Trial Court Approved Arbitration Award Involving Contract Against Public Policy, So Remanded To Determine When Actual Conflict Arose.
Everyone thinks that there is little hope of appealing arbitration awards. However, that is not true where the underlying claim rests on a contract which is illegal or against public policy.
A client’s former attorneys in Sheppard, Mullin v. J-M Mfg. Co., Inc., Case No. B256314 (2d Dist., Div. 4 Jan. 29, 2016) (published) learned that this exception can and will result in a brutal reversal.
There, former attorneys had an actual conflict—simultaneous representation—resulting in a disqualification. Former client refused to pay claimed fees of $1.3 million, resulting in an arbitration where a three arbitrator panel awarded about $1.12 million in compensatory damages for unpaid fees plus interest which got the total award to about $1.3 million. The trial court confirmed the arbitration award, only to see all of this get reversed on appeal by the 2/4 DCA.
The appellate court found that California Rules of Professional Conduct Rule 3-310 was a fundamental public policy such that it showed former client was challenging the entire representation contract with Sheppard, Mullin as being tainted due to the conflict. The trial judge, not the arbitrators, should have determined illegality when the entire contract was under challenge. The reviewing court found that S, M was not entitled to fees during the conflict as a matter of law under Rule 3-310, but remanded for a determination of when the actual conflict arose. But, that did mean that a $1.3 million award went POOF! and it is unlikely any subsequent proceeding will result in an award anywhere close to the prior number.
California Mediation and Arbitration also posts about this case on January 31, 2016.
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