AAA Arbitrator Disclosures Upend JPMorgan Chase Bank Employment Lawsuit

August 6, 2018

In today's Blog we consider the ramifications of an arbitrator who made disclosures that weren't all provided to the parties in a timely manner. At our most charitable, lets just say that a page went missing and not everything that should have been disclosed to all the parties made it through the disclosure pipeline in one piece. At a point in time after the AAA arbitrator rendered an interim award but before she published her final award, the losing party learned about the failure of the arbitration forum to provide all of the pages that would have constituted the full disclosure packet -- and further learned that the arbitrator was involved with other ongoing arbitrations involving the law firm that was defending the respondent (who turned out to win the case). When the losing party challenged the arbitrator's alleged undisclosed conflict in that period before the decision was finalized, the arbitrator rejected the challenge and issued the decision. 

At what point is too late, too late? Should the employee suing the bank have complained about unknown conflicts before she knew about them? Seems like a silly question, no? On the other hand, if that same employee complains about non-disclosures of possible conflicts by an arbitrator after that judge prepares an initial or interim decision, does it make sense to deem that a "timely" objection, which would also allow the arbitrator to consider it, reject it, and issue a virtually unchanged final decision?  At first blush, you'd sort of think that the non-disclosures would have at least warranted something along the lines of an arbitral Mulligan and the case would have been dismissed, re-started with a new list of proposed arbitrators, and subject to new hearings and a decision. That would certainly be a painful and expensive option but given the circumstances, that would be about the only fair solution. On the other hand, life and lawsuits are anything but fair. Read on the see what happens as the dispute makes its way on appeal through the court system.

AAA Arbitration

In 2013 Patrice Honeycutt sued her former employer, JP Morgan Chase Bank, alleging discrimination, retaliation, wrongful termination, and related claims. The case was remanded to the the American Arbitration Association ("AAA"), which notified the parties that it had appointed a retired judge to serve as the arbitrator. The retired judge had provided various disclosure materials to AAA that were provided to the parties but [Ed: reference to the "Opinion" below are from  Patrice Honeycutt, Plaintiff And Appellant, v. JPMorgan Chase Bank, N.A., et al., Defendants And Respondents(Opinion, Court of Appeal of the State of California, Second Appellate District, B281982, Super. Ct. No. BC526794 / August 2, 2018)::

Unfortunately, the parties received only 10 of the 11 pages of the arbitrator's disclosure worksheet. The missing page, page five, included Question No. 27, which asked whether the arbitrator had any time constraints that would interfere with the arbitrator's ability to commence or complete the arbitration in a timely manner, and Question No. 28, which asked whether the arbitrator, during the pendency of the arbitration, would "entertain offers of employment or new professional relationships in any capacity other than as a lawyer, expert witness, or consultant from a party or a lawyer for a party, including offers to serve as a dispute resolution neutral in another case." The arbitrator answered "no" to Question No. 27 and "yes" to answer No. 28. On page six, which the parties did receive, under the heading "Please explain any ‘yes' answer to any question above and/or make any additional disclosures you believe are appropriate," the arbitrator wrote: "#28. I will entertain offers to serve as a dispute resolution in other cases. I will evaluate any potential conflict at that time prior to accepting [the] offer."

Pages 4 -5 of the Opinion

A Matter of AAA (non)Disclosure

In April 2016, the AAA arbitrator conducted a six-day arbitration and subsequently issued an interim award in favor of Respondent Chase and against Claimant Honeycutt on all of her claims. In response, the following transpired [Ed: footnotes omitted]:

Counsel for Honeycutt was surprised she lost. On September 12, 2016 she wrote a letter to the AAA's manager of alternative dispute resolution services, stating: "It is rather stunning that [the arbitrator] found that [Honeycutt] did not meet her burden on every single cause of action given how strong the evidence was in [her] favor and the presentation of [her] case at the arbitration hearing." Counsel for Honeycutt asked the manager to identify every other case the arbitrator had accepted involving Chase and its counsel of record. Counsel also stated for the first time that she had not received all pages of the notice of appointment in July 2014 and that the copy she received was "missing a page, omitting questions 21 through 28 and their responses." Counsel wrote: "Be advised that we intend to vacate the award and request that further proceedings are stayed until I have received the requested information from your office." 

On September 19, 2016 the manager sent counsel for Honeycutt the missing page of the arbitrator's July 17, 2014 disclosure worksheet. The manager also sent counsel for Honeycutt 10 letters from the arbitrator's case manager stating that, during the pendency of the arbitration between Honeycutt and Chase, the arbitrator had been appointed to serve as an arbitrator in eight other employment cases involving counsel for Chase and two other cases (one of which was an employment case) involving Chase. The parties had previously received only four of the eight letters concerning employment cases involving counsel for Chase.

On September 28, 2016 counsel for Honeycutt sent the manager a formal objection to the arbitrator's continuing to serve in this matter and a request for the arbitrator's "immediate disqualification." Citing relevant provisions of the Code of Civil Procedure and the Ethics Standards, counsel for Honeycutt argued, among other things, that she had not received the entire initial disclosure by the arbitrator (because of the missing page) and that the arbitrator "failed to disclose all cases that she accepted from [Chase's] counsel during the pendency of the arbitration." Specifically, counsel for Honeycutt asserted the arbitrator had failed to disclose "at least four additional cases with [Chase's] law firm since being appointed to this matter." 

On October 10, 2016 the manager advised counsel for Honeycutt the AAA had denied Honeycutt's request to disqualify the arbitrator. The manager wrote: "After careful consideration of the parties' contentions, the [AAA] has determined that [the arbitrator] will be reaffirmed as an arbitrator in the . . . matter." 

On November 15, 2016 the arbitrator issued a final award ordering Honeycutt to "take nothing on her claims," denying Chase's request for costs, and ruling the $5,240 in arbitration administrative fees and the $62,067.50 in arbitrator compensation and expenses were "to be borne as incurred."  

Pages 6 - 7 of the Opinion

Superior Court

Honeycutt filed a motion in Los Angeles Country Superior Court to vacate the arbitration award and Chase moved to confirm. Honeycutt's motion papers cited the the disclosure omissions about the retired judge's alleged conflicts. Chase argued that:

[T]he arbitrator made all initial disclosures in a timely manner because, although the parties did not receive the worksheet page with the question and answer regarding whether the arbitrator would entertain offers from the parties or their attorneys to serve as a dispute resolution neutral in other matters, the parties did receive the page with the explanation for the arbitrator's answer, which stated the arbitrator would entertain such offers. Chase also pointed out that, because "[i]t was readily apparent that a page was missing from the disclosures when [Honeycutt] first received the initial disclosure statement," her request to disqualify the arbitrator was untimely. Chase contended Honeycutt was "well aware of the Arbitrator's intent to accept offers to serve as a neutral in other cases, including cases involving the same parties and lawyers in this case, because the Arbitrator's handwritten note on the following page alone provided [her] with all the information that she needed to assess whether disqualification was appropriate." 

Regarding the arbitrator's failure to disclose during the arbitration four of the eight other matters involving counsel for Chase, Chase asserted Honeycutt had not identified any mandatory disclosure the arbitrator failed to make (even though Honeycutt had identified at least four of them) and pointed to a September 23, 2016 email from the AAA manager stating she had "provided all supplemental disclosure letters showing the new cases involving the Parties/Attorneys to this matter after the initial disclosure[s] were made." Citing a former version of the Ethics Standards, Chase also argued that the arbitrator was not required to provide supplemental disclosures of other matters in which the arbitrator was serving as a dispute resolution neutral involving the same parties and lawyers.

Pages 8 - 9 of the Opinion

The Superior Court confirmed the AAA arbitration award finding, in part, that the arbitratrator had  sufficiently made the required disclosures and no prejudice was shown, such, that would warrant vacatur.  

SIDE BAR: As best I understand the Superior Court's rationale, AAA had a robust protocol governing the disclosure of conflicts (or matters that could raise the perception of same). In discharging the arbitration forum's policy of providing the parties with full disclosure of potential and actual conflicts by all proposed arbitrators, a disclosure page got lost and was never transmitted. That page contained information that a reasonable party might have deemed rose to the level of a conflict -- or that party might have wanted to inquire as to the specifics of the perceived conflict. As it turns out, some facts had the appearance of a conflict to the extent that a proposed arbitrator wound up adjudicating several matters involving the employer/respondent's outside law firm that was also defending that same client in the AAA arbitration. Notwithstanding those issues, the Superior Court seems to have concluded something akin to no-harm-no-foul because whatever wound up not having been timely disclosed didn't appear to pose a material conflict in the court's apparent determination. 

What's the point of AAA's rigorous conflict disclosure process? If, when tested under fire, it didn't actually work as promised, then the failure is okay because it wouldn't have mattered even if it had worked? If my aunt were a man she'd be my uncle? As a lawyer, I sort of get where the court may have been coming from but I still wince. As a person who might need to resort to arbitration, I find the court's decision shocking and preposterous. There's an old line about "you get what you pay for." Parties in AAA arbitration pay for the full panoply of that organization's purported fairplay, disclosures, and competency. It's not a baseball game where a 300 average may get you into the Hall of Fame. AAA doesn't get to bat 300 or even 500 and continue to earn the right to offer so-called alternative dispute resolution. Sorry, but the Superior Court hasn't provided a compelling ruling in my opinion. Bill Singer

Court of Appeal

Honeycutt appealed to the Court of Appeal. Patrice Honeycutt, Plaintiff And Appellant, v. JPMorgan Chase Bank, N.A., et al., Defendants And Respondents(Opinion, Court of Appeal of the State of California, Second Appellate District, B281982, Super. Ct. No. BC526794 / August 2, 2018). The Court of Appeal reversed the Superior Court and remanded with directions to vacate its order confirming the arbitration award and denying the petition to vacate it; and, thereafter, to enter a new order denying the petition to confirm and granting the petition to vacate. 

The underlying rationale for the reversal was the appellate court's finding that the AAA arbitrator had violated her obligation to undertake "continuing disclosure," which would have included the four pending arbitrations with Chase's counsel. As to the suggestion that Honeycutt had somehow waived her right to challenge the arbitrator's perceived conflicts by not timely raising them during the hearing or shortly thereafter, the Court of Appeal admonished that:

[T]he arbitrator did not disclose the four other matters involving counsel for Chase in which the arbitrator served as a dispute resolution neutral until after the arbitrator had completed the arbitration hearing and issued an interim award (and the arbitrator never disclosed any offers of employment to serve as a neutral). A party cannot waive a right she does not know she has. . .

Page 28 of the Opinion

Bravo! Indeed, a party cannot waive a right she does not know she has!

Taking the opportunity to make a point that needs to be made, the Court of Appeal reminded the public that there are still some constraints and obligations imposed upon any forum that provides a so-called alternative dispute resolution ("ADR") process.  Often lost in the debate about diverting civil disputes from the federal and state courts to private ADR forums is that those organizations are still in the "business of justice," and whether motivated by profit or not, the alternative to the "neutral" civil courts must still provide some semblance of impartiality and fairness:

The arbitrator disclosure rules are strict and unforgiving. And for good reason. Although dispute resolution provider organizations may be in the business of justice, they are still in business. The public deserves and needs to know that the system of private justice that has taken over large portions of California law produces fair and just results from neutral decisionmakers. (See Gray v. Chiu, supra, 212 Cal.App.4th at p. 1366 [while the rule under section 1286.2 requiring the court to vacate the award "seems harsh, it is necessary to preserve the integrity of the arbitration process"]; Advantage Medical Services, LLC v. Hoffman (2008) 160 Cal.App.4th 806, 822 ["‘neutrality of the arbitrator [was of] . . . crucial importance'" to the Legislature]; Azteca, supra, 121 Cal.App.4th at p. 1168 ("[o]nly by adherence to the [Arbitration] Act's prophylactic remedies can the parties have confidence that neutrality has not taken a back seat to expediency"].) Although the disclosure rules the arbitrator violated here may seem technical, they are part of the Legislature's effort to ensure that private arbitrations are not only fair, but appear fair. (See Ceriale v. AMCO Ins. Co. (1996) 48 Cal.App.4th 500, 504 [arbitration award may be vacated where "the record reveals facts which might create an impression of possible bias in the eyes of the hypothetical, reasonable person"].) "That all may drink with confidence from their waters, the rivers of justice," whether they flow through our public or private systems of dispute resolution, "must not only be clean and pure, they must appear so to all reasonable men and women." (U.S. v. State of Ala. (11th Cir. 1987) 828 F.2d 1532, 1552.)

Page 29 of the Opinion 

Bill Singer's Commemt

I'd like to take some comfort in the saying that "all's well that ends well," but not today. Do you have any idea as to the likely cost facing the parties to this abortion of a AAA arbitration now that it has been remanded?  Who's going to pay to re-try the case? Clearly, neither the former employee or the bank caused this mess. Will the retrial be on AAA's dime? And who is going to pay the lawyers to show up at the hearings? And who is going to make up for the value of all the lost time. No . . . there's nothing to rejoice about here. The Mighty Casey still struck out. Except now they're saying a recently found video shows that it was a foul tip that the catcher didn't hold on to. But it's a couple of years after the game ended. Now what? There is no joy in Mudville or at AAA.