests existed had a
‘substantial impact’ on the arbitrator’s decision.” The “perjured
testimony” to which ECC refers is the declaration from Marshall
that the arbitrator, in his ruling, stated Manatt acknowledged
was “false.”
This argument fails for two reasons. First, the arbitrator
gave multiple, alternative grounds for rejecting ECC’s contention
the 2007 engagement agreement was unenforceable. One of
those grounds was that ECC forfeited the argument, a conclusion
with which we concur. In determining whether “perjured
evidence or evidence procured by undue means” affected an
arbitration award, we must presume the arbitrator “‘took a
permissible route to the award where one exists.’” (Pour Le Bebe,
Inc. v. Guess? Inc. (2003) 112 Cal. App. 4th 810, 833.)
Second, the arbitrator did not rely at any point on that
portion of Marshall’s declaration the arbitrator said Manatt
acknowledged was “false.” What counsel for Manatt’s email
suggested may have been false was Marshall’s statement that
Manatt had never represented the three affiliated entities
involved in the APA transaction: Bear Stearns Residential
Mortgage Corporation, Bear Stearns Mortgage Capital
Corporation, and EMC Mortgage Corporation. Counsel for
Manatt’s email acknowledged the possibility that Manatt had
34
represented one of those entities—Bear Stearns Mortgage
Capital Corporation—from 1987 to 1989. From this the
arbitrator concluded Manatt had not represented any of the three
affiliated entities involved in the APA transaction during the
time it represented ECC, and the arbitrator rejected aspects of
ECC’s conflict-of-interest argument on that basis (among others).
The arbitrator’s ruling did not rely on Marshall’s statement that
Manatt had never represented Bear Stearns Mortgage Capital
Corporation.
E. ECC Did Not Establish the Arbitrator Improperly
Refused To Hear Evidence
Finally, ECC perfunctorily contends the arbitrator’s
“refusal to allow ECC to obtain discovery and present evidence on
the nature and extent of Manatt’s relationship with Bear”
required the trial court to vacate the final award under section
1286.2, subdivision (a)(5), which authorizes a court to vacate an
arbitration award when “[t]he rights of the party were
substantially prejudiced . . . by the refusal of the arbitrators to
hear evidence material to the controversy.” ECC cites Burlage v.
Superior Court (2009) 178 Cal. App. 4th 524, 529 for its statement
that section 1286.2, subdivision (a)(5), is “‘a safety valve in
private arbitration that permits a court to intercede when an
arbitrator has prevented a party from fairly presenting its case.’”
(Burlage, at p. 529.)
This argument, too, fails. ECC string-cites to places in the
record where the arbitrator ruled adversely to it in disputes over
discovery requests or on objections concerning testimony, but
ECC does not even attempt to explain how those rulings were
unfair. The record shows ECC had a full and fair opportunity to
35
pursue its initial allegation that Manatt had an undisclosed
conflict of interest, eventually abandoned that claim, and thereby
incurred appropriate limitations on its ability to pursue the
claim. There was no unfairness in that.
DISPOSITION
The judgment is affirmed. Manatt is to recover its costs on
appeal.
SEGAL, J.
We concur:
ZELON, Acting P. J.
SMALL, J.*
*Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
36