The Latest Developments in Litigation

• Pages: 25-28
• Date: 01 April 2025
• Published date: 01 April 2025
• Subject Matter: Civil Law

Appellate Court

Vacates Award

for Arbitrator

Misconduct

By Ryan E. Sh iverdecker, Litigation

News Contributing Editor

A California appellate court vacated an

arbitration award because the arbitra-

tor’s witness credibility f‌indings created

an impression of bias. The court held

that the arbitrator’s adverse determina-

tions, which arose out of the witness’s

use of a translator during arbitra-

tion, amounted to misconduct. ABA

Litigation Section leaders acknowl-

edge that this case both showcases the

fact-intensive inquiry that courts apply

when reviewing an arbitrator’s decision

and highlights the importance of devel-

oping a detailed record that includes a

well-reasoned arbitration award.

The California Court of Appeals in

the Fourth Appellate District reviewed

the trial court’s conf‌irmation of an

arbitration award of nearly 10 million

dollars. The dispute underlying FCM

Investments, LLC v. Grove Pham, LLC

arose out of a foiled real estate transac-

tion. Mediation of the dispute ensued in

accordance with the parties’ purchase

agreement. Soon after a successful

mediation, the deal f‌loundered once

more, leading to arbitration before a

retired California judge.

During the arbitration proceeding,

the arbitrator was asked to determine

whether the seller breached its contrac-

tual obligations, thereby justifying the

buyer’s termination of the transaction.

The arbitrator sided with the buyer and

ordered an award just less than $10 mil-

lion.

In her decision, the arbitrator cited

a lack of witness credibility stem-

ming from the immigrant seller’s use

of an interpreter. The arbitrator wrote

that the seller’s “use of an interpreter

appeared to the Arbitrator to be a ploy

to appear less sophisticated than she

really is. She has been in the country for

decades, has engaged in sophisticated

business transactions and has herself

functioned as an interpreter.”

The buyer then petitioned the trial

court to conf‌irm the award, while the

seller moved to vacate. The trial court

conf‌irmed the arbitration award.

On appeal, the appellate court

focused on the arbitrator’s adverse

credibility f‌inding. The court acknowl-

edged the exceedingly narrow scope of

judicial review generally applied to arbi-

tration awards, noting that “when par-

ties agree to private arbitration, they

bargain for very limited judicial review.”

Citing California law, the court wrote

that judicial review is necessary, how-

ever, and an award must be vacated

when “the rights of the party were sub-

stantially prejudiced by misconduct of a

neutral arbitrator.”

The court concluded that the

arbitrator’s award created a reason-

able impression of possible bias that

amounted to arbitrator misconduct.

The test applied by the court was not

whether there was a showing of actual

bias but “whether a hypothetical rea-

sonable person…would form an impres-

sion of possible bias on the part of

the arbitrator.” Applying this standard,

the court reasoned that the arbitra-

tor’s award relied on uninformed mis-

conceptions about English prof‌iciency

and language acquisition. According to

the court, such misconceptions raised

questions of linguistic and national ori-

gin bias that implicated both public

interest and due administration of jus-

tice concerns.

The court’s analysis included sta-

tistics on California’s multilingual

populace, including that 40 percent of

Californians speak a non-English lan-

guage at home, that there are more

than 200 languages and dialects

spoken, and that about 20 percent

of Californians have English limita-

tions. With this backdrop, the court

discounted the arbitrator’s credibility

f‌indings and the support proered in

furtherance of such adverse conclu-

sions.

“This case underscores how fact-

specif‌ic and often unique the facts are

in these kinds of challenges to arbitra-

tor awards,” observes Harout J. Samra,

Miami, FL, Co-Chair of the Litigation

Section’s International Litigation &

Dispute Resolution Committee. “What

stood out to me the most, and factored

clearly in the appellate court’s analysis,

was the fact that there was no record

or transcription of the hearing and that

the award was not reasoned,” Samra

adds.

Section leaders suggest that the

court’s decision might have been dif-

ferent if the arbitrator had more fully

explained the basis of her decision.

“The arbitrator’s expressed basis

for the credibility f‌inding and noth-

ing else was the reason for the deci-

sion reversing the award,” notes Kelly

O. Johnson, Tallahassee, FL, Co-Chair

of the Section’s Alternative Dispute

Resolution Committee.

A Class Conundrum:

Filing Suit Does Not

Make You a Plainti

By Tiega-N oel Varlack, Litigation

News Associate Editor

A federal appellate court has held that

an individual investor lacked stand-

ing to appeal an order dismissing a

class action that he originally f‌iled. In

Habelt v. Public Employees’ Retirement

Systems of Mississippi, the appellate

court reasoned that although the inves-

tor had f‌iled the lawsuit and listed

himself on the caption page, he was

not a party and did not signif‌icantly

participate in the litigation. The case

included allegations of securities fraud,

and therefore the Private Securities

Litigation Reform Act of 1995 applied.

An individual investor f‌iled a com-

plaint claiming that a company and its

executives had misled investors about

how its product, a heart monitor patch,

would be reimbursed by the Centers

for Medicare and Medicaid Services

(CMS). The complaint alleged that the

company told its investors that CMS

would likely adopt a reimbursement

rate of around $380 per patch but that

the company hid from its investors the

fact that it had not provided CMS with

the type of data it needed to price the

patch at that rate. When the rate was

announced, it was much lower than

expected, and the share price dropped.

Although the investor f‌iled the puta-

tive class action suit in response, the

court appointed another plainti, the

Mississippi State Retirement System, to

serve as lead plainti. The investor who

had originally f‌iled suit did not apply

for appointment, nor did he otherwise

participate in the case. Thereafter, the

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THE LATEST DEVELOPMENTS IN LITI GATION

NEWS & ANALYSIS

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