ECC CAPITAL CORPORATION et al., Plaintiffs and Appellants, v. MANATT, PHELPS & PHILLIPS, LLP, Defendant and Respondent.
No. B265760
Second Dist., Div. Seven
Mar. 15, 2017
Rehearing Denied March 30, 2017
9 Cal. App. 5th 885
SEGAL, J.
Review Denied June 28, 2017
Law Office of Julie M. McCoy, Julie M. McCoy; Sall Spencer Callas & Krueger, Robert K. Sall, Lara A.S. Callas; Lane Powell and Paul George for Plaintiffs and Appellants.
OPINION
SEGAL, J.-
INTRODUCTION
ECC Capital Corporation (ECC Capital) and its subsidiary, Performance Credit, LLC, formerly known as Encore Credit Corp. (collectively, ECC), appeal from a judgment confirming a final arbitration award of almost $7 million against them and in favor of Manatt, Phelps & Phillips, LLP (Manatt). The award was for attorneys’ fees, expert fees, and costs incurred by Manatt as the prevailing party in an arbitration of legal malpractice claims ECC brought against Manatt.
ECC contends the trial court erred in confirming the arbitrator‘s interim award denying ECC‘s claims because the arbitrator violated mandatory disclosure rules governing arbitrations. ECC also contends the trial court erred in confirming the final award because Manatt‘s engagement agreement was illegal, Manatt obtained the award by fraud, and the arbitrator limited ECC‘s rights to take discovery and present evidence at the arbitration on the issue of Manatt‘s conflict of interest. Because we conclude ECC‘s arguments are either meritless or forfeited, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. ECC Contracts with and Then Sues Bear Stearns
In October 2006 ECC Capital and Bear Stearns Residential Mortgage Corporation (Bear Stearns)1 entered into an asset purchase agreement (APA) providing that Bear Stearns would buy ECC Capital‘s subprime mortgage loan origination business, Encore Credit Corp (Encore). The APA required Encore to originate a minimum average of $400 million in mortgage loans
ECC Capital hired Latham & Watkins (Latham) as “deal counsel” for this transaction. ECC Capital also hired Manatt partner Ellen Marshall to help negotiate and draft section 7 (Section 7) of the APA, the portion of the agreement governing Bear Stearns‘s obligation to purchase and securitize the loans Encore originated during the preclosing period. According to ECC Capital, Bear Stearns had agreed, and ECC Capital understood and intended, that Bear Stearns would purchase those loans before the borrowers’ first payments were due, so that Bear Stearns would assume all risk of early defaults. ECC Capital claimed it communicated its intention on this point to Marshall and, based on conversations with her, understood the final draft of Section 7 reflected that intention.2
By December 2006, however, a dispute had arisen between ECC Capital and Bear Stearns about the timing of Bear Stearns‘s obligation to purchase the loans Encore originated. Roque Santi, president of ECC Capital and Encore, felt Bear Stearns was “not living up to the spirit of the deal” because Bear Stearns was not purchasing all of the loans “promptly upon origination.” Bear Stearns‘s position was that the APA did not obligate it to purchase the loans before the first payments were due, but did prohibit it, after purchasing a loan, from requiring Encore to repurchase the loan in the event of an early payment default (or breach of a representation or warranty), as Bear Stearns had required when previously purchasing loans from Encore.
ECC Capital and Bear Stearns ultimately closed the transaction contemplated by the APA on February 9, 2007. Approximately two months later, ECC filed suit in federal court against Bear Stearns, seeking damages for Bear Stearns‘s alleged breach of the APA by, among other things, not buying all of the loans Encore originated during the preclosing period before the due dates of the loans’ first payments. The case settled in July 2009, with ECC receiving $15 million.
In January 2010 ECC filed this action in state court against Latham and Manatt, asserting causes of action for legal malpractice, breach of contract, breach of fiduciary duty, and breach of the implied covenant of good faith and fair dealing. ECC alleged that poor drafting by Latham and Manatt of Section 7 of the APA had enabled Bear Stearns to refuse to buy loans promptly during the preclosing period, forced ECC to sue Bear Stearns to recover ECC‘s resulting losses, and weakened ECC‘s position in that litigation, leaving ECC to settle for much less than the $48 million it sought. ECC also asserted Latham and Manatt “failed to make full written disclosure of conflicting interests to [ECC] and to obtain [ECC‘s] informed written consent,” but made no specific factual allegations to support this assertion.
Manatt moved to compel arbitration, citing arbitration provisions in an April 2003 engagement agreement between Manatt and Encore and a January 2007 engagement agreement between Manatt and ECC Capital. Latham also moved to compel arbitration, citing an arbitration provision in a March 2005 engagement agreement between Latham and ECC Capital, although Latham conceded it lacked a fully executed copy of that agreement. Latham also argued it could compel arbitration under ECC‘s engagement agreements with Manatt because ECC alleged Latham acted as Manatt‘s agent (and vice versa) in providing legal services to ECC.
In opposing the motions, ECC did not dispute the validity of the engagement agreements or arbitration provisions cited by Manatt. Rather, ECC argued it had no enforceable arbitration agreement with Latham and, because ECC‘s claims against Latham and Manatt arose out of the same transaction, the court should try the claims against both defendants pursuant to
In October 2010 ECC initiated arbitration against Latham and Manatt before the American Arbitration Association (AAA), asserting the same claims it had asserted in court.4 Shortly before the arbitration hearing began in January 2013, ECC settled with Latham.
The arbitrator limited discovery to requests for production of documents and depositions. One category of documents ECC requested from Manatt was “[a]ll DOCUMENTS concerning [Manatt‘s] COMMUNICATIONS or analysis of conflicts of interest concerning the representation of ECC in connection with the BEAR STEARNS TRANSACTION.” ECC also requested billing records for any legal services Manatt provided to The Bear Stearns Companies, Inc., and its affiliates, including Bear Stearns Residential Mortgage Corporation and EMC Mortgage Corporation, from 2004 through 2008.
When Manatt objected to these requests, ECC sought to compel the production of responsive documents on the grounds that the documents werе necessary to discover whether Manatt had a conflict of interest, arising from legal services provided to Bear Stearns when Manatt represented ECC in the sale of Encore, and whether Manatt had obtained conflict waivers. ECC cited a September 2006 e-mail exchange among Marshall, Manatt partner Robert Sherman, and ECC Capital‘s general counsel, Alanna Darling, in which Darling asked Marshall and Sherman to provide comments on Bear Stearns‘s proposed amendments to an agreement relating to the transaction for the sale of Encore. In doing so, Darling commented, “I think you have a waiver for these agreements but if not, let me know.” Sherman responded that he was “not aware of any waiver from Bear.” Marshall replied, “I think we talked about getting a waiver the last time this came up, but because of the timing we did not do the work. At least that‘s what I recall. I think we could get the waiver readily. (Rob, the best person to connect with Bear on this is [Manatt partner] Barbara Polsky.)” Darling responded, “Please do try to get a waiver.”5
After holding at least two hearings on these and other discovery issues, the arbitrator sustained Manatt‘s objection to ECC‘s request for Manatt‘s billing records. And although the arbitrator directed Manatt to supplement its response to ECC‘s request for communications or analyses concerning conflicts of interest in connection with representing ECC in its sale of Encore, the arbitrator ruled Manatt did not have to search Barbara Polsky‘s e-mails or use her name as a search term when searching the e-mail accounts of other custodians of record.6
When ECC later deposed Sherman, counsel questioned him about his September 2006 e-mail exchange with Darling and Marshall, the conflict waiver referred to in the exchange, and any communications he may have had with Polsky concerning the issue. Sherman could not recall communicating with Polsky about such a waiver or actually seeing one, but he believed Manatt obtained one because Manatt was “not in the habit of doing work when we had a conflict without getting a waiver.”
Counsel for ECC asked similar questions when deposing Marshall. When asked whether “Bear had historically been a client of Manatt,” Marshall answered, “From time to time,” including at the time of the September 2006 e-mail exchange with Darling. Marshall stated she recalled Manatt sought and obtained a conflict waiver from ECC in connection with the sale of Encore to Bear Stearns. She also stated that in February 2007, when ECC began considering litigation against Bear Stearns to enforce ECC‘s understanding of Section 7 of the APA, Marshall told ECC she could not bring one of Manatt‘s litigation partners to a meeting to discuss the issue because Manatt‘s conflict waiver from “Bear” excluded litigation work.
ECC did not seek to depose Polsky or any other Manatt attorneys, though the arbitrator did not prohibit ECC from doing so. Nor did ECC call Polsky as a witness at the arbitration hearing.
ECC designated Robert Kehr as its expert on issues of standard of care, professional ethics, and professional responsibility. When counsel for Manatt asked Kehr during his deposition whether he was giving any opinion in the case regarding a conflict of interest on the part of Manatt, Kehr said he was not. Consistent with this answer, Kehr gave no opinion during the arbitration hearing that Manatt had any conflict of interest.
D. The Arbitration Hearing and the Interim Award
The arbitration hearing was held from January 15 to March 1, 2013. In advance of the hearing, ECC submitted a brief setting forth all its contentions, including its principal contention that Manatt was negligent in drafting the APA because, among other reasons, Manatt failed to include a provision obligating Bear Stearns to purchase the loans Encore originated before the
The arbitrator heard testimony from numerous witnesses and considered approximately 2,000 pages of deposition testimony. At no time did ECC argue or seek to present evidence that Manatt had a conflict of interest or induced ECC through any inappropriate means to sign the 2007 engagement agreement. In fact, during the hearing, counsel for ECC “expressly disavowed that [ECC] was seeking testimony to claim that Manatt had a conflict or breached some fiduciary duty with respect to conflicts.” At the conclusion of the hearing, the parties submitted closing briefs, and on May 14, 2013, the arbitrator heard closing arguments. Again, ECC made no mention of any conflict of interest, fraud, or coercion on the part of Manatt.
On August 1, 2013, the arbitrator issued a 49-page interim arbitration award, denying all of ECC‘s claims against Manatt. The arbitrator found ECC had not proved by a preponderance of the evidence that Manatt was negligent in drafting Section 7 or that any losses ECC may have incurred in the transaction with Bear Stearns were the fault of Manatt. The arbitrator deemed Manatt the prevailing party in the arbitration and directed it to submit an application to recover its reasonable attorneys’ fees, expert fees, and costs, as provided in the 2007 engagement agreement.
E. ECC Requests Disqualification of the Arbitrator
On October 30, 2013, before Manatt filed its application for fees and costs, ECC wrote the arbitrator and AAA requesting the arbitrator‘s disqualification from the proceeding and suggesting there were grounds to vacate the interim award. ECC contended the arbitrator failed to comply with his disclosure obligations by not disclosing his “role as a Panelist in a prior matter involving [Manatt] that took place in 2006.” ECC identified that matter as Tom Leykis v. Damian Macafee dba QTK Internet Name Proxy (Mar. 17, 2006, Dec. No. 636552) (Leykis), a Uniform Domain Name Dispute Resolution Policy (UDRP) proceeding before the National Arbitration Forum (Forum) in which the arbitrator served as a panelist and the claimant was represented by Jill M. Pietrini, an attorney who at that time (and until approximately Jan. 2012) worked for Manatt.7 ECC stated it “only recently” discovered these facts and believed the arbitrator failed to disclose “other matters” he was statutorily required to disclose. In letters to AAA in October and November 2013, Manatt responded to ECC‘s contentions and asked the arbitrator not to disqualify himself.
The arbitrator explained his involvement with those proceedings: “These cases are documents only matters in which, as an arbitrator, I have no direct contact with the parties or their representatives. In fact, my total involvement in preparing a decision takes well less than one hour. When an uncontested matter is assigned to me, I access a web-based portal where I can download the documents pertaining to the matter. The complaining party files a complaint online, there is ... in addition a letter assigning the matter to an arbitrator, a staff memorandum proposing a resolution tо the matter, and a template of the decision. [¶] ... I do not add [the names of the parties or their representatives] to the template or give any consideration to the names, if any, of a party representative. ... The staff memorandum proposes a resolution to all of the issues. ... In the case of uncontested matters, like the Leykis case, the resolutions proposed in the staff memorandum are almost always adopted with only modest editing.”
The arbitrator further explained: “Because of the sheer volume of these cases, the fact that they are uncontested, documents only matters, in which no consideration is given to any one listed as a party representative, I can state with absolute certainty that when I filled out the disclosure information in this case I was unaware that an attorney from the Manatt firm had been listed as a party representative in one of those matters. [¶] I do maintain an excel spreadsheet where I record contested arbitrations and mediations. I do not include in that excel spreadsheet these domain name matters because they are uncontested, documents only matters, where identification of a party, or a party representative, is completely irrelevant to the resolution of the dispute. So, when I did my customary due diligence by reviewing the excel spreadsheet, the Manatt firm did not appear.”
On November 18, 2013, ECC sent a second letter to AAA, requesting AAA disqualify the arbitrator and vacate the interim award, and describing “additional pertinent evidence.” ECC stated that after receiving the arbitrator‘s letter it searched the National Arbitration Forum‘s online database and discovered that in 2002 the arbitrator was a panelist in Kevin Spacey v. Alberta Hot Rods (Aug. 1, 2002, Dec. No. 114437), a contested proceeding in
F. The Trial Court Confirms the Interim Award
In December 2013 ECC filed a petition to vacate the interim award and disqualify the arbitrator, contending the arbitrator failed to comply with his statutory disclosure obligations. In January 2014 Manatt filed a competing petition to confirm the interim award. In February 2014 ECC amended its petition to include a request to vacate the orders compelling arbitration.
In its amended petition ECC argued the court should vacate the orders compelling arbitration and the interim award because ECC‘s 2007 engagement agreement with Manatt, which ECC referred to as “the Arbitration Agreement,”8 was procured by Manatt‘s “fraud [and] coercion.” ECC contended the evidence of Manatt‘s fraud and coercion emerged only during the arbitration hearing, when Marshall testified Section 7 of the APA was (in ECC‘s words) “drafted to provide only a discretionary obligation on the part of Bear.” According to ECC, this testimony conflicted with Marshall‘s previous statements indicating she shared ECC‘s view that Section 7 “required Bear to purchase and securitize monthly all the loans originated during the pre-closing period.” This testimony also established, according to ECC, that Manatt engaged in fraud and coercion when it requested ECC to sign an engagement agreemеnt in January 2007, “on the eve of” ECC and Bear‘s closing their transaction under the APA. ECC contended Marshall‘s testimony demonstrated that, at the time Manatt asked ECC to sign the engagement agreement, Marshall knew “she had not performed the job she was specifically hired to do,” “was concealing her belief that Bear‘s obligations were ‘discretionary,‘” and knew “a potential claim [for legal malpractice] would be likely.”
ECC also argued the court should vacate the interim award and the orders to compel arbitration because the 2007 engagement agreement was “illegal.”
On March 12, 2014, the trial court denied ECC‘s amended petition. The court also granted Manatt‘s petition to confirm the interim award.
G. The Arbitrator Issues His Final Award
In March 2014 Manatt presented the arbitrator with its application for more than $8 million in attorneys’ fees, expert fees, and costs as the prevailing party in the arbitration. ECC opposed the application on several grounds, including that the 2007 engagement agreement under which Manatt sought fees and costs was unenforceable because Manatt committed ethical violations in obtaining it. ECC again contended Manatt had an undisclosed conflict of interest.
In January 2015 the arbitrator issued his final award, granting Manatt‘s application for attorneys’ fees, expert fees, and costs in the amount of $6,982,621. In his 23-page ruling, the arbitrator discussed at length ECC‘S contention that the 2007 engagement agreement was unenforceable. The arbitrator rejected that contention because there was no evidence Manatt had a conflict of interest, ECC had forfeited the argument by failing to raise it during the arbitration hearing, and ECC had sought to enforce the terms of the 2007 engagement agreement when it requested attorneys’ fees, expert fees, and costs in its arbitration demand.
In concluding Manatt had no conflict of interest, the arbitrator noted Marshall had submitted a declaration to the effect that “Manatt never represented any of the companies affiliated with [Bear Stearns & Co., Inc.,] involved in the APA: [Bear Stearns Residential Mortgage Corporation], EMC [Mortgage Corporation], and Bear Stearns Mortgage Capital Corporation,” but that “Manatt did represent previously [Bear Stearns & Co., Inc.,] in unrelated matters.” The arbitrator stated that, because of the importance of these facts to the issues ECC raised, he had directed counsel for Manatt to conduct further inquiry, and after consulting with Manatt‘s managing partner, counsel for Manatt had sent an e-mail to the arbitrator and counsel for ECC stating the following: “During the period 1987-89, but not thereafter, Manatt represented an entity named Bear Stearns Mortgage Capital, which apparently was one of the many Bear subsidiaries. The counterparty to the repo agreement in the APA transaction was an entity named Bear Stearns Mortgage Capital Corp. We do not yet know if the two entities are the same entity with a name change, or different entities. I have also been informed that Manatt represented PMG Securities Corporation (not a Bear entity) in an
“Thus,” the arbitrator observed, “counsel for Manatt acknowledged that Ms. Marshall‘s declaration was false.”9 The arbitrator then noted he had asked the parties during the hearing on Manatt‘s application for attorneys’ fees “whether they believed further investigation and/or an evidentiary hearing was necessary to establish the precise nature of Manatt‘s prior representation of any Bear Stearns affiliated entity. Counsel for the parties stated they were satisfied with the record as it stood, taking into account this most recent communication from Manatt‘s counsel.”
The arbitrator concluded, “Although it appears Manatt previously had an attorney client relationship with [Bear Stearns & Co., Inc.,] and Bear Stearns Mortgage Capital (potentially the same entity as one of the parties engaged in the negotiation of the APA), no such relationships existed in 2006 when Manatt represented ECC in drafting portions of the APA. To the extent there are unknown issues regarding the nature of these relationships or the reason why Manatt obtained a waiver letter from Bear Stearns, the gap in the evidence was caused by the delay on the part of ECC in raising its allegations of unethical conduct.” (Fns. omitted.)
The arbitrator also rejected ECC‘s argument that Manatt‘s agreement not to represent ECC in litigation relating to the APA constituted a conflict. The arbitrator noted that, in response to the September 2006 e-mail exchange in which Darling requested that Sherman and Marshall “[p]lease do try to get a waiver,” Manatt prepared a conflict waiver letter that a senior managing director of Bear Stearns & Co., Inc., subsequently signed.10 It was this conflict waiver letter to which Marshall was referring when in January 2007, in response to a request from ECC that she bring a litigator to a meeting to discuss disputes over the APA, Marshall wrote: “I took a look at the conflict waiver letter that we got from Bear Stearns, and it specifically excludes representation in a litigation.” The arbitrator concluded the conflict waiver letter thus “amounted to a ‘relationship’ with [Bear Stearns & Co., Inc.,]
The arbitrator determined this “relationship,” however, did not constitute a conflict of interest because there was no evidence it materially and adversely affected Manatt‘s representation of ECC or ECC‘s interests. The arbitrator noted the 2007 engagement agreement between ECC and Manatt defined the “matter” for which ECC was retaining Manatt as “general corporate advice” and all the evidence in the arbitration “showed that Manatt‘s role was limited to drafting and negotiating selected portions of the APA documentation.” In addition, the arbitrator observed, ECC “promptly retained extremely competent counsel” to represent it in litigation with Bear Stearns.
H. The Trial Court Confirms the Final Award
On February 24, 2015, ECC and Manatt filed respective petitions to vacate and confirm the final arbitration award. ECC argued the trial court should vacate the final award under
On March 23, 2015, the trial court denied ECC‘s petition to vacate the final award and granted Manatt‘s petition to confirm it. Neither party requested a statement of decision. On July 13, 2015, the trial court entered judgment in favor of Manatt and against ECC in the amount of $6,982,621. ECC timely appealed.
DISCUSSION
ECC argues the trial court erred in confirming the interim award because the arbitrator violated mandatory disclosure rules. ECC also contends the trial court erred in confirming the final award because the arbitrator exceeded his powers by enforcing an illegal agreement, Manatt procured the final award by fraud or undue means, and the arbitrator refused to allow ECC to take discovery and present evidence relating to Manatt‘s alleged conflict of interest.
A. Standard of Review
Judicial review of an arbitration award is ordinarily limited to the statutory grounds for vacating an award under
“‘On appeal from an order confirming an arbitration award, we review the trial court‘s order (not the arbitration award) under a de novo standard. [Citations.] To the extent that the trial court‘s ruling rests upon a determination of disputed factual issues, we apply the substantial evidence test to those issues.‘” (Toal v. Tardif (2009) 178 Cal.App.4th 1208, 1217; accord, Condon v. Daland Nissan, Inc. (2016) 6 Cal.App.5th 263, 267; see Sunline Transit Agency, supra, 189 Cal.App.4th at p. 302 [“‘the general rule [is] that “an arbitrator‘s decision cannot be reviewed for errors of fact or law“‘“].) “[T]he question whether the arbitrator exceeded his powers and thus whether we should vacate his award on that basis is generally reviewed on appeal de novo.” (Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 918, fn. 1.)
Although there is a split of authority on whether a statement of decision is required on a petition to confirm an arbitration award when a party requests one,11 courts uniformly hold that a statement of decision is not required when there is no such request. (See Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 237 [“[w]hen a trial court denies a motion to compel arbitration, a party may request the court to provide a statement of decision explaining the factual and legal basis for its decision,” but “[n]o statement of decision is required if the parties fail to request one“]; Agri-Systems, Inc. v. Foster Poultry Farms (2008) 168 Cal.App.4th 1128, 1134 [trial court confirming an arbitration award “has no obligation to prepare a statement of decision unless a party requests one“].) Where, as here, neither side asked for, and the trial court did not issue, a statement of decision, “the appellate court will infer the trial court made implied factual findings favorable to the prevailing party on all issues necessary to support the judgment, including the omitted or ambiguously
B. ECC Did Not Establish the Arbitrator Violated Mandatory Disclosure Rules
To similar effect,
ECC contends the Leykis matter—the UDRP proceeding in which the arbitrator participated within the previous five years and a Manatt lawyer represеnted the claimant—was a prior noncollective bargaining case that
As Manatt points out, however,
The parties here similarly do not dispute that at the time of his disclosures the arbitrator was not aware a former Manatt lawyer had participated in the Leykis UDRP matter. As the arbitrator stated in his letter
ECC argues that, although the arbitrator may not have been aware a Manatt lawyer participated in the Leykis UDRP proceeding, he should have been aware, and therefore his failure to disclose the matter requires vacating the interim award. As ECC puts it: “An arbitrator cannot render himself ‘unaware’ of arbitrations he is required to disclose by failing to inform himself before making disclosures.” ECC points to what the court in Advantage Medical Services, LLC v. Hoffman (2008) 160 Cal.App.4th 806 referred to as a “duty of inquiry” imposed by the Ethics Standards. (Advantage Medical Services, at p. 819.) The court in Advantage Medical Services noted: “Standard 9(a) of the Standards clearly states: ‘A person who is nominated or appointed as an arbitrator must make a reasonable effort to inform himself or herself of matters that must be disclosed under standards 7 and 8.’ ”12 (Advantage Medical Services, at p. 818.) ECC argues these authorities required the arbitrator to inform himself of the Leykis matter by reviewing the UDRP proceedings in which he participated, and ECC contends his failure to do so (and resulting failure to discover and disclose the Leykis matter) requires vacatur.
There are two problems with ECC‘s argument, one legal and one factual. As a legal matter, ECC does not explain how the arbitrаtor‘s failure to disclose a ground for disqualification of which the arbitrator was not aware but reasonably should have been requires vacating an award under
That implied factual finding is supported by substantial evidence. The arbitrator explained it was not his practice to include the UDRP proceedings in his review because of the nature and number of those procеedings, and he stated this practice comported with his “understanding of [his] ethical duties and disclosure obligations under California law.” Manatt submitted declarations from three people with relevant experience and expertise who concurred with the arbitrator‘s approach. One of those, David E. Sorkin, a panelist in approximately 400 UDRP proceedings and an arbitrator in approximately 90 private contractual arbitrations, is a law professor whose scholarship focuses on “Internet law, UDRP mandatory administrative proceedings[,] and arbitration laws and practices.” Sorkin explained that any person contesting another person‘s Internet domain name registration can initiate a UDRP proceeding. He then highlighted what he considered important differences between such a proceeding and those proceedings an arbitrator would normally recognize as “arbitrations” subject to the disclosure requirements under
ECC cites no authority suggesting the arbitrator‘s understanding of his disclosure obligation was unreasonable. In fact, ECC suggests whether a UDRP proceeding is, as it contends, an “arbitration” subject to mandatory disclosure under
Finally, ECC suggests the arbitrator should have disclosed, at a minimum, that he had participated in numerous UDRP proceedings that he did not review for required disclosures, so that the parties could have undertaken their own review of and investigation into those matters. That might have been a better arbitrator disclosure practice. But ECC cites no authority for vacating an arbitration award on that ground. The trial court did not err when it denied ECC‘s рetition to vacate the interim award based on the arbitrator‘s alleged failure to make mandatory disclosures.
C. ECC Forfeited Its Argument the 2007 Engagement Agreement Was Illegal
Rule 3-310(B) of the Rules of Professional Conduct prohibits a lawyer from, among other things, accepting or continuing “representation of a client without providing written disclosure to the client where ... [¶] [the lawyer] has a legаl, business, financial, professional, or personal relationship with a party or witness in the same matter.” (Rules Prof. Conduct, rule 3-310(B)(1).) ECC contends Manatt violated this rule because it represented ECC without providing written disclosure that “Manatt had entered into a ‘legal, business or professional relationship’ with Bear in 2006 when it contractually committed that it would not represent ECC in litigation.”
ECC also contends Manatt‘s violation of these Rules of Professional Conduct “means that the [2007 engagement agreement] was obtained in violation of
We agree with Manatt, the arbitrator, and the trial court that ECC forfeited these arguments by failing to raise them earlier in the proceedings. Cummings v. Future Nissan (2005) 128 Cal.App.4th 321 is instructive. In that case, the appellant received a favorable result at the first level of a “two-tiered” arbitration proceeding, but had that result reversed at the second, “review” level. (Id. at p. 323.) After the trial court confirmed the final award, the appellant urged the Court of Appeal to vacate it on the ground the arbitration provision in her employment contract was unconscionable and therefore unenforceable, an argument she had raised for the first time only after losing at the review level of the arbitration. (Id. at pp. 323, 327.) The court in Cummings held the appellant forfeited the argument because she failed to raise it in her opposition to the motion to compel arbitration. (Id. at pp. 329-330.) The court explained: “The forfeiture rule exists to avoid the waste of scarce dispute resolution resources, and to thwart game-playing litigants who would conceal an ace up their sleeves for use in the event of an adverse outcome. ... Those who are aware of a basis for finding the arbitration process invalid must raise it at the outset or as soon as they learn of it so that prompt judicial resolution may take place before wasting the time of the adjudicator(s) and the parties. ... [A] party who knowingly participates in the arbitration process without disclosing a ground for declaring it invalid is properly cast into the outer darkness of forfeiture.” (Id. at pp. 328-329, fns. omitted.)
In reaching its conclusion, the court in Cummings cited Moncharsh, supra, 3 Cal.4th 1: ”Moncharsh held that if a party believes the entire contractual agreement or a provision for arbitration is illegal, it must oppose arbitration on this basis before participating in the process or forfeit the claim.” (Cummings v. Future Nissan, supra, 128 Cal.App.4th at p. 328.) As the
These principles apply with equal if not greater force in this case. Not only did ECC not oppose the motions to compel arbitration on the ground the 2007 engagement agreement was illegal or otherwise unenforceable, ECC gave every indication going into the arbitration hearing it was abandoning its previous assertion that Manatt had an undisclosed conflict of interest, and during the hearing ECC represented it was not going to present any evidence to establish what it now claims as the basis of its illegality argument. This procedural gamesmanship, as the arbitrator noted, deprived Manatt of the opportunity “during the evidentiary portion of this arbitration to make a record on this issue or retain its own expert on the issue of conflict of interest.”
ECC maintains “a claim that a contract is illegal is never waived.” Not according to the Supreme Court, which in Moncharsh stated: “We thus hold that unless a party is claiming (i) the entire contract is illegal, or (ii) the arbitration agreement itself is illegal, he or she need not raise the illegality question prior to participating in the arbitration process, so long as the issue is raised before the arbitrator. Failure to raise the claim before the arbitrator, however, waives the claim for any future judicial review.” (Moncharsh, supra, 3 Cal.4th at p. 31; see id. at pp. 29-31.) In fact, as the Supreme Court has also stated, “the maxim that the illegality of a contract ... is never waived” appears to concern “the procedural issue whether a defense is waived by failure to assert it in a timely fashion once a lawsuit has commenced,” and “it is not clear that all issues of illegality in a contract fall within the unwaivable category.” (Styne v. Stevens (2001) 26 Cal.4th 42, 54, fn. 5; see Yoo v. Robi (2005) 126 Cal.App.4th 1089, 1103 [“there may be some exceptions to the rule of unwaivablility“].)
In stark contrast, in this case it was ECC that sued on a contract, lost, and only then argued illegality in an attempt to avoid paying fees and costs, despite the fact it was aware of the facts offered in support of that argument from the outset of the case. Such tactics were not present in the cases ECC cites, and, if permitted to succeed here, would severely “‘undermin[e] the advantages of arbitration.‘” (Moncharsh, supra, 3 Cal.4th at p. 30.) Under these circumstances, we are not “‘unwittingly lend[ing our] assistance to the consummation or encouragement of what public policy forbids.‘” (Yoo v. Robi, supra, 126 Cal.App.4th at p. 1103.)
D. ECC Did Not Establish Manatt Procured the Final Award by Fraud or Undue Means
ECC also argues the trial court should have vacated the final award under
This argument fails for two reasons. First, the arbitrator gave multiple, alternative grounds for rejecting ECC‘s contention the 2007 engagement agreement was unenforceable. One of those grounds was that ECC forfeited the argument, a conclusion with which we concur. In determining whether “perjured evidence or evidence procured by undue means” affected an arbitration award, we must prеsume the arbitrator “‘took a permissible route to the award where one exists.‘” (Pour Le Bebe, Inc. v. Guess? Inc. (2003) 112 Cal.App.4th 810, 833.)
E. ECC Did Not Establish the Arbitrator Improperly Refused To Hear Evidence
Finally, ECC perfunctorily contends the arbitrator‘s “refusal to allow ECC to obtain discovery and present evidence on the nature and extent of Manatt‘s relationship with Bear” required the trial court to vacate the final award under
This argument, too, fails. ECC string cites to places in the record where the arbitrator ruled adversely to it in disputes over discovery requests or on objections concerning testimony, but ECC does not even attempt to explain how those rulings were unfair. The record shows ECC had a full and fair opportunity to pursue its initial allegation that Manatt had an undisclosed conflict of interest, eventually abandoned that claim, and thereby incurred appropriate limitations on its ability to pursue the claim. There was no unfairness in that.
The judgment is affirmed. Manatt is to recover its costs on appeal.
Zelon, Acting P. J., and Small, J.,* concurred.
A petition for a rehearing was denied March 30, 2017, and appellants’ petition for review by the Supreme Court was denied June 28, 2017, S241461.
*Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to