Hanson v. Shim, s. 38447-3-

• Decision Date: 25 August 1997
• Docket Number: 38745-6-I,Nos. 38447-3-,s. 38447-3-
• Citation: 87 Wn.App. 538,943 P.2d 322
• Parties: James B. HANSON, Respondent, v. Chul SHIM and Jane Doe Shim, husband and wife and their marital community; Jenam Enterprises, Inc., a Korean corporation; and Pan Pacific Trading Corporation, a Washington corporation, Appellants.
• Court: Washington Court of Appeals

Page 538

87 Wn.App. 538

943 P.2d 322

James B. HANSON, Respondent, v. Chul SHIM and Jane Doe Shim, husband and wife and their marital community; Jenam Enterprises, Inc., a Korean corporation; and Pan Pacific Trading Corporation, a Washington corporation, Appellants.

Nos. 38447-3-I, 38745-6-I.

Court of Appeals of Washington Division 1.

Aug. 25, 1997.

Stephen Bruce Johnson, Charles C. Robinson, Garvey, Schubert & Barer, Seattle, for Appellants

Hall Baetz, Michele G. Radosevich, Davis Wright Tremaine, Seattle, for Respondent.

BAKER, Chief Judge.

This case arose from a failed 1991 venture between James Hanson and Jenam Enterprises, Inc., Pan Pacific Trading Corporation, and Chul Shim (owner/representative of both corporations) to form Arctic Sounder Fisheries, Inc. (ASF), a company that was to convert a vessel owned by one of Hanson's companies into a fishing vessel. When the deal began to fail, Jenam filed an involuntary bankruptcy against ASF, during the course of which Pan Pacific purchased the vessel for a fraction of its current value. Hanson then filed suit against Jenam, Pan Pacific, and Shim for breach of the 1991 agreements. Per those agreements, the case was stayed pending arbitration. The arbitrator awarded Hanson $1,760,000.

Hanson moved to enter judgment on the award, but Jenam opposed confirmation and sought vacation of the award. After the trial court considered a series of motions on these issues, it entered judgment on the award. Later the trial court denied Jenam's motion to vacate the award.

On appeal Jenam argues that the trial court should have vacated the arbitration award because (1) the arbitrator failed to disclose a prior association with the law firm representing Hanson, (2) the trial court lacked jurisdiction to enter the award because the arbitrator resolved issues that were within the exclusive jurisdiction of the bankruptcy court, and (3) the trial court denied it due process by requiring it to post a bond as a condition to further delaying entry of the judgment.

We hold that no duty to disclose the prior association existed, and that Jenam waived its right to object to the nondisclosure by failing to seek a remedy upon receiving notice of the potential conflict. We further hold that neither the face of the arbitrator's award nor the arbitrator's opinion indicates that the arbitrator decided issues within the exclusive jurisdiction of the bankruptcy court, and that because Jenam agreed to binding arbitration and sought the arbitration, it cannot now challenge the arbitrator's jurisdiction. We also hold that no due process violation occurred because, regardless of the propriety of the bond requirement, Jenam had notice and the opportunity to be heard before the trial court confirmed the award. We therefore affirm the confirmation and entry of judgment on the arbitration award.

FACTS

In the pre-incorporation agreements, Hanson and his companies agreed to supply the vessel and complete its refurbishment, and Jenam, Pan Pacific, and Shim agreed to supply the initial funding and seek the additional financing necessary. Later ASF entered into a standby loan agreement with Pan Pacific. The agreements provided After ASF's bankruptcy, Hanson sued Jenam, Pan Pacific, and Shim for breach of the 1991 agreements, tortious interference, and fraudulent concealment. Jenam denied the allegations and counterclaimed for breach of contract, misrepresentation, and breach of duty.

for binding arbitration of disputes under RCW chapter 7.04.

The court granted Jenam's motion to stay the proceedings pending arbitration. Lawrence Mills was chosen as the arbitrator because he appeared on each party's list of ten acceptable arbitrators. Mills told the parties that he had no conflicts. He did not disclose that he had been an associate with the law firm representing Hanson for approximately two years in the mid-1970s. Midway through the arbitration, a witness suggested that Mills' prior association with the firm representing Hanson created a potential conflict. While the parties dispute how the arbitrator responded to this suggestion, it is undisputed that Jenam neither objected to Mills continuing as arbitrator after receiving notice of the alleged conflict, nor investigated the alleged conflict until after Mills made the award.

The arbitrator awarded Hanson $1,760,000 plus interest. In his opinion, the arbitrator determined that Jenam breached both the pre-incorporation agreement with Hanson and its fiduciary duty to him.

Hanson moved to lift the stay, confirm the award, and enter the judgment. Jenam opposed confirmation and entry of judgment, arguing that the arbitrator committed misconduct by not disclosing the possible conflict, and exceeded his jurisdiction by deciding issues within the bankruptcy court's exclusive jurisdiction. Jenam also moved to continue confirmation until the court ruled on the motion to vacate that it was going to bring.

Concerned that Jenam would dispose of or encumber its assets to avoid paying the award, Hanson objected to the continuance and asked the court to condition the continuance on Jenam's posting a bond in the amount of the award. The trial court declined to rule on the bond request until a motion on the issue was filed. The trial court ordered Jenam to file its motion to vacate by March 25, continued the confirmation hearing until May 2, and consolidated both motions to be heard on that date.

Hanson saw Shim moving property out of Jenam's condo and learned that Pan Pacific had vacated its offices. He attempted to insure collection on the arbitration award by obtaining an ex parte writ of attachment on Jenam's real property. He then provided Jenam with notice of its right to a hearing challenging the writ. He also moved for an order requiring a bond to secure the arbitration award.

Jenam sought to discharge the writ, arguing that its issuance without notice violated due process. Jenam also opposed the bond, and moved to continue the hearing on that issue. The trial court set hearing on those motions for March 28.

On March 22 Hanson discovered that a deed of trust had been recorded against the condo, and he moved for emergency entry of the judgment. Jenam objected, noting that it had the right to encumber its property, that entry of the judgment would not impact the encumbrance, and that Hanson had other remedies if the conveyance was fraudulent. After a March 25 hearing, the court ordered Jenam to post a $1,795,200 bond within five days as a condition for further delaying entry of the judgment. Jenam also moved to vacate the arbitration award.

On March 28 the trial court heard argument on the validity of the writ and the bond. Hanson argued that the judgment should be entered because five days had passed and Jenam had not posted the bond. Jenam argued that the issue of confirmation was not before the court. The trial court ruled that the confirmation issue had been adequately addressed in the briefing. Because no bond had been posted, the trial court determined that further continuance of confirmation was inappropriate. The trial court signed an order to be entered on March 29, lifting the stay, confirming the award, and entering the judgment.

Because its decision rendered the writ issue moot, the trial court denied Jenam's motion to discharge the writ. On May 2 the trial court denied Jenam's motion to vacate the award.

ANALYSIS

Arbitration is a preferred means of settling disputes without litigation, in which an arbitrator is the judge of both the law and the facts. ¹ A trial court's limited authority to confirm, vacate, modify, or correct an arbitration award arises from statute in RCW 7.04.150-.170. ²

A trial court may confirm an award within one year "unless the award is beyond the jurisdiction of the court, or is vacated, modified, or corrected[.]" ³ Confirmation requires five days written notice. ⁴ A trial court may vacate an arbitration award for the following reasons:

In any of the following cases the court shall after notice and hearing make an order vacating the award, upon the application of any party to the arbitration:

(1) Where the award was procured by corruption, fraud or other undue means.

(2) Where there was evident partiality or corruption in the arbitrators or any of them.

(3) Where the arbitrators were guilty of misconduct, in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence, pertinent and material to the controversy; or of any other misbehavior, by which the rights of any party have been prejudiced.

(4) Where the arbitrators exceeded their powers, or so imperfectly executed them that a final and definite award upon the subject matter was not made ...

An award shall not be vacated upon any of the grounds set forth under subdivisions (1) to (4), inclusive, unless the court is satisfied that substantial rights of the parties were prejudiced thereby. ⁵

The party seeking to vacate the award bears the burden of proof. ⁶

In light of the limited statutory authority granted to a court reviewing an arbitration award, the court considers only the face of the award. ⁷ To determine whether an issue was presented to the arbitrator, the reviewing court considers the face of the award "in light of the arbitration agreement, the demand, and any documents reflecting the charge to the arbitrator[ ]." ⁸ A statement explaining the arbitrator's reasons for the award is not part of the award. ⁹ A reviewing court does not consider the merits of the case or the evidence presented to the arbitrator. ¹⁰ Unless an error appears on the face of the award, it will not be vacated or modified. ¹¹

Jenam first argues that the arbitration award should have been vacated because the arbitrator failed to disclose his past relationship with the law firm representing Hanson. Jenam argues that this failure was evidence of evident partiality or misconduct. Jenam asserts that a detailed disclosure of all...