Nemecek v. Horn – Arbitrators Disclosures & Attorney Fees May Exceed Amount Incurred



Nemecek & Cole et. al. v. Steven J. Horn, 208 Cal.App.4th 641 (2012) serves as a reminder that not every professional relationship with a party or witness amounts to “necessary information which would cause a reasonable person to doubt the impartiality of an arbitrator, and require disclosure.” Code Civ. Proc., § 1281.9, subd. (a)-(b).)


Horn handled a neighbor dispute and lost the case. Appealed by different counsel, it was reversed. Horn sued for fees and the clients sued for fraud in misrepresenting his real estate experience. Nemecek represented Horn in the jury trial which returned a verdict of $42,282.56 to Horn and the exact amount to the clients. The judgment entered was “zero” due to the offset. On appeal the clients were found to be the prevailing party. On remand Horn was ordered to pay the clients approximately $380,000 in attorneys fees. While on appeal Horn settled with the former clients for $250,000. Horn blamed Nemecek for the “disastrous results” and demanded arbitration with JAMS as specified in their retainer agreement. Nemecek countered for fees and costs. The parties chose retired U.S. District Judge George Schiavelli who presented a disclosure statement. Horn requested additional disclosure of all matters in which Nemecek appeared before the arbitrator and JAMS responded that no case was found.


The arbitrator found Horn’s credibility to be lacking and ordered the parties to take nothing on their respective claims but allowed each of them to seek attorneys fees. The arbitrator found Nemecek was entitled to $289,028.85.. Horn’s offset  was denied as Nemecek was the prevailing party granted virtually all relief sought.


“Shocked” by the award Horn hired a private investigator to find undisclosed relationships between the arbitrator and Nemecek, its counsel or its witnesses

and discovered: (1) the arbitrator and a member of Nemecek’s firm, Mark Schaeffer were both members of the LACBA Appellate Executive Committee; (2) the arbitrator and Edith Mattai, Nemecek’s expert witness, appeared together as panelists in seminars and were board members of the Association of Business Trial Lawyers; (3) the arbitrator was once employed as an attorney at a firm that represents lawyers in malpractice actions; and (4) Nemecek had appeared before the arbitrator when he was a district court judge in 2006.


Horn petitioned to vacate the award and opposed Nemecek’s petition to confirm. The trial court found for Nemecek, and Horn appealed.


I. Failure to Disclose


The California Arbitration Act Code Civ. Proc., § 1280 et seq. requires that an arbitrator disclose within 10 days of being chosen “all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.” Code Civ. Proc., § 1281.9, subd. (a)-(b).)


The obvious in §1281.9 (1)-(5) are: (1) any ground specified in Section 170.1 for disqualification of a judge; (2) matters required to be disclosed by the ethics standards for neutral arbitrators adopted by the Judicial Council; (3) any prior or pending arbitration in which the proposed arbitrator served as a party arbitrator for any party or their lawyer; (4) any prior or pending arbitration in which the proposed arbitrator served as a neutral arbitrator for any party or their lawyer; and (5) any attorney-client relationship with any party or attorney involved in the arbitration. From there  the description get a little hazy: (6) any professional or significant personal relationship the proposed neutral arbitrator or his or her spouse or minor child living in the household has or has had with any party to the arbitration proceeding or lawyer for a partyCode Civ Proc., § 1281.9, subd. (6).


The ethics standards adopted by the Judicial Council also require the disclosure of “specific interests, relationships, or affiliations” and other “common matters that could cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial.” Cal. Rules of Court, Ethics Stds. for Neutral Arbitrators in Contractual Arbitration, Ethics Stds, com. to std. 7.


If an arbitrator “failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware,” the trial court must vacate the arbitration award. Code Civ Proc., § 1286.2, subd. (a)(6)(A).)


The court reminded us that the disclosure requirements were intended to ensure the impartiality of the arbitrator, not to mandate disclosure of “all matters that a party might wish to consider in deciding whether to oppose or accept the selection of an arbitrator.” Haworth v. Superior Court (2010) 50 Cal.4th 372, 393. and that `”ordinary and insubstantial business dealings”‘ arising from participation in the business or legal community do not necessarily require disclosure.” Luce, Forward, Hamilton & Scripps, LLP v. Koch (2008) 162 Cal.App.4th 720, 733. .


A. Relationship with Mark Schaeffer


Schaeffer and the arbitrator were members of an appellate committee of the LACBA, comprised of 186 members. The arbitrator had to weigh Schaeffer’s credibility against Horn’s with respect to appellate matters while they were both members of an appellate committee. The court concluded the arbitrator’s participation in a group comprised of 186 members, of which Schaeffer was one, did not require disclosure.


Serving on professional boards together without personal friendships or any kind of business relationships created no requirement that those affiliations be disclosed, particularly where the contact was “slight or attenuated.” Koch, supra, at p. 734. “Membership in a professional organization does not provide a credible basis for inferring an impression of bias.” Ray Wilson Co. v. Anaheim Memorial Hospital Assn. (1985) 166 Cal.App.3d 1081, 1087-1088 “The fact that an arbitrator and a party to the arbitration are members of the same professional organization `is in itself hardly a credible basis for inferring even an impression of bias.”; San Luis Obispo Bay Properties, Inc. v. Pacific Gas & Elec. Co., (1972) 28 Cal.App.3d 556, 567.


The arbitrator’s membership with Schaeffer in the appellate committee of the county bar association was found to be too “slight or attenuated” to require disclosure. There was no indication of any personal or other professional relationship between them. The arbitrator was not required to disclose his “relationship” with Schaeffer.


B. Relationship with Edith Matthai


Horn contended the arbitrator should have disclosed his “prior long standing professional relationship” with Edith Matthai, an expert witness for Nemecek with whom the arbitrator had served on the litigation committee and the executive board of the LACBA and as panelists in a seminar put on for the Association of Business Trial Lawyers. The arbitrator had also served with Matthai’s husband Robie on a LACBA committee. According to Horn it was no stretch to believe that if the Arbitrator and Matthai shared a presence on at least one panel, had known each other over the course of years, and the Arbitrator had worked with Matthai’s husband and law partner Robie, then they had a personal relationship and mutual professional respect. Such may reasonably be deduced from the facts.” The arbitrator’s participation in the same panels or bar association committees did not provide a credible basis for inferring an impression of bias. From these facts, it was an unreasonable stretch of the imagination to assume that the arbitrator had a relationship with Matthai that required disclosure.


C. Law Firm Employment


The court rejected Horn’s contention that the arbitrator should have disclosed his employment at a law firm that has represented clients in the area of legal malpractice defense based upon evidence and a factual finding that the firm did not engage primarily in the defense of lawyers in professional responsibility matters and had handled only two of such cases. Benjamin, Weill & Mazer v. Kors (2011) 195 Cal.App.4th 40


D. Prior Appearance By Nemecek


In an argument that bordered on frivolous, Horn suggested that the arbitrator should have disclosed that Nemecek previously appeared before him in one case while he was on the district court bench. Neither JAMS nor the arbitrator made any representations about his time on the bench. There was no requirement that an arbitrator disclose that attorneys appeared before the arbitrator in one case during his four years as a district court judge.


II. Attorney Fee Award


Horn also challenged the trial court’s award of attorney fees incurred in connection with the petition to confirm the arbitration award. When Horn presented his claim, Nemecek referred it to Lawyers Mutual Insurance Company which contracted with Murphy, Pearson, Bradley & Feeney to provide the defense. In Nemecek’s motion for attorney fees, it presented Murphy’s billing statements and a declaration from Harlan Watkins, Nemecek’s which stated that he had been practicing in California since 1995 with a focus on malpractice litigation and presented a general schedule and pay table for attorneys put out by the Department of Justice, called the Laffey Matrix. Based on the Laffey Matrix, Watkins urged the court to adopt an hourly rate of $419.43 per hour for his work for a total of $45,759.81 in attorney fees. Watkins did not state what his actual hourly rate in the matter was.


In opposition, Horn presented the declaration of Joel Mark, an expert regarding billing and fee disputes and Horn’s expert witness in the arbitration. Mark reviewed Murphy’s billing statements and concluded that Murphy billed Lawyers Mutual between $100 to $215 per hour for attorney services in the arbitration. The trial court awarded Nemecek $42,207.31 in reasonable attorney fees and costs. Contending the amount awarded was more than double the amount actually incurred, Horn claimed the trial court abused its discretion. In short, Horn urged a cap on the attorney fee award to that which was actually incurred. The retainer agreement specified that the “prevailing party in the arbitration and any ancillary proceeding shall recover reasonable attorney’s fees.” Civil Code§ 1717 provides in part: “Reasonable attorney’s fees shall be fixed by the court, . . . and shall be an element of the costs of suit.” “`The reasonable market value of the attorney’s services is the measure of a reasonable hourly rate. This standard applies regardless of whether the attorneys claiming fees charge nothing for their services, charge at below-market or discounted rates, represent the client on a straight contingent fee basis, or are in-house counsel.Chacon v. Litke (2010) 181 Cal.App.4th 1234, 1260. Vella v. Hudgins, 151 Cal.App.3d at page 520, acknowledged that “the trend of the cases, however, is toward the conclusion that a trial court may consider the terms of the parties’ contract, along with other factors, but that the terms of the contract do not compel any particular award.”.


There was also no support for Horn’s argument that Nemecek cannot be reimbursed for attorney fees which were not actually paid. Indeed, this argument runs counter to the authority discussed above. The court also rejected Horn’s contention that the attorney fee request should have been denied because the fees were paid by Lawyers Mutual rather than Nemecek itself. Staples v. Hoefke (1987) 189 Cal.App.3d 1397, 1410. “Plaintiffs were not entitled to avoid their contractual obligation to pay reasonable attorney fees based on the fortuitous circumstance that they sued a defendant who obtained insurance coverage providing a defense.”.