Ray Wilson Co. v. Anaheim Memorial Hospital Assn.

• Decision Date: 16 April 1985
• Citation: 213 Cal.Rptr. 62,166 Cal.App.3d 1081
• Court: California Court of Appeals Court of Appeals
• Parties: RAY WILSON COMPANY, Plaintiff and Appellant, v. ANAHEIM MEMORIAL HOSPITAL ASSOCIATION, Defendant and Respondent. B004024.

Page 62

213 Cal.Rptr. 62

166 Cal.App.3d 1081

RAY WILSON COMPANY, Plaintiff and Appellant, v. ANAHEIM MEMORIAL HOSPITAL ASSOCIATION, Defendant and Respondent.

B004024.

Court of Appeal, Second District, Division 7, California.

April 16, 1985.

[166 Cal.App.3d 1084] Paul S. Leevan, Los Angeles, for plaintiff and appellant.

Munns, Kofford, Hoffman, Hunt & Throckmorton and A. Robert Throckmorton, Pasadena, for defendant and respondent.

LILLIE, Presiding Justice.

Ray Wilson Company petitioned the superior court to confirm an arbitration award (Code Civ.Proc., § 1285 et seq.) made after arbitration of a dispute between plaintiff and Anaheim Memorial Hospital Association which rose out of a written contract between the parties for new construction and remodeling of defendant's hospital by plaintiff. Defendant's response to the petition included a request that the court vacate the award. (Code Civ.Proc., § 1285.2.) Plaintiff appeals from order denying its petition to confirm the award and granting defendant's motion to vacate the award. ¹

FACTS

The verified petition for confirmation of the award alleged: The parties' written contract was the standard form of agreement between owner and contractor issued by the American Institute of Architects. Pursuant to the arbitration provisions of the contract plaintiff filed with the American Arbitration Association (AAA) a demand for arbitration on behalf of plaintiff's mechanical subcontractor, Hickman Bros., Inc.; the nature of the dispute was described as "various items of requested change orders and RFI's which have not been approved by the architect"; the amount of the claim was not set forth. Plaintiff subsequently filed an amended demand for arbitration covering the work of additional subcontractors and asserting a total claim of $401,864. The dispute was arbitrated by a panel of three arbitrators who rendered an award of $279,508 in favor of plaintiff.

Defendant filed a response to the petition requesting that the court vacate the award on the following grounds: (1) the award was procured by corruption or undue means in that one of the arbitrators was not impartial and neutral, he failed to disclose his conflicting interests, and the selection process of the arbitrators was improper; (2) denial of defendant's request for continuance of the arbitration hearing created an undue hardship and resulted in substantial prejudice to the rights and interests of defendant; and (3) the arbitrators acted in excess of their jurisdiction by making an award in direct conflict with the unambiguous terms of the contract and by seeking to retain jurisdiction over matters not submitted to them by the parties. ² (See Code Civ.Proc., § 1286.2.)

In opposition to the petition to confirm the award defendant submitted the declaration of its attorney, Mr. Throckmorton, stating: The AAA acknowledged plaintiff's demand for arbitration and gave each party a list of proposed arbitrators from which one was to be selected. Because of deletions by the parties or unavailability of some of the arbitrators the AAA was unable to appoint an arbitrator from that list and furnished the parties with a second list from which an arbitrator was selected. Thereafter, upon being notified by plaintiff that its claim would exceed $100,000, the AAA determined that the matter required a panel of three arbitrators and accordingly submitted to the parties a third list from which to select two additional arbitrators. The AAA fixed January 26, 1981 as the date for commencement of the hearing and indicated that in addition to Irwin Fulop, the first arbitrator selected, John Helm and Stephen Collins would serve on the panel. Subsequently, by letter dated January 22, 1981, the AAA informed the parties that Helm had withdrawn and that it had declared his office vacant and had named Tod Stice to fill that position; the AAA further indicated that Stice had accepted the appointment. The letter did not reach defendant's counsel prior to January 26, 1981 and they did not learn until then of the change in the panel of arbitrators. Prior to the commencement of arbitration, Throckmorton objected to Stice's appointment and was told by Jacquelyn Downs, deputy director of the AAA, that Stice had been selected by the AAA because he was actively engaged in the mechanical/plumbing contracting business and that the arbitration would proceed with him as one of the arbitrators. Throckmorton again objected and requested a continuance to permit the selection of a third arbitrator from lists submitted to the parties by the AAA. The request was denied but Throckmorton was given permission to examine Stice for cause. Throckmorton told Stice that the arbitration involved the establishment of rates for extra work performed by plumbers and that Hickman, in proposing its rates for extra work, was attempting to establish a standard for the industry which could be beneficial to Stice in his business. Stice responded by stating that he did not believe such factor would cause him to be biased or prejudiced. When asked by Throckmorton if he had a personal relationship with any of the principals of Hickman, Stice said that he had a long-standing acquaintance with Claude Hickman, father of the company's current president, and had been involved with Mr. Hickman in activities of the employer's council for the mechanical contracting industry. After concluding his questioning of Stice, Throckmorton renewed his objection to Stice's serving as an arbitrator because of his acquaintance with the Hickman family and his interest in establishing an industry standard for greater compensation for extra work. Fulop and Collins, the other two members of the panel of arbitrators, overruled Throckmorton's objection stating that they did not feel Stice would be biased or prejudiced. The arbitration hearing then commenced, and proceeded to its conclusion, with Stice serving on the panel of arbitrators.

Plaintiff submitted the declaration of its attorney stating: On January 28, 1981, Throckmorton on defendant's behalf signed a stipulation to pay the arbitrators for their services; thereafter an additional 16 days of hearings, over a space of 7 months, took place before the arbitrators; during that period both parties submitted evidence to support their respective claims and Throckmorton at no time voiced an objection to the panel of arbitrators. Plaintiff submitted a declaration of each of the arbitrators (Fulop, Collins and Stice) containing similar statements. Plaintiff also submitted a declaration of Ken Robinson, the AAA administrator assigned to the matter. In his declaration Mr. Robinson stated that no objection to Stice's serving as an arbitrator ever was made to him either orally or in writing.

DISCUSSION

I PROPRIETY OF STICE'S APPOINTMENT AND SERVICE AS AN ARBITRATOR

In Commonwealth Coatings Corp. v. Continental Cas. Co. (1968) 393 U.S. 145 [89 S.Ct. 337, 21 L.Ed.2d 301] the United States Supreme Court, interpreting the federal statutory grounds for vacating an arbitration award, announced the rule that arbitrators must "disclose to the parties any dealings that might create an impression of possible bias" (393 U.S. at p. 149 [89 S.Ct. at p. 339, 21 L.Ed.2d at p. 305] ) and held that failure to make such a disclosure constitutes cause for vacating the award. Statutory grounds for vacation of an award in California (Code Civ.Proc., § 1286.2, subds. (a) and (b)) ³ are practically identical with the comparable federal grounds, and the "impression of possible bias" rule has been held applicable in this jurisdiction. (Johnston v. Security Ins. Co. (1970) 6 Cal.App.3d 839, 841-842, 86 Cal.Rptr. 133.)

Prior to commencement of arbitration Stice disclosed his relationship with plaintiff's subcontractor Hickman. After the relationship was revealed, defendant objected to Stice as an arbitrator on two grounds: he had a personal relationship with the Hickman family; his business would benefit in the event that Hickman was successful in establishing an industry standard for compensation for extra work. A personal relationship (acquaintance) between an arbitrator and a party to the arbitration does not require vacation of an award for possible bias. (See Gonzales v. Interinsurance Exchange (1978) 84 Cal.App.3d 58, 64-65, 148 Cal.Rptr. 282.) Because arbitrators are selected for their familiarity with the type of business dispute involved, they are not expected to be entirely without business contacts in the particular field. (Figi v. New Hampshire Ins. Co. (1980) 108 Cal.App.3d 772, 776, 166 Cal.Rptr. 774.) 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, 104 Cal.Rptr. 733.) We have only defendant's self-serving statement that Hickman sought to establish industry-wide standards for compensation in the mechanical contracting field; nothing in the record substantiates this claim. In any event, a "benefit" accruing to Stice from the establishment of such a standard appears remote indeed, and is not sufficient to establish possible bias as a matter of law.

Defendant contends that the award nevertheless was properly vacated because the appointment of Stice as a replacement arbitrator, and his service on the panel over defendant's objections, violated the following Construction Industry Arbitration Rules of the AAA which the contract of the parties makes applicable to disputes rising out of the contract:

"Section 19. DISCLOSURE AND CHALLENGE PROCEDURE--A person appointed as neutral arbitrator shall disclose to the AAA any circumstances likely to affect his or her impartiality, including any bias or any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their counsel. ...