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I Peter G. Bertrand (Bar No. 87883)
Harry W.R. Chamberlain II (Bar No. 95780)
2 Zachary B. Young (Bar No. 288553)
ELECTRONICALLY
BUCHALTER
3 55 Second Street, Suite 1700 F I L E D
San Francisco, CA 94105 Superior Court of California,
County of San Francisco
4 Tel.: 415-227-0900
E-mail:PBertrand@Buchaltcr.corn 12/31/2019
5 E-mail:HChamberlain@Buchalter.corn Clerk of the Court
BY: EDNALEEN ALEGRE
E-mail:ZYoung Buchalter.corn Deputy Clerk
6
Michael J. McCue (Bar No. 296425)
7 Jeffrey L. Sklar (Bar No. 257218)
LEWIS ROCA ROTHGERBER CHRISTIE LLP
8 203 Redwood Shores Parkway, Suite 670
Redwood City, CA 94065
9 Tel.: 702-949-8200
E-mail:MMcCue@LRRC.corn
10 E-mail:JSklar@LRRC.corn
11 Attorneys for Respondent and Counter-claimant,
Winevy Exchange, Inc.
) 12
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
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JRV, LLC aild. BILL LEIGON, Case No. CPF-19-516943
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0 Petitioners,
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M Dept. No. 302
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vs. RESPONDENT WINERY EXCHANGE'S
17 REPLY IN SUPPORT OF ITS PETITION
WINERY EXCHANGE, INC., TO VACATE ARBITRATION AWARD
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Respondent.
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21 Respondent Winery Exchange, Inc. ("WX") hereby submits this reply to address
ncw points made by Petitioners JRV, LLC and Bill Leigon (collectively, "JRV") in their
23 award.'4
opposition to WX's petition to vacate the arbitration
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WX recognizes that this reply is being filed four court days, rather than five court days,
before the January 7, 2020, hearing. See C.C.P. Il I 005. However, JRV did not serve its
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opposition until Friday, December 27, 2019. JRV apparently missed the December 23 filing
deadline (9 court days before the hearing) and, instead, filed its opposition on December 26,
2019, and served it via FedEx for delivery on December 27, 2019.
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RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE
ARBITRATION AWARD — CPF-I 9-516943
TABLE OF CONTENTS
~Pa e
4 I. The Arbitrator Failed to Timely Disclose Her Ownership Interest in JAMS ......... I
II. WX Did Not Waive Any Objections Because It Did Not Know The
Arbitrator Was An Owner of JAMS ..
III. The "Repeat Player" Bias Applies to Law Firms, Not Just Parties ............,........... 3
8
IV. WX is Not Required to Show Prejudice to Obtain Vacatur of the Award.............. 4
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V. Conclusion
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RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE
ARBITRATION AWARD — CPF-19-516943
TABLE OF AUTHORITIES
P sue(s)
Cases
Betz v. Pankow
(1995) 31 Cal.App.4th 1503
Dornbirer v. Kaiser Found. Health Plan, Inc.,
(2008) 83 Cal. Rptr. 3d 116.
Gray v. Chiu
(2013) 212 Cal.App.4th 1355 ..
Haworth v. Superior Court
(2010) 50 Cal. 4th 372
CQ
10 Honeycutt v. JPMorgan Chase Bank, NA.
0 (2018) 25 Cal.App.5th 909 .2, 4, 5
IU
ll
I/I Johnson v. Gruma Corp.
) 12 (9th Cir. 2010) 614 F.3d 1062..
Ill
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13 Malone v. Superior Court
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(2014) 226 Cal.App.4th 1551
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III 14
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Mercuro v. Superior Court
0Ql00 15 (2002) 96 Cal.App.4th 167
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16 Monster Fnergy Co. v. City Beverages, LLC,
(9th Cir. 2019) 940 F,3d 1130..
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Mt. Holyoke Homes, L.P. v. Jeffer Mangels Butler ctcMitchell, I LP
18 (2013) 219 Cal.App.4th 1299
19 Ovitz v. Schulman
(2005) 133 Cal.App.4th 830
20
Royal Alliance Associates, Inc. v. Liebhaber
21 (2016) 2 Cal.App.5th 1092
22 Sandquist v. Lebo Auto., Inc.,
(2016) 1 Cal. 5th 233
23
Statutes
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C.C.P. $ 1286.2(a) ..
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C.C.P. 1281.9(a)(3)-(6) . .3
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Federal Arbitration Act.
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RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE
ARBITRATION AWARD — CPF-19-616943
1 Treatises
2 Privatizing Justice — but by How Much? (Juestions Gilmer Did Not Answer
16 Ohio St. J. on Disp. Resol, 589 (2001)
3
Samuel Estreicher, Arbitration of Employment Disputes without Unions
4 66 Chh-Kent L. Rev. 753 (1990)
5 Shauhin Talesh, How the "Haves" Co2ne Out Ahead in the Twenty-First Century
62 DePaul L. Rev. 519 (2013) .
6
Theodore I'iscnhcra 8! 1':liaahcth Hill, A2 12titntlon al2c1 E1E2g'2fto22 of 1'222plf23m2ent Cgciln2s:
7 A 22Emc2i2 i cal Con2pn2ison,
Disp. Rcsol..l., Nov. 2003-Jan. 2004 ...............................................................................
8
William W. Park, Arbitrator Integrityc The Transient and the Permanent,
9 46 San Diego L. Rev. 629 (2009) .
CI
10 Regulations
II2
11 Ethic Standard 7(d) .
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RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE
ARBITRATION AWARD — CPF-19-616943
I. The Arbitrator Failed to Timely Disclose Her Ownership Interest in JAMS
2 JRV misleadingly argues that Arbitrator Claiborne disclosed her "economic interest"
3 in JAMS at the outset of the arbitration. JRV's argument was expressly rejected in Monster
4 Energy Co. v. City Beverages, LLC, 940 F.3d 1130 (9th Cir. 2019), on nearly identical facts.
5 In this case (as in Monstev Enevgy), thc arbitrator made the boilerplate disclosure
6 that: "Each JAMS neutral, like me, has an economic interest in the overall financial success
7 of JAMS." (MM Decl., Ex. 6 at 6.) Monster Energy held that this boilerplate disclosure
8 "implied only that the Arbitrator, like any other JAMS arbitrator or employee, had a general
9 interest in JAMS'eputation and economic wellbeing, and that his sole financial interest
10 was in the arbitrations that he himself conducted." Monster L'nergy, 940 F.3d at 1134-35.
11 Arbitrator Clairborne — like the arbitrator in Monster Enevgy — failed to timely disclose that
12 she was a co-owner of JAMS, which entitled her to a portion of revenue from all of its
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Ct 13 arbitrations, not just the ones that she personally conducts. As Monster Energy aptly
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0 15 JAMS neutrals have in the organization." Jd. at 1136 (footnote omitted). The Monster
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16 Enevgy court concluded that the failure of an arbitrator to make this disclosure of ownership
17 priov to conducting the arbitration was a violation of the disclosure requirements and
18 prevented the parties from making their "own informed decisions about whether the
19 arbitrator is likely to be neutral." Id. at 1137 (emphasis added).
20 Notably, although Monster Energy was decided under the Federal Arbitration Act
21 ("FAA"), the California Arbitration Act ("CAA") provides more stringent rules for vacatur
22 of arbitration based on non-disclosure by the arbitrator. In addition, unlike under the FAA,
23 the CAA provides that the failure to make such disclosures requires that the arbitration
24 award be vacated. C.C.P. ( 1286.2(a).
25 z
Johnson v. Grume Corp., 614 F,3d 1062, 1065 (9th Cir. 2010) (" The CAA and the FAA
provide different grounds for vacatur of an arbitration award. The CAA provides that a
court reviewing an arbitration award shall vacate the award if the court
27 determines...[whereas] The FAA provides that a district court moy vacate an arbitration
award" and under the FAA, "[t]he scope of a confirmation proceeding applying these
factors is 'extremely limited'").
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RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE
ARBITRATION AWARD — CPF-19-516943
I Here, Arbitrator Claibome failed to disclose that she is a co-owner of JAMS and is
2 entitled to a portion of its revenues until November 4, 2019 — after entering the Interim
3 Award, after the Monster Enerf0z case was decided, and after WX specifically asked JAMS
4 to disclose Arbitrator Claiborne's ownership interest. (MM Decl., Ex. 10.) Her failure to
5 disclose this information (coupled with the nontrivial business dealings that JAMS has with
6 Pillsbury) requires vacating the arbitration award under C.C.P. tj1286.2(a).
7 II. WX Did Not Waive Any Objections Because It Did Not Know The Arbitrator
Was An Owner of JAMS
9 JRV's argument that WX waived its right to object to Arbitrator Claibome's failure
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10 to disclose her ownership interest is meritless because WX had no knowledge of her
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11 ownership interest until she untimely disclosed it. "A party cannot waive a right [it] does
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12 not know [it]has." Honeycutt v. JPMorgan Chase Bank, NA. (2018) 25 Cal.App.5th 909,
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o- o 13 931. Furthermore, "[a] party to an arbitration is not required to investigate a proposed
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M 14 neutral arbitrator in order to discover information, even public information, that the
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00 15 arbitrator is obligated to disclose." Mt. Holyoke Homes, LP. v. Jeff'er Mangels Butler dt
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16 Mz'tchell, LLP (2013) 219 Cal.App.4th 1299, 1313. "Instead, the obligation rests on the
17 arbitrator to timely make the required disclosure." Jd. For example, in Honeycutt, the
18 California Court of Appeals vacated an arbitration award because of a non-disclosure, and
19 held that Honeycutt did not waive her right to vacate the award on that basis because she
20 was not told about the disclosures until atter the interim award was issued. Honeyczztt,
21 szzpra, 25 Cal.App.5th at 931.
22 Similarly here, Arbitrator Claiborne did not disclose her ownership interest in JAMS
23 until after entering the Interim Award, after the Monster Energy case was decided, and after
24 WX specifically asked JAMS to disclose Arbitrator Claiborne's ownership interest within
25 weeks after Monster Energy was decided. (See Petition to Vacate at 9.) WX had no reason
26 to believe that Arbitrator Claibome was a co-owner of JAMS before that time and,
27 therefore, could not have waived any right to seek to disqualify her on that basis.
28 ///
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RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE
ARBITRATION AWARD — CPF-19-516943
III. The "Repeat Player" Bias Applies to Law Firms, Not Just Parties
California law and disclosure rules have long recognized relationships between
arbitrators and law firms are material and require disclosure,'nd concerns over bias for
repeat players exist as much for law firms as for parties. Notably, JRV does not contest the
common-sense point that lawyers are often the ones who choose or help their clients choose
arbitration providers, giving arbitration companies greater incentive for bias in favor of
firms — such as Pillsbury — who handled 233 matters involving JAMS — far more than the
Monster Energy's 99 matters at issue in the Monster Energy case.
In addition, none of JRV's authorities hold that repeat player bias for law firms
Cl 10 cannot be a subject of disclosure. In fact, as one of those cases noted, the remedy for
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repeat player bias is to follow the statutory procedures allowing the parties to select an
12 arbitrator, which will keep the proceedings "honest and neutral." Mercuro, supra, 96
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13 'etz v. Pankow (1995) 31 Cal.App.4th 1503, 1509 ("A freuuent cause for an impression
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of possible bias is the existence of a present or past business relationship between the
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arbitrator and a partv, its counsel or witnesses.")(emphasis added); C.C.P. 1281.9(a)(3) (6)
0 ra (listing various mandatorv disclosures, all of which include disclosina relationships with the
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Ql "lawver for a partv"); Ethic Standard 7(d)(21-(5), (7'i-(9),(15'1 (listinp reauired disclosures,
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l0 0 including prior and professional relationships with the "lawyer" for a party).
O 0l 16
l0 William W. Park, A vbi tratov Integri tv: The Transient and the Permanent, 46 San Dieao L.
Rev. 629. 653 (2009) (" Another critiaue of arbitration that dovetails into those mentioned
17
above arises with respect to so-called 'repeat players'ho might be appointed several
18
times by the same party or law firm"); Samuel Estreicher. Avbitration of Emolovment
Disrnites B'ithout Unions. 66 Chi.-Kent L. Rev. 753 ('1990) I"the relevant repeat player is
not so much the employer as the firm's outside counsel"); Shauhin Talesh, How the
19 "Haves" Come Out Ahead in the Twenty-First Century, 62 DePaul L. Rev. 519. 554. fn 23.
51 (2013) (notina studies on repeat plaver bias include ones discussina how "lawvers can
20
be viewed asrepeatplavers who affect iudicial outcomes"); Theodore Eiscnbcru l&
21
Elizabeth Hill. Arbitration and Litigation of Emplovmeni Claims: An Empirical
Comparison, Disp. Resol. J.. Nov. 2003-Jmi. 2004„af. 44 (notinu that variance
iri repeat plaver bias in employmeni arbitration is explained in pari.
22
by lawyer representaiion); Privatizing Justice — but by How Much? Ouestions Gilmer Did
Not Answer. 16 Ohio St. J.on Disp. Resol. 589. 606 (2001) (0 Po further facilitate the abilitv
23
of counsel to offset anv repeat plaver bias, courts should reauire arbitrators to disclose all
24
Iirior business with the parties and their lawyers" ) (all emphasis added),
Several authorities discuss some variation of whether repeat player bias renders
arbitrations unconscionable. Malone v. Superior Court I'20141 226 Cal.App.4th 1551, 1563
25 arbitrator's
(decidinu whether FAA preempts anv reliance on financial self-interest in
26
deciding unconscionability of delegating arbitrability question to arbitrator); Mercuro v.
Superior Court (2002) 96 Cal.App.4th 167, 178-79 (whether employer was repeat player
made agreement to arbitrate unconscionable because the process requires "a neutral
27 'is
arbitrator which, our Supreme Court has held, essential to ensuring the integrity of the
arbitration process.'"); Sandquist v. Lebo Auto., lnc., I Cal. 5th 233, 259 (2016) (whether
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arbitrator should decide whether class arbitration available given repeat player bias).
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RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE
ARBITRATION AWARD — CPF-19-516943
Cal.App.4th at 178-79. Here, WX was denied the opportunity to meaningfully choose a
2 neutral arbitrator because the arbitrator did not disclose a material fact that would have
3 affected WX's decision, impermissibly ignorning that the mandatory disclosure
4 requirements under California law are continuing in nature throughout the process.
5 Iloneycutt, supra, 25 Cal.App.5th at 931; Ovitz v. Schulman (2005) 133 Cal.App.4th 830,
6 846; see also Royal Alliance Associates, Inc. v, Liebhaber (2016) 2 Cal.App.5th 1092, 1105;
7 Gray v. Chiu (2013) 212 Cal.App.4th 1355, 1362-1363 ("the Legislature has provided 'for
8 judicial review in circumstances involving serious problems with the fairness of the
9 arbitration process"'or any material nondiscloure).
D 10 IV. WX is Not Required to Show Prejudice to Obtain Vacatur of the Award
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argues that Arbitrator Claibome's failure to
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11 JRV also disclose her ownership interest
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) 12 in JAMS was immaterial and, therefore, did not prejudice WX. However, when there has
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D 13 been a failure "to make a required disclosure," a party "is entitled to vacate the arbitration
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14 award without any showing fthe partyj was prejudiced by the nondisclosure." Haworth v.
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15 Superior Court, 50 Cal. 4th 372, 383 (2010); Dornbirer v. Kaiser Found. Health Plan, Inc.,
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16 83 Cal. Rptr. 3d 116, 122 (2008) (" On its face, [section 1286.2] leaves no room for
17 discretion. If a statutory ground for vacating the award exists, the trial court must vacate the
18 award."). As a result, JRV's argument that Arbitrator Claiborne's ".1% profit interest" in
19 JAMS does not support an impression of bias is meritless. (Opp. at 7.) As an initial point,
20 Arbitrator Claiborne disclosed that she received no more than ".1% of JAMS total revenue
21 in a given year" — she did not disclose the percentage ofprofits she earns. (MM Decl., Ex.
22 10)(emphasis added).) Moreover, and morc importantly, despite WX's request, JAMS
23 refused to disclose the amount of money that Arbitrator Claiborne actually received from
24 JAMS based on her ownership interest, which is more important than her relative
25 percentage ownership. Further, JAMS prohibited WX from determining the amount of
26 money that Arbitrator Claibome received based on her ownership in JAMS or how much
27 6
arbitrator's
JRV misrepresents the financial interest in JAMS. Arbitrator Claiborne
receives no more than 0.1% of all REVENUE (not 0.1% of profits, or a 0.1% ownership
interest as stated by JRV in its tardy reply brief).
4
RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE
ARBITRATION AWARD — CPF-19-516943
I JAMS received in revenue from Pillsbury — both of these facts are important and may
2 reasonably create doubt as to her impartiality. "That all may drink with confidence from
3 their waters, the rivers of justice, whether they flow through our public or private systems of
4 dispute resolution, must not only be clean and pure, they must appear so to all reasonable
5 men and women." Honeycutt, supra, 25 Cal.App.5th at 932 (internal quotations omitted),
6 The record in this matter illustrates that principle with stark clarity.
7 V. Conclusion
8 With respect, the Court must vacate the arbitration award.
Dated: December 31, 2019 Respectfully submitted,
10
LEWIS ROCA ROTHGERBER CHRISTIE LLP
By: /s/ Michael J. McCue
3 12 Michael J. McCue
0 Jeffrey L. Sklar
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13 Attorneys for Respondent and Counter-claimant,
0 c(
O'X INC.
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RKSPOIVDENT WINERY EXCIIANGE'S REPLY IN SUPPORT OF ITS PETITIOlV TO VACATE
ARBITRATION AWARD — CPF-19-616943
Preview
I Peter G. Bertrand (Bar No. 87883) Harry W.R. Chamberlain II (Bar No. 95780) 2 Zachary B. Young (Bar No. 288553) ELECTRONICALLY BUCHALTER 3 55 Second Street, Suite 1700 F I L E D San Francisco, CA 94105 Superior Court of California, County of San Francisco 4 Tel.: 415-227-0900 E-mail:PBertrand@Buchaltcr.corn 12/31/2019 5 E-mail:HChamberlain@Buchalter.corn Clerk of the Court BY: EDNALEEN ALEGRE E-mail:ZYoung Buchalter.corn Deputy Clerk 6 Michael J. McCue (Bar No. 296425) 7 Jeffrey L. Sklar (Bar No. 257218) LEWIS ROCA ROTHGERBER CHRISTIE LLP 8 203 Redwood Shores Parkway, Suite 670 Redwood City, CA 94065 9 Tel.: 702-949-8200 E-mail:MMcCue@LRRC.corn 10 E-mail:JSklar@LRRC.corn 11 Attorneys for Respondent and Counter-claimant, Winevy Exchange, Inc. ) 12 0 M l0 SUPERIOR COURT OF THE STATE OF CALIFORNIA Cl 13 01 Gl 0 c[ IN AND FOR THE COUNTY OF SAN FRANCISCO 14 00CS JRV, LLC aild. BILL LEIGON, Case No. CPF-19-516943 0Ql0 15 0 Petitioners, M M Dept. No. 302 0 Gl CC 16 vs. RESPONDENT WINERY EXCHANGE'S 17 REPLY IN SUPPORT OF ITS PETITION WINERY EXCHANGE, INC., TO VACATE ARBITRATION AWARD 18 Respondent. 19 20 21 Respondent Winery Exchange, Inc. ("WX") hereby submits this reply to address ncw points made by Petitioners JRV, LLC and Bill Leigon (collectively, "JRV") in their 23 award.'4 opposition to WX's petition to vacate the arbitration 25 26 WX recognizes that this reply is being filed four court days, rather than five court days, before the January 7, 2020, hearing. See C.C.P. Il I 005. However, JRV did not serve its 27 opposition until Friday, December 27, 2019. JRV apparently missed the December 23 filing deadline (9 court days before the hearing) and, instead, filed its opposition on December 26, 2019, and served it via FedEx for delivery on December 27, 2019. I RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE ARBITRATION AWARD — CPF-I 9-516943 TABLE OF CONTENTS ~Pa e 4 I. The Arbitrator Failed to Timely Disclose Her Ownership Interest in JAMS ......... I II. WX Did Not Waive Any Objections Because It Did Not Know The Arbitrator Was An Owner of JAMS .. III. The "Repeat Player" Bias Applies to Law Firms, Not Just Parties ............,........... 3 8 IV. WX is Not Required to Show Prejudice to Obtain Vacatur of the Award.............. 4 9 V. Conclusion CC CC Cl V) Cf 12 Ill IC CC 13 Ct Cli 0 '0 CC 14 IC 0 ra 3 CC 0 Cl 0 'Cl Q CC Cl CC 16 17 18 19 20 21 22 23 24 25 26 27 28 I RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE ARBITRATION AWARD — CPF-19-516943 TABLE OF AUTHORITIES P sue(s) Cases Betz v. Pankow (1995) 31 Cal.App.4th 1503 Dornbirer v. Kaiser Found. Health Plan, Inc., (2008) 83 Cal. Rptr. 3d 116. Gray v. Chiu (2013) 212 Cal.App.4th 1355 .. Haworth v. Superior Court (2010) 50 Cal. 4th 372 CQ 10 Honeycutt v. JPMorgan Chase Bank, NA. 0 (2018) 25 Cal.App.5th 909 .2, 4, 5 IU ll I/I Johnson v. Gruma Corp. ) 12 (9th Cir. 2010) 614 F.3d 1062.. Ill Q C0 13 Malone v. Superior Court Ql 0 CQ (2014) 226 Cal.App.4th 1551 C0 III 14 00 CS Mercuro v. Superior Court 0Ql00 15 (2002) 96 Cal.App.4th 167 3 10 0 CQ Ql CC 16 Monster Fnergy Co. v. City Beverages, LLC, (9th Cir. 2019) 940 F,3d 1130.. 17 Mt. Holyoke Homes, L.P. v. Jeffer Mangels Butler ctcMitchell, I LP 18 (2013) 219 Cal.App.4th 1299 19 Ovitz v. Schulman (2005) 133 Cal.App.4th 830 20 Royal Alliance Associates, Inc. v. Liebhaber 21 (2016) 2 Cal.App.5th 1092 22 Sandquist v. Lebo Auto., Inc., (2016) 1 Cal. 5th 233 23 Statutes 24 C.C.P. $ 1286.2(a) .. 25 C.C.P. 1281.9(a)(3)-(6) . .3 26 Federal Arbitration Act. 27 n RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE ARBITRATION AWARD — CPF-19-616943 1 Treatises 2 Privatizing Justice — but by How Much? (Juestions Gilmer Did Not Answer 16 Ohio St. J. on Disp. Resol, 589 (2001) 3 Samuel Estreicher, Arbitration of Employment Disputes without Unions 4 66 Chh-Kent L. Rev. 753 (1990) 5 Shauhin Talesh, How the "Haves" Co2ne Out Ahead in the Twenty-First Century 62 DePaul L. Rev. 519 (2013) . 6 Theodore I'iscnhcra 8! 1':liaahcth Hill, A2 12titntlon al2c1 E1E2g'2fto22 of 1'222plf23m2ent Cgciln2s: 7 A 22Emc2i2 i cal Con2pn2ison, Disp. Rcsol..l., Nov. 2003-Jan. 2004 ............................................................................... 8 William W. Park, Arbitrator Integrityc The Transient and the Permanent, 9 46 San Diego L. Rev. 629 (2009) . CI 10 Regulations II2 11 Ethic Standard 7(d) . 12 Ifl I 22 Cl 13 ISI 22 14 22 0 D 0 15 II 0 IL'Il Q t22 16 17 19 20 21 22 23 24 25 26 27 28 n1 RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE ARBITRATION AWARD — CPF-19-616943 I. The Arbitrator Failed to Timely Disclose Her Ownership Interest in JAMS 2 JRV misleadingly argues that Arbitrator Claiborne disclosed her "economic interest" 3 in JAMS at the outset of the arbitration. JRV's argument was expressly rejected in Monster 4 Energy Co. v. City Beverages, LLC, 940 F.3d 1130 (9th Cir. 2019), on nearly identical facts. 5 In this case (as in Monstev Enevgy), thc arbitrator made the boilerplate disclosure 6 that: "Each JAMS neutral, like me, has an economic interest in the overall financial success 7 of JAMS." (MM Decl., Ex. 6 at 6.) Monster Energy held that this boilerplate disclosure 8 "implied only that the Arbitrator, like any other JAMS arbitrator or employee, had a general 9 interest in JAMS'eputation and economic wellbeing, and that his sole financial interest 10 was in the arbitrations that he himself conducted." Monster L'nergy, 940 F.3d at 1134-35. 11 Arbitrator Clairborne — like the arbitrator in Monster Enevgy — failed to timely disclose that 12 she was a co-owner of JAMS, which entitled her to a portion of revenue from all of its ti t Ct 13 arbitrations, not just the ones that she personally conducts. As Monster Energy aptly tttOi 0 u 14 reasoned "[t]his ownership interest greatly exceeds the general economic interest that all 00 ia 3 0 15 JAMS neutrals have in the organization." Jd. at 1136 (footnote omitted). The Monster Ct 0 0 Q 0t ttt CL' 16 Enevgy court concluded that the failure of an arbitrator to make this disclosure of ownership 17 priov to conducting the arbitration was a violation of the disclosure requirements and 18 prevented the parties from making their "own informed decisions about whether the 19 arbitrator is likely to be neutral." Id. at 1137 (emphasis added). 20 Notably, although Monster Energy was decided under the Federal Arbitration Act 21 ("FAA"), the California Arbitration Act ("CAA") provides more stringent rules for vacatur 22 of arbitration based on non-disclosure by the arbitrator. In addition, unlike under the FAA, 23 the CAA provides that the failure to make such disclosures requires that the arbitration 24 award be vacated. C.C.P. ( 1286.2(a). 25 z Johnson v. Grume Corp., 614 F,3d 1062, 1065 (9th Cir. 2010) (" The CAA and the FAA provide different grounds for vacatur of an arbitration award. The CAA provides that a court reviewing an arbitration award shall vacate the award if the court 27 determines...[whereas] The FAA provides that a district court moy vacate an arbitration award" and under the FAA, "[t]he scope of a confirmation proceeding applying these factors is 'extremely limited'"). I RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE ARBITRATION AWARD — CPF-19-516943 I Here, Arbitrator Claibome failed to disclose that she is a co-owner of JAMS and is 2 entitled to a portion of its revenues until November 4, 2019 — after entering the Interim 3 Award, after the Monster Enerf0z case was decided, and after WX specifically asked JAMS 4 to disclose Arbitrator Claiborne's ownership interest. (MM Decl., Ex. 10.) Her failure to 5 disclose this information (coupled with the nontrivial business dealings that JAMS has with 6 Pillsbury) requires vacating the arbitration award under C.C.P. tj1286.2(a). 7 II. WX Did Not Waive Any Objections Because It Did Not Know The Arbitrator Was An Owner of JAMS 9 JRV's argument that WX waived its right to object to Arbitrator Claibome's failure C& 10 to disclose her ownership interest is meritless because WX had no knowledge of her Ill IU 11 ownership interest until she untimely disclosed it. "A party cannot waive a right [it] does I/I 12 not know [it]has." Honeycutt v. JPMorgan Chase Bank, NA. (2018) 25 Cal.App.5th 909, I/l o- o 13 931. Furthermore, "[a] party to an arbitration is not required to investigate a proposed IllOl M 14 neutral arbitrator in order to discover information, even public information, that the 0 0 Ll 00 15 arbitrator is obligated to disclose." Mt. Holyoke Homes, LP. v. Jeff'er Mangels Butler dt III CL 3 1l M 0M II Ct: 16 Mz'tchell, LLP (2013) 219 Cal.App.4th 1299, 1313. "Instead, the obligation rests on the 17 arbitrator to timely make the required disclosure." Jd. For example, in Honeycutt, the 18 California Court of Appeals vacated an arbitration award because of a non-disclosure, and 19 held that Honeycutt did not waive her right to vacate the award on that basis because she 20 was not told about the disclosures until atter the interim award was issued. Honeyczztt, 21 szzpra, 25 Cal.App.5th at 931. 22 Similarly here, Arbitrator Claiborne did not disclose her ownership interest in JAMS 23 until after entering the Interim Award, after the Monster Energy case was decided, and after 24 WX specifically asked JAMS to disclose Arbitrator Claiborne's ownership interest within 25 weeks after Monster Energy was decided. (See Petition to Vacate at 9.) WX had no reason 26 to believe that Arbitrator Claibome was a co-owner of JAMS before that time and, 27 therefore, could not have waived any right to seek to disqualify her on that basis. 28 /// 2 RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE ARBITRATION AWARD — CPF-19-516943 III. The "Repeat Player" Bias Applies to Law Firms, Not Just Parties California law and disclosure rules have long recognized relationships between arbitrators and law firms are material and require disclosure,'nd concerns over bias for repeat players exist as much for law firms as for parties. Notably, JRV does not contest the common-sense point that lawyers are often the ones who choose or help their clients choose arbitration providers, giving arbitration companies greater incentive for bias in favor of firms — such as Pillsbury — who handled 233 matters involving JAMS — far more than the Monster Energy's 99 matters at issue in the Monster Energy case. In addition, none of JRV's authorities hold that repeat player bias for law firms Cl 10 cannot be a subject of disclosure. In fact, as one of those cases noted, the remedy for l0 Qi repeat player bias is to follow the statutory procedures allowing the parties to select an 12 arbitrator, which will keep the proceedings "honest and neutral." Mercuro, supra, 96 0 0 00 0 0 0 0l 13 'etz v. Pankow (1995) 31 Cal.App.4th 1503, 1509 ("A freuuent cause for an impression 14 of possible bias is the existence of a present or past business relationship between the 0 arbitrator and a partv, its counsel or witnesses.")(emphasis added); C.C.P. 1281.9(a)(3) (6) 0 ra (listing various mandatorv disclosures, all of which include disclosina relationships with the '0 00 15 Ql "lawver for a partv"); Ethic Standard 7(d)(21-(5), (7'i-(9),(15'1 (listinp reauired disclosures, I0 l0 0 including prior and professional relationships with the "lawyer" for a party). O 0l 16 l0 William W. Park, A vbi tratov Integri tv: The Transient and the Permanent, 46 San Dieao L. Rev. 629. 653 (2009) (" Another critiaue of arbitration that dovetails into those mentioned 17 above arises with respect to so-called 'repeat players'ho might be appointed several 18 times by the same party or law firm"); Samuel Estreicher. Avbitration of Emolovment Disrnites B'ithout Unions. 66 Chi.-Kent L. Rev. 753 ('1990) I"the relevant repeat player is not so much the employer as the firm's outside counsel"); Shauhin Talesh, How the 19 "Haves" Come Out Ahead in the Twenty-First Century, 62 DePaul L. Rev. 519. 554. fn 23. 51 (2013) (notina studies on repeat plaver bias include ones discussina how "lawvers can 20 be viewed asrepeatplavers who affect iudicial outcomes"); Theodore Eiscnbcru l& 21 Elizabeth Hill. Arbitration and Litigation of Emplovmeni Claims: An Empirical Comparison, Disp. Resol. J.. Nov. 2003-Jmi. 2004„af. 44 (notinu that variance iri repeat plaver bias in employmeni arbitration is explained in pari. 22 by lawyer representaiion); Privatizing Justice — but by How Much? Ouestions Gilmer Did Not Answer. 16 Ohio St. J.on Disp. Resol. 589. 606 (2001) (0 Po further facilitate the abilitv 23 of counsel to offset anv repeat plaver bias, courts should reauire arbitrators to disclose all 24 Iirior business with the parties and their lawyers" ) (all emphasis added), Several authorities discuss some variation of whether repeat player bias renders arbitrations unconscionable. Malone v. Superior Court I'20141 226 Cal.App.4th 1551, 1563 25 arbitrator's (decidinu whether FAA preempts anv reliance on financial self-interest in 26 deciding unconscionability of delegating arbitrability question to arbitrator); Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 178-79 (whether employer was repeat player made agreement to arbitrate unconscionable because the process requires "a neutral 27 'is arbitrator which, our Supreme Court has held, essential to ensuring the integrity of the arbitration process.'"); Sandquist v. Lebo Auto., lnc., I Cal. 5th 233, 259 (2016) (whether 28 arbitrator should decide whether class arbitration available given repeat player bias). 3 RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE ARBITRATION AWARD — CPF-19-516943 Cal.App.4th at 178-79. Here, WX was denied the opportunity to meaningfully choose a 2 neutral arbitrator because the arbitrator did not disclose a material fact that would have 3 affected WX's decision, impermissibly ignorning that the mandatory disclosure 4 requirements under California law are continuing in nature throughout the process. 5 Iloneycutt, supra, 25 Cal.App.5th at 931; Ovitz v. Schulman (2005) 133 Cal.App.4th 830, 6 846; see also Royal Alliance Associates, Inc. v, Liebhaber (2016) 2 Cal.App.5th 1092, 1105; 7 Gray v. Chiu (2013) 212 Cal.App.4th 1355, 1362-1363 ("the Legislature has provided 'for 8 judicial review in circumstances involving serious problems with the fairness of the 9 arbitration process"'or any material nondiscloure). D 10 IV. WX is Not Required to Show Prejudice to Obtain Vacatur of the Award l I0 argues that Arbitrator Claibome's failure to Gi 11 JRV also disclose her ownership interest Vl ) 12 in JAMS was immaterial and, therefore, did not prejudice WX. However, when there has l 0 D 13 been a failure "to make a required disclosure," a party "is entitled to vacate the arbitration 0 14 award without any showing fthe partyj was prejudiced by the nondisclosure." Haworth v. 0 0 ill 0 0 15 Superior Court, 50 Cal. 4th 372, 383 (2010); Dornbirer v. Kaiser Found. Health Plan, Inc., 3 D Ql CL' 16 83 Cal. Rptr. 3d 116, 122 (2008) (" On its face, [section 1286.2] leaves no room for 17 discretion. If a statutory ground for vacating the award exists, the trial court must vacate the 18 award."). As a result, JRV's argument that Arbitrator Claiborne's ".1% profit interest" in 19 JAMS does not support an impression of bias is meritless. (Opp. at 7.) As an initial point, 20 Arbitrator Claiborne disclosed that she received no more than ".1% of JAMS total revenue 21 in a given year" — she did not disclose the percentage ofprofits she earns. (MM Decl., Ex. 22 10)(emphasis added).) Moreover, and morc importantly, despite WX's request, JAMS 23 refused to disclose the amount of money that Arbitrator Claiborne actually received from 24 JAMS based on her ownership interest, which is more important than her relative 25 percentage ownership. Further, JAMS prohibited WX from determining the amount of 26 money that Arbitrator Claibome received based on her ownership in JAMS or how much 27 6 arbitrator's JRV misrepresents the financial interest in JAMS. Arbitrator Claiborne receives no more than 0.1% of all REVENUE (not 0.1% of profits, or a 0.1% ownership interest as stated by JRV in its tardy reply brief). 4 RESPONDENT WINERY EXCHANGE'S REPLY IN SUPPORT OF ITS PETITION TO VACATE ARBITRATION AWARD — CPF-19-516943 I JAMS received in revenue from Pillsbury — both of these facts are important and may 2 reasonably create doubt as to her impartiality. "That all may drink with confidence from 3 their waters, the rivers of justice, whether they flow through our public or private systems of 4 dispute resolution, must not only be clean and pure, they must appear so to all reasonable 5 men and women." Honeycutt, supra, 25 Cal.App.5th at 932 (internal quotations omitted), 6 The record in this matter illustrates that principle with stark clarity. 7 V. Conclusion 8 With respect, the Court must vacate the arbitration award. Dated: December 31, 2019 Respectfully submitted, 10 LEWIS ROCA ROTHGERBER CHRISTIE LLP By: /s/ Michael J. McCue 3 12 Michael J. McCue 0 Jeffrey L. Sklar 0l Ql Ol 13 Attorneys for Respondent and Counter-claimant, 0 c( O'X INC. 14 0 rs 0 0 00 15 Cl m O 0 16 0l IL 17 19 20 21 22 23 24 25 26 27 5 RKSPOIVDENT WINERY EXCIIANGE'S REPLY IN SUPPORT OF ITS PETITIOlV TO VACATE ARBITRATION AWARD — CPF-19-616943