Magazine article Dispute Resolution Journal

California Exception to Arbitrator Immunity

Magazine article Dispute Resolution Journal

California Exception to Arbitrator Immunity

Article excerpt

STATE LAW DEVELOPMENTS

In a decision dated June 20, 2006, a California Court of Appeal allowed a case against an ADR provider and a neutral to go forward based on an exception to the principle of arbitrator immunity. Morgan Phillips, Inc. v. JAMS/Endispute (44 Cal.Rptr.3d 782).

The facts described here are those alleged in the complaint against the defendants, JAMS and neutral John Bates, which the court was required to take as true in ruling on a demurrer under California law. The case originated in a dispute between a retailer and a manufacturer over the quality of the letter's products. After the retailer filed suit, the parties agreed to mediate. JAMS neutral John Bates helped the parties reach a stipulation of settlement. Two years later the retailer, again unhappy with the manufacturer's products, invoked the ADR clause in the stipulation of settlement stating: "Disputes regarding this matter will be submitted to [Bates] for binding resolution." After hearing evidence and argument from both sides, Bates met with each side separately, shuttling between them, in an "apparent effort" to settle the case without having to issue an award. At the end of the lunch break, Bates announced his withdrawal as arbitrator without giving an explanation and never issued an award in the case.

The retailer sued both JAMS and Bates. It alleged that Bates' conduct was part of an unlawful scheme to coerce a settlement in order to be relieved from having to decide the case. It alleged unfair competition and false advertising against JAMS. The defendants demurred, asserting the defense of arbitral immunity. The trial court sustained the demurrer, holding that the plaintiff's claims were barred by the doctrine of arbitral immunity.

The California Court of Appeal reversed based on a narrow exception to arbitral immunity recognized in California: "immunity does not apply to the arbitrator's breach of contract by failing to make any decision at all. …

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