Royal Alliance Associates, Inc. v. Liebhaber
2 Cal. App. 5th 1092
| Cal. Ct. App. | 2016Background
- Royal Alliance sought expungement of client Sandra Liebhaber’s settled arbitration claim against broker Kathleen Tarr from FINRA’s CRD/BrokerCheck after a $30,000 settlement.
- The same three-member FINRA arbitration panel had earlier overseen the underlying dispute; Tarr was not a named party in the expungement proceeding.
- At a telephonic expungement hearing, Tarr gave an unsworn, uninterrupted oral statement; the panel allowed Tarr to speak but declined Liebhaber’s counsel’s requests to have Liebhaber testify or to cross-examine Tarr.
- The panel issued an award recommending expungement, finding the allegations false or clearly erroneous and relying in part on Tarr’s oral statements and the settlement amount.
- Royal Alliance petitioned to confirm the award; Liebhaber and FINRA petitioned to vacate under Cal. Code Civ. Proc. § 1286.2, arguing arbitrator misconduct, denial of opportunity to present evidence, and exceeded powers.
- The trial court vacated the award; the Court of Appeal affirmed, holding the panel refused to hear material evidence and substantially prejudiced Liebhaber’s rights.
Issues
| Issue | Plaintiff's Argument (Royal Alliance) | Defendant's Argument (Liebhaber / FINRA) | Held |
|---|---|---|---|
| Whether vacatur under CCP §1286.2(a)(5) requires a violation of forum rules | Forum-rule compliance is dispositive; absent rule violation, no substantial prejudice and no vacatur | A party may be substantially prejudiced even if no formal rule was cited; the statutory safety valve focuses on fairness, not formal rule breach | Court: Rule breach is not required; focus is on whether arbitrators prevented a fair presentation and caused substantial prejudice |
| Whether arbitrators refused to hear evidence material to the controversy by denying testimony and cross‑examination | Oral evidence was not required; written submissions suffice; no showing cross‑examination would change outcome | Panel denied Liebhaber the right to testify and to cross‑examine Tarr, though Tarr made oral statements; that refusal denied Liebhaber a fair hearing | Court: Arbitrators refused to hear material evidence (denied opportunity to testify and cross‑examine), violating §1282.2(d)/§1286.2(a)(5) |
| Whether the refusal to hear evidence substantially prejudiced Liebhaber | No substantial prejudice; documentary record existed and outcome would not likely differ | Prejudice shown because the panel relied on untested oral statements by Tarr and cited lack of contrary oral evidence as a reason for expungement | Court: Substantial prejudice established—arbitrators might have reached a different result had Liebhaber been permitted to present and challenge oral evidence |
Key Cases Cited
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (arbitration awards generally final; narrow statutory review permitted)
- Hall v. Superior Court, 18 Cal.App.4th 427 (statutory "safety valve" allows vacatur when arbitrator prevents fair presentation)
- Burlage v. Superior Court, 178 Cal.App.4th 524 (one cannot properly consider evidence the arbitrator refused to hear)
- Schlessinger v. Rosenfeld, Meyer & Susman, 40 Cal.App.4th 1096 (arbitration parties entitled to present evidence and cross‑examine witnesses under §1282.2(d))