In a high-stakes, commercial (not consumer) arbitration, the California Court of
Appeal, Fourth Appellate District in Speier v. The Advantage Fund, LLC (2021) WL
1526386 ("Speier case") affirmed a Trial Court's Ruling entering a multimillion dollar
Judgment in spite of the arbitrator's alleged failure to disclose a nominal interest in the
arbitral firm (JAMS) and the fact that counsel for the prevailing party had engaged the
neutral entity (JAMS) on hundreds of occasions.
The Speier case involved claims by a former investment manager and investment
funds known as The Advantage Fund, LLC, the Discovery Fund, LLC, the Freedom Fund, LLC,
and the Victory Fund, LLC (collectively, the "Funds"). In March 2015, the Funds' shareholders
elected Steven M. Speier ("Speier") as the Funds' manager. About two years later, the
shareholders agreed to cooperate in removing Speier as fund manager and restoring another entity
in that role. In July 2017, Speier sent the Funds a letter alleging he was entitled
to shareholder distribution payments and backend interest payments in the Funds'
profits. The Funds principally asserted that Speier had taken a shareholder distribution
payment, improperly appointed himself president of the Funds, and paid himself a salary for
performing the same duties as fund manager. A Petition to Arbitrate was granted and the Hon.
Gail Andler (ret.) of JAMS was appointed as
arbitrator by the Court.
JAMS and Judge Andler provided the parties with disclosures under various
section of the Code of Civil Procedure, the California Rules of Court Ethics Standards for
Neutral Arbitrators in Contractual Arbitration (the Ethics Standards) and (3) JAMS Ethical
Guidelines for Arbitrators. The disclosures included the arbitrator's statement: “I practice in
association with JAMS. Each JAMS neutral, including me, has an economic interest in the overall
financial success of JAMS. In addition, because of the nature and size of JAMS, the parties
should assume that one or more of the other neutrals who practice with JAMS has
participated in an arbitration, mediation or other dispute resolution proceeding with the
parties, counsel or insurers in this case and may do so in the future.” The arbitrator further
disclosed that, within the preceding five years, she had served as a neutral arbitrator in other
matters involving a party, a lawyer for a party, or law firm for a party to the current arbitration
and also disclosed certain mediated matters.
No party filed any objection to the arbitrator's assignment.
All parties were sophisticated and engaged in a business—not consumer—
dispute. Both the fund manager (Speier) and the investment firms were represented by large
and prestigious firms, Alston & Bird for the fund manager and O'Melveny & Myers
for the investment funds.
Following nine days of an arbitration hearing, in June 2019, the arbitrator issued
an interim award which denied Speier relief on his claims and awarded the Funds
damages in the amount of $353,183.93 plus prejudgment interest. The arbitrator also
found the Funds to be the prevailing parties and invited the Funds to submit an
application for attorney fees and costs. Speier did not object to the interim award. The Funds
submitted an application for attorney fees and costs, Speier opposed the
application, and the Funds replied. Speier thereafter retained new counsel, William B.
Hanley, and requested the opportunity to submit a supplemental opposition; the arbitrator granted
the request. In August 2019, the arbitrator issued the final arbitration award which
stated the Funds had established their counterclaims and were entitled to a principal
award (which included prejudgment interest) in the amount of $433,117.23,
plus an award of $2,112,974.03 for attorney fees and $157,709.87 in costs.
In November 2019, the Funds filed a motion in the trial court seeking an order
confirming the final arbitration award and entry of final judgment. Hanley sent a letter to
JAMS requesting (for the first time) “information relating to the following: (1) ownership
interest of [the arbitrator] in JAMS and (2) the number of arbitrations JAMS has had with
O'Melveny & Myers in the past five (5) years.” In response, JAMS sent Hanley a letter
stating the arbitrator is “an owner panelist of JAMS” and added that “[o]wners are not
privy to information regarding the number of cases or revenue related to cases assigned to
other panelists. Shareholders receive no information regarding any potential impact on
distributions by any particular client, lawyer, or law firm. Shareholders do not receive
credit for the creation or retention of client relationships.” As to Hanley's second request,
JAMS' response letter stated: “We have not limited our response to the O'Melveny firm.
Instead, we enclose a report that provides JAMS usage history for all of the firms,
lawyers, and parties in this matter for the five years prior to commencement of this
arbitration.” The enclosed report showed, as reported by the trial court in its minute
order confirming the award, that in the preceding five years, JAMS administered 58
arbitrations, 27 references, and 160 mediations, for a total of 245 matters, involving
O'Melveny & Myers, and 36 arbitrations, 18 court references, and 191 mediations, for a
total of 245 matters, involving Alston & Bird (and no party objected in the trial court or
challenges on appeal the court's summary of the report).
conformity with the final award in the amount of $433,117.23, plus attorney fees in the
amount of $2,112,974.03, and costs in the amount of $157,709.87. Speier appealed.
The Court of Appeal affirmed. The Court of Appeal noted that, if this were a
consumer case, standard 8 of the Ethics Standards would apply to require the type of
disclosures Speier argues should have been made. Standard 8, entitled “Additional
disclosures in consumer arbitrations administered by a provider organization,” requires at subpart
(b) that in a consumer arbitration, the arbitrator must disclose “[a]ny significant past, present,
or currently expected financial or professional relationship or affiliation between the
administering dispute resolution provider organization and a party or lawyer in the arbitration.”
In consumer arbitrations, standard 8(c) further requires the arbitrator also to provide
information regarding “[a]ny financial relationship or affiliation the arbitrator has with
the provider organization other than receiving referrals of cases, including whether the
arbitrator has a financial interest in the provider organization or is an employee of the provider
organization.” The Court of Appeal also noted that Standard 8(a)(2) has this (important proviso):
“An arbitrator is not required to make the disclosures required by this standard if he or
she reasonably believes that the arbitration is not a consumer arbitration based on
reasonable reliance on a consumer party's representation that the arbitration is not a consumer
arbitration.” Given that the matter did not involve a consumer arbitration, Court of Appeal
held that the arbitrator's ownership interest in JAMS and the extent of JAMS' prior business
matters with O'Melveny & Myers did not automatically constitute information that must be disclosed
by an arbitrator. The Court of Appeal also addressed whether such disclosures were nevertheless required because, under
the specific facts and circumstances of this case, the information could reasonably raise a doubt
in a person aware of the fa ts about the arbitrator's impartiality. The Court of Appeal rejected this argument as well.
The Speier case is significant in that it holds that, in sophisticated business
disputes, a large ADR provider, such as JAMS, need only disclose in a general manner the volume of
work it does for the parties' counsel and the neutral's ownership interest in the ADR entity (at
least if nominal) will not bar an award. However, while the fund manager did not
prevail, it is important to note that, in consumer cases, the volume of business for the
arbitral entity insofar as party counsel and/or any type of ownership interest that the
neutral may have in the arbitral entity, may be a matter that needs to be disclosed.
About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A.
Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies
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