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Jensen v. Misner

Court of Appeals of Washington, Division 1

December 26, 2017

RICHARD JENSEN, an individual, JENSEN ENTERPRISES, INC., a Washington corporation, Appellants,
v.
JOHN MISNER, an individual, Respondent.

          VERELLEN, C.J.

         The Washington uniform arbitration act directs arbitrators to disclose "any known facts that a reasonable person would consider likely to affect the impartiality of the arbitrator in the arbitration proceeding."[1] There is no presumption of evident partiality unless the arbitrator fails to disclose "a known, direct, and material interest in the outcome of the arbitration proceeding or a known, existing, and substantial relationship with a party."[2] And to vacate an award, any nondisclosure "must have impacted the award."[3]

         Richard Jensen contends the superior court should have vacated a 2016 Financial Industry Regulatory Authority (FINRA) arbitration ruling in favor of John Misner because of omissions and misrepresentations by two of three arbitrators. Two panel members previously served together on a 2001 FINRA panel, and one of the panel members was affiliated with a law firm sued by its landlord in 1995, on claims allegedly similar to those at issue in the arbitration.

         Jensen does not establish evident partiality. Neither service on the 2001 panel nor the 1995 lawsuit are facts that a reasonable person would consider likely to affect the impartiality of the arbitrators. Neither arbitrator had an interest in the outcome nor any relationship with a party required for a presumption of evident partiality. And speculation that the two arbitrators would have been removed by Jensen does not establish a nondisclosure that must have impacted the award.

         Jensen's alternate theories of arbitrator misconduct, undue means, and exceeding authority are not persuasive. Jensen provides no compelling authority that the alleged violations of the FINRA rules establish a statutory ground to vacate.

         Finally, because the appeal includes debatable issues, Misner is not entitled to attorney fees as a sanction under RAP 18.9.

         Therefore, we affirm.

         FACTS

         Jensen Enterprises, Inc., owned by Richard Jensen, purchased securitized real properties through Pacific West Securities, Inc. Two of the five purchased properties performed well, but the other three were unsuccessful.

         Jensen sued John Misner and several others involved in the purchase. Jensen alleged Misner's poor investment recommendations constituted fraud, breach of contract, and breach of fiduciary duty. The court ordered FINRA arbitration of the claims against Misner.

         FINRA empaneled a three-member arbitration panel, including William Bergsten and Jonathan Kaiser. Later, Paul Meyer replaced the third member. In 2001, Meyer and Bergsten had served together on an arbitration panel. In his FINRA disclosure checklist, Meyer marked "No" to the question asking if he had served with another panel member.[4] Bergsten also marked "No" in his checklist before Meyer was added and did not update his answer once Meyer was designated.[5] The disclosure report for each arbitrator includes a section for listing names and identifying numbers of past cases and awards the arbitrator was involved in. The disclosure reports for Meyer and Bergsten both included the 2001 case they had served on together.

         In 1995, the law firm where Bergsten worked was involved in a legal dispute with its landlord. Under the lease, the law firm had a right of first refusal that frustrated the landlord's efforts to refinance his building. The landlord filed a lawsuit alleging the law firm's breach of contract, fraud, and breach of fiduciary duty for failing to properly advise the landlord, who trusted the firm due to his friendship with a partner. Bergsten had no dealings with the landlord, but was named in the lawsuit because the relevant legal authority at that time required it.[6]The 1995 lawsuit settled in favor of the law firm after a summary judgment ruling. A question in the FINRA disclosures asked if the arbitrator has ever been involved in a dispute "involving the same or similar subject matter as the arbitrator."[7]Bergsten marked "No."[8]

         The panel ruled 2-1 in favor of Misner. Meyer and Bergsten found no liability, but Kaiser found in favor of Jensen.

         Jensen moved to vacate the FINRA award, arguing there were material nondisclosures and misrepresentations by the arbitrators, including prior service on the 2001 panel and the 1995 litigation of substantially similar claims. The King County Superior Court denied Jensen's motion to vacate and confirmed the FINRA award. Jensen appeals.

         ANALYSIS

         Washington public policy favors finality of arbitration awards.[9] In Washington, "arbitration proceedings are wholly statutory, and the rights of the parties thereto are governed and controlled by statutory provisions."[10] In 2005, Washington adopted the revised uniform arbitration act, codified at chapter 7.04A RCW (referred to as the Washington uniform arbitration act). The revisions were promulgated in 2000 by the National Conference of Commissioners on Uniform State Laws.[11]

         "Judicial review of arbitration awards is strictly limited to the grounds set forth in the Washington uniform arbitration act, chapter 7.04A RCW."[12] The burden of proof is on the party seeking to vacate the award.[13]

         Jensen asserts the arbitration award should be vacated on grounds of evident partiality, misconduct, undue means, and exceeding the authority of the arbitrators. We disagree.

         I. Vacation of Arbitration Award

         (a) "Evident Partiality"

         Jensen contends Bergsten and Meyer's misrepresentations and nondisclosures constitute evident partiality. Evident partiality is a longstanding concept in arbitration. Both the 1956 uniform arbitration act[14] and the 2000 revised uniform arbitration act (RUAA)[15] include evident partiality as a ground to vacate an arbitration award. Cases from other jurisdictions applying the RUAA are instructive, and official comments to the uniform act are persuasive.[16] The Federal Arbitration Act has a similar evident partiality provision.[17] There are significant distinctions between the Federal Arbitration Act and the RUAA.[18] We may look to federal authority construing an analogous provision of the federal statute for guidance.[19] Federal cases have taken especially divergent views of evident partiality.[20] And there is minimal recent case law from other states addressing evident partiality under the RUAA.[21] We rely on the Washington statute and case law.

         The court must vacate an award if there was "evident partiality by an arbitrator appointed as a neutral."[22] RCW 7.04A does not define "evident partiality, " but provides clear guidance regarding arbitrator disclosures. In Washington, an arbitrator has a limited obligation to disclose. RCW 7.04A. 120(1) directs arbitrators to disclose

any known facts that a reasonable person would consider likely to affect the impartiality of the arbitrator in the arbitration proceeding, including:
(a) A financial or personal interest in the outcome of the arbitration proceeding; and;
(b) An existing or past relationship with any of the parties to the agreement to arbitrate or the arbitration proceeding, their counsel or representatives, witnesses, or the other arbitrators.

RCW 7.04A. 120(5) provides that "[a]n arbitrator appointed as a neutral who does not disclose a known, direct, and material interest in the outcome of the arbitration proceeding or a known, existing, and substantial relationship with a party is presumed to act with evident partiality under RCW 7.04A.230(1)(b)."[23]

         In Perez v. Mid-Century Insurance Co., the court noted, "Washington courts are reluctant to intervene in the arbitration process, deferring with good reason to public policy and statutory mandate."[24] Acknowledging this "fairly narrow approach, " the Perez court observed:

In most circumstances, the duty to disclose serves its intended purpose by reminding the parties to be aware of any relationships they might have that could affect their judgment as an arbitrator. Thus, the act of disclosure serves as a cure rather than an excuse for intervention by the courts.[25]

         In St. Paul Ins. Companies v. Lusis., the court held that an arbitrator's failure to disclose he and one of the insured's counsel were on the Board of Governors of the Washington State Trial Lawyers Association did not constitute sufficient grounds to vacate the arbitrator's award.[26] The Lusis court concluded that not every relationship is disclosable and found a general duty to disclose a relationship or circumstance where it was reasonable to infer the presence of bias or absence of impartiality.[27] Lusis "demonstrates that Washington courts have rejected the adoption of a full disclosure requirement."[28]

         More recently, our court has confirmed arbitrators have a "general duty to disclose a circumstance or relationship that bears on the question of impartiality where that relationship or circumstance creates a reasonable inference of the presence of bias or the absence of impartiality."[29]

         Jensen's evident partiality argument fails for several reasons. First, he fails to establish a violation of statutory disclosure requirements. It is not reasonable to infer a lack of impartiality just because two arbitrators served together on a single arbitration years earlier. This isolated[30] and remote[31] incident does not constitute a relationship with another arbitrator and, more importantly, does not implicate bias or impartiality. It is not a relationship or circumstance involving an interest in the outcome and is not a relationship with a party. There is no obligation to disclose under RCW 7.04A. 120(1). And notably, Bergsten and Meyer's participation in the 2001 arbitration was included in the disclosure report lists of their past cases. Sitting together on a single FINRA panel 15 years ago is not a disclosable relationship under our statutes or case law.

         Neither is it reasonable to infer that an arbitrator is likely biased or impartial just because in 1995, the arbitrator was a party to a lawsuit alleging general legal theories in a completely different setting. A landlord tenant dispute is not similar to a failed investment. And the arbitrator had a nominal role in the landlord tenant dispute. For example, arbitrators are not likely to be partial in any contract dispute just because they have been a party to a completely unrelated and remote contract dispute. The duty to disclose does not apply.

         Second, Jensen suggests the "failure to make a required disclosure" triggers a presumption of evident partiality.[32] But RCW 7.04A. 120(5) allows a presumption of evident partiality only when an arbitrator has a "material interest in the outcome of the arbitration proceeding or a known, existing, and substantial relationship with a party." Neither an interest in the outcome nor a ...


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