ECC Capital Corp. v. Manatt, Phelps & Phillips, LLP
9 Cal. App. 5th 885
| Cal. Ct. App. | 2017Background
- ECC Capital (and subsidiary Performance Credit/Encore) sued Manatt and Latham for legal malpractice over drafting of Section 7 of an APA with Bear Stearns; arbitration was compelled under Manatt’s 2007 engagement letter.
- AAA arbitration (Jan–Mar 2013) resulted in an interim award dismissing ECC’s claims; Manatt was deemed prevailing and sought fees under the 2007 engagement agreement.
- ECC later alleged the arbitrator failed to disclose prior UDRP panel service in which a then-Manatt lawyer appeared, and sought the arbitrator’s disqualification and vacation of the interim award.
- The arbitrator denied disqualification, AAA refused to disqualify, and the trial court confirmed the interim award; the arbitrator later awarded Manatt roughly $6.98 million in fees, expert fees, and costs.
- ECC petitioned to vacate the final award on multiple grounds: mandatory-disclosure violation, engagement agreement illegality (undisclosed conflict/ethical violations), fraud/undue means in procuring the award, and improper limits on discovery; the trial court denied the petition and the Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument (ECC) | Defendant's Argument (Manatt) | Held |
|---|---|---|---|
| Arbitrator failed to disclose prior panel service (UDRP matter with a Manatt lawyer) | Arbitrator should have disclosed the UDRP panelist role within 5 years; nondisclosure requires vacatur under §1286.2(a)(6)(A) | Arbitrator was unaware the UDRP listing included a Manatt lawyer; disclosure statute requires actual knowledge; UDRP proceedings differ from covered arbitrations | Court: No vacatur — arbitrator lacked actual awareness; duty to disclose requires awareness; trial court reasonably found disclosure practice permissible (substantial evidence). |
| Engagement agreement unenforceable (illegal) due to undisclosed conflict / professional ethics violations | Manatt had an undisclosed conflict, violated Rules 3-310(B)/(C) and §6106; enforcing the fee provision is illegal | ECC forfeited these arguments by failing to raise them before or during arbitration and thus cannot raise them after adverse outcome (Moncharsh rule) | Court: Forfeited — ECC failed to timely raise illegality; arbitrator and trial court properly rejected belated challenge. |
| Final award procured by fraud or undue means (perjured testimony/false declaration) | Marshall’s false declaration about prior Manatt-Bear representations procured the award by fraud/undue means | Arbitrator had alternative independent grounds (forfeiture, lack of adverse effect) and did not rely on the contested assertion; presumption arbitrator took permissible route | Court: No vacatur — ECC failed to show fraud/undue means that produced the award; arbitrator had independent bases. |
| Arbitrator improperly limited discovery / refused to hear material evidence | Arbitrator limited discovery and declined some searches (e.g., Polsky emails), prejudicing ECC’s ability to prove conflict | ECC had ample opportunity to pursue conflict theory, deposed key witnesses, abandoned the conflict theory at hearing; rulings were within arbitrator’s discretion | Court: No vacatur — no substantial prejudice shown; ECC had fair opportunity and forfeited claims by abandoning them. |
Key Cases Cited
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (1992) (party must raise arbitration-illegality defenses before or during arbitration or waive them)
- Haworth v. Superior Court, 50 Cal.4th 372 (2010) (statutory disclosure duties for proposed neutral arbitrators; mandatory vacatur if arbitrator fails to disclose a ground for disqualification of which the arbitrator was aware)
- Casden Park La Brea Retail LLC v. Ross Dress For Less, Inc., 162 Cal.App.4th 468 (2008) (vacatur requires arbitrator’s actual knowledge of disclosable matter; no duty to disclose unknown facts)
- Cummings v. Future Nissan, 128 Cal.App.4th 321 (2005) (forfeiture rule: raise arbitration-invalidity arguments early to avoid wasting arbitration resources)
- Pour Le Bebe, Inc. v. Guess? Inc., 112 Cal.App.4th 810 (2003) (arbitrator’s award is presumed valid; courts should assume arbitrator used permissible routes to reach decision)
- Burlage v. Superior Court, 178 Cal.App.4th 524 (2009) (section 1286.2(a)(5) permits vacatur when arbitrator’s refusal to hear material evidence substantially prejudices a party)