Preview
1 SUZANNE M. ALVES (SBN 195441)
salves@alvesradcliffe.com
2 ALVES RADCLIFFE, LLP
ELECTRONICALLY
2377 Gold Meadow Way, Suite 100
3 Gold River, CA 95670 F I L E D
Superior Court of California,
4 Telephone: (916) 596-1642 County of San Francisco
05/21/2020
5 Attorney for Petitioners Nationwide Biweekly Clerk of the Court
Administration, Inc., Loan Payment Administration, LLC, BY: ERNALYN BURA
Deputy Clerk
6 And Daniel S. Lipsky
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IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
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COUNTY OF SAN FRANCISCO
11
In the Matter of the Arbitration Between
12 Case No. CPF 18-516384
PONIST LAW GROUP, p.c. AND SEAN E. (assigned to Hon. Judge Harold E. Kahn, Dept 302)
13 PONIST,
Petitioners – Cross Respondents
14 MEMORANDUM OF POINTS AND
AUTHORITIES IN SUPPORT OF PETITION
15 vs. TO VACATE ARBITRATION AWARD [C.C.P.
§ 1280 et seq.] OF NATIONWIDE BIWEEKLY
16 ADMINISTRATION, INC., LOAN PAYMENT
NATIONWIDE BIWEEKLY
ADMINISTRATION, INC., an Ohio Corporation; ADMINISTRATION, LLC AND DANIEL S.
17 LIPSKY
LOAN PAYMENT ADMINISTRATION, LLC, an
18 Ohio Limited Liability Company; DANIEL S.
LIPSKY, a. resident of Ohio
19 Date: 6/17/2020
Respondents – Cross-Petitioners Time: 9:30 a.m.
20 Dept 302
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NATIONWIDE PARTIES’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
PETITION TO VACATE ARBITRATION AWARD
1 TABLE OF CONTENTS
2
3 Caption page ………………………………………………………………………….. 0
TABLE OF CONTENTS ………………………………………………………….. i
4
TABLE OF AUTHORITIES ………………………………………………………….. ii-iii
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I. INTRODUCTION ………………………………………………………………….. 1
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II. FACTS MATERIAL TO MR. LIPSKY, INDIVIDUALLY ………………….. 2-3
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III. THE CALIFORNIA SUPREME COURT’S INTERPRETATION OF THE CAA
8 ESTABLISHES THAT LIPSKY IS ENTITLED TO VACATE THE ARBITRATION
AWARD AGAINST HIM …………………………………………………………… 4-6
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A. Arbitrator exceeded her authority to make a “joint and several” award against Mr. Lipsky
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where finding was contrary to California’s well-settled public policy to deter attorney
11 misconduct. ……………………………………………………………………………. 4-6
12 IV. RECONSIDERATION OF ISSUES PREVIOUSLY RAISED PRIOR TO
APPOINTMENT OF ARBITRATOR, AND PRESERVATION OF THESE ISSUES
13 FOR APPEAL ……………………………………………………………………. 6-13
14 A. Violations of the CAA Statutes ……………………………………………………. 7
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B. Violation of Procedural Due Process …………………………………………….. 7-13
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1. Appointment of the arbitrator is void ab initio because of violation of procedural Due
17 Process guaranteed under the U.S. Constitution …………………………………….. 8-10
18 a. Factor No. 1: The “private interest that will be affected by the official action” …….. 9
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b. Factor No. 2: The “risk of erroneous deprivation of such interest through the procedures
20 used and the probable value, if any, of additional substitute procedural safeguard” …….. 9
21 c. Factor No. 3: The “Government’s interest, including the function involved and the fiscal
and administrative burdens that the additional or substitute procedural requirements
22 would entail.” ……………………………………………………………………………. 10
23 2. The text of the Contract and the AAA Rules are insufficient to constitute a voluntary and
24 informed consent to waive these constitutional guarantees …………………………….. 10-13
25 3. Likewise, under the California Constitution, the appointment of the arbitrator is void
ab initio because of the violation of procedural Due Process, without an informed consent
26 waiver. …………………………………………………………………………….. 13
27 IV. RELIEF REQUESTED AND CONCLUSION …………………………………….. 14
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NATIONWIDE PARTIES’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
PETITION TO VACATE ARBITRATION AWARD
1 TABLE OF AUTHORITIES
2 CALIFORNIA AUTHORITY
3 Case Law
4 Supreme Court
Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1 ………………………………. 4, 8
5
Neel v. Magana, Olney, Levy, Cathcart & Gelfand
6 (1971) 6 Cal.3d 176 ………………………………………………………. 4
7 People v. Ramirez (1979) 25 Cal.3d 260 ………………………………. 13
8
Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909 ………………………. 4, 8
9
Rockefeller Technology Investments (Asia) VII v. Changzhou SinoType
10 Technology Co., Ltd. (2020) 2020 WL1608906 ……………………….. 6, 7, 11
11 Sheppard, Mullin, Richter & Hampton LLP . J-M Manufacturing Co., Inc.
(2018) 6 Cal.5th 59 ………………………………………………………. 4, 5
12
13 Constitutional
Cal. Const. Art. I, §7(a) ………………………………………………… 13
14
Statutory
15 C.C.P. §1008(b) ……………………………………………………....… 6
C.C.P. §1008(c) ………………………………………………………… 6
16 C.C.P. §1280.6 ………………………………………………………… 7
C.C.P. §1282.4(b)-(j) ………………………………………………………… 10
17
C.C.P. §1286.2(a)(4) ………………………………………………………… 4, 7
18 C.C.P. §1290.4(a) ………………………………………………………… 8, 10, 11, 13
C.C.P. §1290.4(b)(2) ………………………………………………………… 7, 11
19 C.C.P. §1290.6 ………………………………………………………… 8, 12
Corporations Code § 317 ………………………………………………… 5
20 Corporations Code §17703.04(a) ………………………………………… 5
Corporations Code §17704.08 ………………………………………… 5
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22 Other
California Rule of Professional Conduct, Rule 8.4 ………………………… 5
23 California Rule of Professional Conduct, Rule 8.4(c) ………………………… 5, 6
California Rule of Professional Conduct, Rule 8.4(d) ………………………… 5, 6
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FEDERAL AUTHORITY
25
Case Law
26
Armstrong v. Manzo, 380 U.S. 545 (1965) …………………………………. 10
27 Cleveland Board of Education v. Loudermill, 470 U. S. 532 (1985) …………. 8
Londoner v. Denver, 210 U. S. 373 (1908) …………………………………. 8
28 Matthews v. Eldridge, 424 U.S. 319 (1976) …………………………………. 8, 9, 10
ii
1 Nelson v. Colorado, 581 U.S. ___, 137 S. Ct. 1249 (2017) …………………. 8
2 Constitutional
5th Amendment to the Bill of Rights ………………………………………….. 8
3 14 th
Amendment to the Bill of Rights ………………………………………….. 8
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1 Cross-Petitioners, Nationwide Biweekly Administration, Inc. ("Nationwide Biweekly"), Loan
2 Payment Administration, LLC ("LPA") and Daniel S. Lipsky ("Mr. Lipsky"), (collectively "the Nationwide
3 Parties") by and through the undersigned counsel, submit this Notice of Hearing and Memorandum of
Points and Authorities in support of the Nationwide Parties’ Petition to Vacate the Arbitration Award under
4
the California Arbitration Act" ("CAA")
5
I. INTRODUCTION
6
This case arose on October 26, 2018 when PONIST LAW GROUP, P.C. and SEAN E. PONIST
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(“Ponist Parties” or “Mr. Ponist”) filed a Petition for Appointment of Neutral Arbitrator (C.C.P. §1281.6.)
8
The Court granted that Petition on January 3, 2019, and issued an Order of Petitioners’ Ponist Law Group,
9 P.C. and Sean E. Ponist appointing an arbitrator (“Order”). The Nationwide Parties preserved their
10 objections to the arbitrator’s appointment in the arbitration process, both initially and immediately before the
11 arbitration. (See Declaration of Daniel S. Lipsky (“Lipsky Dec.”), filed contemporaneous herewith, ¶ 1.) Over
12 objection, the arbitrator nevertheless went forward with the arbitration. (See Lipsky Dec., ¶ 2.) The
13 arbitration occurred on September 30, 2019. (See Petition to Vacate the Arbitration Award (“Petition”),
14 ¶7(a).) An award in favor of Mr. Ponist for $205,092.00 was served on January 15, 2020. (See Petition at
15 Attachment 8(c) and 9(a).)
The Nationwide Parties seek to vacate the arbitration award on the ground that the arbitrator
16
exceeded her powers in determining that Mr Lipsky, individually, was jointly and severally liable for the entire
17
award. The Nationwide Parties also argue that the arbitration award should be vacated on the ground that
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the arbitrator’s actions were in excess of her power as the Order appointing the arbitrator was void ab initio
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for the reasons raised in opposition to the appointment of an arbitrator, an issue that the Nationwide Parties
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wish to preserve for appeal in this matter. To that end, the Nationwide Parties’ memorandum details a
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challenge on Constitutional grounds to this Court’s ruling dated January 3, 2019.
22 II. FACTS MATERIAL TO MR. LIPSKY, INDIVIDUALLY
23
Mr. Ponist drafted the original contract dated May 22, 2014, (“Contract”) with one company,
24
Nationwide Biweekly Administration, as the sole client. (Lipsky Dec., ¶ 3.) Almost immediately thereafter,
25 Mr. Ponist also began concurrently representing Mr. Lipsky. (Lipsky Dec., ¶ 4.) In the Summer of 2014, Mr.
26 Ponist wrote a letter identifying both Nationwide Biweekly and Mr. Lipsky as his clients. (Lipsky Dec., ¶ 5,
27 Exh. 1 (“On July 25, 2014, we received on behalf of our clients Nationwide Biweekly Administration, Inc.
28 and Daniel Lipsky (collectively “NBA”)… Sincerely, [signed] Sean E. Ponist.”)) This practice continued
1
NATIONWIDE PARTIES’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
PETITION TO VACATE ARBITRATION AWARD
1 throughout the pre-lawsuit dealings with opposing counsel. (Lipsky Dec., ¶ 6.)
2 One year later, in May 2015, Mr. Lipsky was named as a co-defendant in two lawsuits in California, in
3 separate courts. (Lipsky Dec., ¶ 7.) Mr. Ponist entered appearances in both courts to defend Mr. Lipsky in
addition to Nationwide Biweekly (and a wholly owned subsidiary, LPA.) (Lipsky Dec., ¶ 8.) Mr. Ponist sent
4
all invoices addressed to Nationwide Biweekly at its company offices in Xenia, Ohio. (Lipsky Dec., ¶ 9.) Mr.
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Ponist did not send any separate invoices only to Mr. Lipsky, individually, at his home address. (Lipsky Dec.,
6
¶ 10.) When these invoices were paid, Nationwide Biweekly made all of the payments. (Lipsky Dec., ¶ 11.)
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Mr. Lipsky did not make individual payments to Mr. Ponist from his personal accounts. (Lipsky Dec., ¶ 12.)
8
In November 2015, Nationwide had to suspend business operations when its business banks
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withdrew the electronic services for its customers, forcing Nationwide to lay off most of its employees.
10 (Lipsky Dec., ¶ 13.) Incoming revenue ceased in late November 2015. (Lipsky Dec., ¶ 14.) Mr. Ponist was
11 informed about these devastating events. (Lipsky Dec., ¶ 15.)
12 After that, on Dec. 5, 2015, Mr. Ponist asked Mr. Lipsky to sign a revised Contract, which formally
13 acknowledged Mr. Ponist's already-existing representation of Mr. Lipsky and LPA. (Lipsky Dec., ¶ 16.) Mr.
14 Ponist wrote the revised Contract with three pages of text about the waiver of conflicts between the three
15 clients (the two companies and Mr. Lipsky.) The fourth page contained signature lines. (See Petition,
16 Attachment 4.b.) Nowhere in the revised Contract was there any reference to the financial status of
Nationwide Biweekly, nor any reference to Mr. Ponist’s requirement for a personal guarantee of payment by
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Nationwide Biweekly. (Lipsky Dec., ¶ 17.) Mr. Ponist only told his client, Mr. Lipsky, about one purpose of
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the Contract – conflict waiver- but he did not mention a personal guarantee by Mr. Lipsky for Nationwide
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Biweekly. (Lipsky Dec., ¶ 18.) Mr. Ponist sent this revised Contract by email on Dec. 5, 2015, to in-house
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counsel for Nationwide Biweekly, purporting to explain the contents:
21
Josh: [in-house attorney for Nationwide Biweekly]
22 Attached please find the December invoice.
Additionally, in reviewing the fee agreement, I realized that it is only between my firm
23 and NBA. My firm, of course, is also representing Loan Payment Administration,
LLC and Daniel Lipsky . The attached memorializes this representation, provides the
24 required California conflict of interest advisement and clarifies the scope of services;
25 please have Dan sign same .
Thank you,
26 Sean [Ponist]
27 [Emphasis added.] (Lipsky Dec., ¶ 19; Exh. 2, p 3.)
28 On Dec. 20, 2015, Mr. Ponist wrote to Nationwide's outside counsel, requesting Mr. Lipsky's
2
NATIONWIDE PARTIES’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
PETITION TO VACATE ARBITRATION AWARD
1 signature and again explaining only one purpose of the revised Contract, adding a threat of a moratorium on
2 the filing of documents in Court until the revised Contract was signed:
3 Barbara: [outside counsel for Nationwide Biweekly]
Following-up on my prior correspondence and discussion, we need an executed copy of
4 Addendum No. 1 for our file. It was an oversight not to have had this in the file earlier but,
now that the oversight has been recognized, it is difficult to continue to file papers on
5 behalf of LPA and Lipsky and purport to represent same absent formal engagement.
Accordingly, please provide the executed copy of the addendum as soon as possible and,
6 in all events, before the upcoming filing on Tuesday Dec. 22, 2015….
7 [discussion of other unrelated matters]
Thank you,
8 Sean [Ponist]
9 [Emphasis added.] (Lipsky Dec., ¶ 20; Exh. 2, p. 1.)
10 As demanded, the (signed) revised Contract was returned to Mr. Ponist on Dec. 20, 2015, two days
11 before a filing was required to be made by Mr. Ponist in Court. (Lipsky Dec., ¶ 21.) Mr. Ponist did not
12 disclose to Mr. Lipsky that there was one sentence tacked onto a two-sentence heading above the signature
block that used the words "jointly and severally":
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CLIENT HAS READ AND UNDERSTOOD THE FOREGOING TERMS AND
14 AGREES TO THEM AS OF THE DATE ATTORNEY FIRST PROVIDED
15 SERVICES. IF MORE THAN ONE CLIENT SIGNS BELOW, EACH AGREES
TO BE LIABLE, JOINTLY AND SEVERALLY, FOR ALL OBLIGATIONS
16 UNDER THIS AGREEMENT.
17 (Lipsky Dec., ¶ 22.) Three signature lines followed in the signature block for the two companies and for Mr.
18 Lipsky, individually. (Lipsky Dec., ¶ 23.) Mr. Lipsky was provided only 15 days (from Dec. 5 to Dec. 20) and
19 - without personal counsel - he was not given enough time to review the emails and revised Contract and
20 evaluate the meaning on his own. (Lipsky Dec., ¶ 24.) He did not understand what "jointly and severally"
meant. (Lipsky Dec., ¶ 25.) Mr. Ponist did not tell him that by signing, he would be individually guaranteeing
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payment of all of Mr. Ponist's invoices for legal services to Nationwide Biweekly. (Lipsky Dec., ¶ 26.)
22
//
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//
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//
27 //
28 //
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NATIONWIDE PARTIES’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
PETITION TO VACATE ARBITRATION AWARD
1 III. THE CALIFORNIA SUPREME COURT’S INTERPRETATION OF THE CAA
ESTABLISHES THAT LIPSKY IS ENTITLED TO VACATE THE ARBITRATION AWARD
2 AGAINST HIM
3 A. Arbitrator exceeded her authority to make a "joint and several" award against Mr. Lipsky
4 where finding was contrary to California’s well-settled public policy to deter attorney
misconduct.
5
In her award, the Arbitrator made a finding that the "joint and several" sentence of the revised
6
Contract, Addendum No. 1, is valid and that Mr. Lipsky, is "jointly and severally” liable for the entire award
7
of $205,092.00. Mr. Lipsky respectfully seeks this Court to vacate the "joint and several" portion of the
8 arbitration award against him because this term was added in violation of California public policy and
9 statutes.
10 Under the CAA, the Court can vacate any arbitration award where “[t]he arbitrators exceeded their
11 powers and the award cannot be corrected without affecting the merits of the decision upon the controversy
12 submitted.” (C.C.P. §1286.2(a)(4).) Although it is generally recognized that “an arbitrator’s decision cannot
13 be reviewed for errors of fact or law” (see Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11), in 2015, the
14 California Supreme Court reaffirmed and clarified the exception to that rule - that courts have authority to
vacate an arbitration award if it violates California's public policy or statutes. (Richey v. AutoNation, Inc.
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(2015) 60 Cal. 4th 909, 917 ("Arbitrators may exceed their powers by issuing an award that violates a party's
16
unwaivable statutory rights, or that contravenes an explicit legislative expression of public policy." [Internal
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citations omitted.]).) At issue in Richey was whether or not an arbitrator’s decision, contrary to the express
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statutory right to reinstatement under California’s Moore-Brown-Roberti Family Rights Act (“CFRA”), was
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subject to judicial review and vacation under C.C.P. §1286.2(a)(4). Although the Court ultimately concluded
20
that the trial court properly denied the petition to vacate, the Court reiterated that arbitrators exceed their
21 authority in making an award that violates California's established public policies and statutory rights.
22 California has a well-established public policy of mandating truthful disclosure to clients of all
23 material facts related to employment. (Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176,
24 188-189 (held, attorney has fiduciary obligation “to render a full and fair disclosure to the beneficiary of all
25 facts which materially affect his rights and interests,” including disclosure of acts of malpractice.).) In 2018,
26 the California Supreme Court upheld reversal of the trial court’s order entering an arbitration award, holding
27 that the award was subject to invalidation as contrary to public policy of the State as expressed in California’s
28 Rules of Professional Conduct (“RPC”). (Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing
4
NATIONWIDE PARTIES’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
PETITION TO VACATE ARBITRATION AWARD
1 Co, Inc. (2018) 6 Cal.5th 59, 75-77.) Specifically, the Court held that the law firm’s failure to comply with the
2 Rules pertaining to disclosure of conflicts of interest and informed consent rendered the contract
3 unenforceable. (Id.)
Rule 8.4 of the California Rules of Professional Conduct states that "[i]t is professional misconduct
4
for a lawyer to: "(c) engage in conduct involving dishonesty, fraud, deceit, or reckless or intentional
5
misrepresentation; and (d) engage in conduct that is prejudicial to the administration of justice." (RPC, Rule
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8.4(c) and (d).) In this instance, as set forth in Section II supra, Mr. Ponist misrepresented - both by
7
commission and by omission - the revised Contract to Mr. Lipsky when Mr. Lipsky had been a client of Mr.
8
Ponist for well over one year. Moreover, Mr. Ponist did not disclose to Mr. Lipsky that he needed to retain
9
an independent attorney to review the revised Contract, nor did he disclose in the conflict waiver the conflict
10 of interest presented by the “joint and several” representation where Mr. Lipsky, as a corporate officer and
11 managing member, had a statutory right to indemnity and payment of defense by the corporate entities. (See
12 Corp. Code §§317, 17703.04(a) and 17704.08.)
13 In hindsight, in seeking execution of the revised Contract, Mr. Ponist was clearly serving his self-
14 interest and not the interest of his client, Mr. Lipsky. Previously, Mr. Ponist had put a disclosure in the
15 Contract about the waiver of a jury trial and agreement to arbitration and explicitly advised of the right to
16 obtain independent review prior to signature. But, with the revised Contract having an equally significant, if
not more significant, legal impact on Mr. Lipsky, there was no similar disclosure and admonition. (Compare
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Petition, Attachment 4.b, Exh. A, ¶12 at p. 4 ("…Client is encouraged to have an independent attorney…
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[review arbitration clause]") with Attachment 4.b., Exh. B (no reference to an independent attorney regarding
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"joint and several" personal guarantee).)
20
In this instance, California's public policy was violated when Mr. Ponist's subterfuge worked, and
21
Mr. Lipsky was found by the arbitrator to have guaranteed over $200,000.00 of invoices that always had been
22
billed to and paid by Nationwide Biweekly. This award is personally financially devastating to Mr. Lipsky, and
23 the harm cannot be reasonably disputed. Whether, in the absence of “joint and several” financial liability, Mr.
24 Ponist would have continued to represent the Nationwide Parties is debatable. (Lipsky Dec at ¶ 27.)
25 However, the fact that he was paid over $1 Million by Nationwide Biweekly belies any such claim. (Lipsky
26 Dec at ¶ 27.) Yet Mr. Ponist later quit both cases in March 2017, six weeks before the first trial. (Lipsky Dec
27 at ¶ 27.) Had Mr. Ponist quit in December 2015, those funds would have been better spent on the substitute
28 counsel who ultimately had to step in and try the case anyway. (Lipsky Dec at ¶ 27.) Quitting sooner would
5
NATIONWIDE PARTIES’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
PETITION TO VACATE ARBITRATION AWARD
1 have been better for the clients than quitting later. (Lipsky Dec at ¶ 27.) But the facts are that Mr. Ponist did
2 not adequately disclose the new “personal guarantee,” advise Mr. Lipsky to seek independent counsel, or
3 disclose the potential conflict presented in light of Mr. Lipsky’s statutory right to indemnity and defense
expense payments from the remaining Nationwide parties in obtaining Mr. Lipsky’s execution on the revised
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Contract.
5
Strict compliance by California attorneys with Rule 8.4 (c)and (d) of the Rules of Professional
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Conduct serves to promote the fair administration of justice, especially for out-of-state clients. Moreover, the
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California Business & Professions Code § 6076 establishes that the Rules of Professional Conduct are
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statutory obligations for “all licensees of the State Bar.” The California Supreme Court, both in its case law
9
and in its Rules of Professional Responsibility, establishes principles of law under which the "joint and
10 several" arbitration award against Mr. Lipsky should be vacated. All in all, Mr. Ponist, a California attorney,
11 violated this public policy embodied in the Professional Responsibility Rules and an award enforcing a
12 revised Contract under these circumstances should be vacated.
13 IV. RECONSIDERATION OF ISSUES PREVIOUSLY RAISED PRIOR TO APPOINTMENT
OF ARBITRATOR, AND PRESERVATION OF THESE ISSUES FOR APPEAL
14
The Nationwide Parties file concurrently herewith a Request for Judicial Notice in Support of
15
Petition to Vacate Arbitration Award (“RJN”) of the Objection filed November 5, 2018 and the
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Supplemental Objection and Opposition to Petition and Alternatively in Response to Petition, filed
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December 7, 2018. These documents are filed of record in this case, as reflected in the docket for the above
18
dates.
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Pursuant to C.C.P. §1008(b) and (c), the Nationwide Parties ask the Court to reconsider the statutory
20
arguments presented in the Objection (Exhibit A) and in the Supplemental Objection and Opposition
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(Exhibit B.) On April 2, 1 2020, the California Supreme Court issued its opinion in Rockefeller Technology
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Investments (Asia) VII v. Changzhou SinoType Technology Co., Ltd. (2020) 2020 WL1608906, where the
23 Court expressly held
24 [o]ur conclusions as to California law are narrow. When parties agree to California arbitration,
they consent to submit to the personal jurisdiction of California courts to enforce the
25 agreement and any judgment under section 1293. When the agreement also specifies the
26 manner in which the parties “shall be served,” consistent with section 1290.4, subdivision (a),
27 1
/ Per General Orders of this Court dated April 1 and April 13, April 2 falls within the period
designated as a “court holiday” for purposes of C.C.P. §12 and 12a.
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NATIONWIDE PARTIES’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
PETITION TO VACATE ARBITRATION AWARD
1 that agreement supplants statutory service requirements and constitutes a waiver of formal
service in favor of the agreed-upon method of notification. If an arbitration agreement
2 fails to specify a method of service, the statutory service requirements of section
1290.4, subdivisions (b) or (c) would apply, and those statutory
3 requirements would constitute formal service of process.
4
[Emphasis added.] (Rockefeller, supra, at p. 9.) The Nationwide Parties contend that this new authority
5
provides grounds for revisiting, and reversing, the Court’s January 3, 2019, Order.
6
A. Violations of the CAA Statutes
7
As the Rockefeller case cited above makes patent, the appointment of the arbitrator in this matter did
8 not comply with the CAA. The service of process was insufficient to obtain personal jurisdiction over any of
9 the Nationwide out-of-state parties. Mr. Ponist's decision not to serve each of the Nationwide Parties by
10 certified mail and not to provide an affidavit attaching the signature for each respondent failed to meet the
11 requirements of the long-arm statute in the CAA, Section 1290.4(b)(2). (See RJN No. 1, Section II, pp. 1-3
12 and No. 2 at pp. 1-8.)
13 Further, the appointment of the arbitrator did not comply with the CAA in a second alternative
14 respect., because the statutory requirements of C.C.P. § 1280.6 were not met. (See RJN No. 2, Section III, pp.
8-15.) In its Order, this Court rejected all of these arguments stating: “…service on respondents’
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representative in the arbitration proceedings by personal delivery and overnight mail or email constitutes
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proper service. All of the arguments in respondents’ most recent memorandum lack merit and were either
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rejected or should have been raised at the November 29, 2018 hearing.” (Petition, Attachment 6.) The
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Nationwide Parties respectfully request that this Court reconsider these arguments in light of Rockefeller and
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instead find them to be meritorious and therefore vacate the arbitration award.
20
B. Violation of Procedural Due Process
21 In the alternative, the Nationwide parties seek that the arbitration award be vacated because the
22 Court’s interpretation of the CAA, as applied to the Nationwide Parties, is unconstitutional because of a
23 violation of procedural due process under the U. S. Constitution and the California Constitution. As such,
24 the arbitrator appointment was void ab initio and she therefore exceeded her authority. (C.C.P. §1286.2(a)(4).
25 The CAA provides "[t]he Court shall vacate the award if the court determines" that "(4) [t]he arbitrators
26 exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon
the controversy submitted." (C.C.P. §1286.2(a)(4).) This provision is applicable to an arbitrator appointed in
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violation of procedural Due Process guarantees under the California Supreme Court’s two seminal cases on
28
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NATIONWIDE PARTIES’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
PETITION TO VACATE ARBITRATION AWARD
1 permissible juridical review of an arbitrator award. The Richey case, discussed above, and also the seminal
2 case of Moncharsh, cited by the Richey Court, support vacating an award that was made by an arbitrator
3 appointed in violation of constitutional rights where those rights were not waived through explicit
disclosure, acknowledgement and explicit informed consent. (Richey, supra, 60 Cal. 4th at 917 (quoting
4
Moncharsh, supra, 3 Cal 4th at 32).)
5
1. Appointment of the arbitrator is void ab initio because of violation of procedural
6 Due Process guaranteed under the U. S. Constitution.
7
The arbitrator was appointed on Jan. 3, 2019, in reliance on this Court's statutory construction of
8 C.C.P Section 1290.4(a). (Petition, Attachment 6.) This construction of Section 1290.4(a) and the designation
9 of this section as controlling required a response to a petition to be filed within 10 days. (See C.C.P. §1290.6
10 ("A response shall be served and filed within 10 days after service of the petition…").) It is this statutory
11 construction, as applied to the Nationwide Parties, that limited their response time to 10 days and, in turn,
12 denied them procedural due process. Section 1290.4(a), as construed and applied here, violates the Due
13 Process Clause of the U. S. Constitution. The appointment of the arbitrator is void ab initio for failure of
14 procedural due process under the U. S. Constitution.
The Due Process Clause is written into the Fifth Amendment and prohibits the Government from
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issuing an order violating the civil rights of "life, liberty, or property without due process of law." The Fifth
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Amendment applies to the Federal Government. These civil rights are applicable to state Governments
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through the Fourteenth Amendment. Procedural Due Process has long been an issue when a party claims a
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right to a fair process in connection with the deprivation of life, liberty, or property. (See, e.g., Londoner v.
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Denver, 210 U. S. 373 (1908) (procedural due process requires a fair process regarding notice and an
20
opportunity to be heard).) The guarantee of a citizen's civil rights by the U. S. Constitution requires that a
21 state's determination of what kind of notice and hearing is required must nevertheless meet federal
22 constitutional minimums. (Cleveland Board of Education v. Loudermill, 470 U. S. 532, 541 (1985)
23 ("minimum [procedural] requirements [are] a matter of federal law, they are not diminished by the fact that
24 the State may have specified its procedures that it may deem adequate for determining the preconditions to
25 adverse official action.'" (quoting Vitek v. Jones, 445 U. S. 480, 491 (1980))).)
26 The U. S. Supreme Court established a three-part balancing test to determine what is required by the
27 Constitution in the leading case of Matthews v. Eldridge, 424 U.S. 319 (1976). Albeit decided in 1976, the
Matthews test remains the law today. (See Nelson v. Colorado, 581 U.S. ___, 137 S. Ct. 1249 (2017) (applying
28
8
NATIONWIDE PARTIES’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
PETITION TO VACATE ARBITRATION AWARD
1 Matthews test to Colorado state statutes).)
2 a. Factor No. 1: The "private interest that will be affected by the official
action"
3
The right to a joint, even-handed selection process to obtain a neutral arbitrator is the "private
4
interest" that was lost by the construction of Section 1290.4 that permitted only 10 days for an out-of-state
5
party to respond to a petition to appoint an arbitrator. This parity and even-handedness in the selection
6
process is a core principle, fundamental to a party's decision to arbitrate a dispute and to give up a right to a
7
jury trial for breach of contract. The private interest here is of high importance for two reasons. First, there
8 the opportunity cost of losing a fair, neutral process for selection of the arbitrator, which, similar to jury
9 selection, is known to permit each side to select the decision-maker with the attributes they think best work
10 for their side in the context of their case. But second, and more important, is the appearance that a distant
11 state’s court system favors the in-state party.
12 Here, the in-state party (with California licensed counsel in the arbitration) can take time to plan and
13 execute a motion to appoint an arbitrator. But the out-of-state party (with out-of-state counsel in the
14 arbitration) is hit with a time-bomb of only 10 days to retain California counsel, inform them of the details in
the matter, and file substantive briefs and affidavits to respond in defense. In sum, the "private interests"
15
here are of the highest importance to the three Nationwide Parties because the chosen arbitrator is the single
16
most important decision to be made because the arbitrator's decision is final and binding.
17
b. Factor No. 2: The "risk of an erroneous deprivation of such interest
18 through the procedures used and the probable value, if any, of additional
substitute procedural safeguard"
19
The "procedure used" in this instance was to limit the response time to 10 days. The "substitute
20
procedural safeguard" that should have been used here is to have permitted 30 days for a response. The
21
"probable value" is that an "erroneous" decision is far less likely when the defending party has the minimum,
22
adequate time to fully apprise the Court about both procedural and substantive arguments in a first filing
23
before the hearing. Moreover, the Court would benefit from consideration of all of the relevant facts and
24
arguments before the hearing date. The cutoff of 10 days for a response is arbitrary and inherently risks
25
errors, which, logically, would be avoided when an out-of-state party has 30 days to respond. Thus, the 10-
26 day procedure used has a higher likelihood of the erroneous deprivation of the important interest of the
27 Nationwide Parties in the selection of the arbitrator to make a binding and final decision on their dispute.
28 //
9
NATIONWIDE PARTIES’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
PETITION TO VACATE ARBITRATION AWARD
1 c. Factor No. 3: The "Government's interest, including the function involved
and the fiscal and administrative burdens that the additional or substitute
2 procedural requirements would entail."
3 Granting permission for a 30-day response time to an out-of-state party to a petition filed for the
4 appointment of an arbitrator would not require any additional or substitute procedures. The Government's
5 interest, therefore, is not affected one way or the other. There is no fiscal and administrative burden for a 30-
6 day response time versus a 10-day response time. In contrast, granting 30 days rather than 10 days would
7 benefit the Government.
8 To allow an out-of-state party the full 30 days is consistent with the Government's interest as
9 expressed in the California Arbitration Act to permit out-of-state attorneys to appear in a California
arbitration. (C.C.P. §1282.4 (b)–(j).) As such, the State of California has no equitable interest in limiting to 10
10
days the response time for an out-of-state party when that party has to both obtain California litigation
11
counsel and also to respond to a petition to appoint an arbitrator.
12
In conclusion, an analysis of the Matthews test shows that the construction of C.C.P. §1290.4(a) - as
13
applied to the Nationwide Parties and limiting them to 10 days within which to respond to a petition to
14
appoint an arbitrator - does not meet the constitutional requirements of the Due Process Clause of the U. S.
15
Constitution. This balancing test has demonstrated that the construction of Section 1290.4(a), as applied, is
16 unconstitutional. The notice of hearing and the opportunity to be heard "must be granted at a meaningful
17 time and in a meaningful manner." (See Armstrong v. Manzo, 380 U.S. 545, 552 (1965).) The simple fact is
18 that 10 days does not permit an out