Neutral Arbitrator Does Not Have To Disclose Prior Business Dealings

Law Talk 

Sam K. Abdulaziz
Attorney at Law

A commercial landlord, Casden Park La Brea Retail, LLC (Casden), and their tenant, Ross Dress For Less, Inc. (Ross), went to arbitration over a rent dispute. In accordance with their lease, after the original terms of the lease expired, Ross could exercise a five-year option to renew their lease at a fair market rental value for the property. The lease also stated that if the parties were unable to agree to the fair market rental value of the property, they would go to arbitration. Ross and Casden would each select an arbitrator and then the two arbitrators would select a third, neutral arbitrator. All three of the arbitrators were required to be experienced real estate brokers.

The fair market rental value was to be calculated in arbitration by a majority vote of the arbitrators (two arbitrators had to agree for a majority vote). If there was no majority vote, the two closest figures would be averaged and the rent would be set at the amount of the party's whose original proposed rent was the closest to the averaged figure of the arbitrator's.

Both Casden and Ross were unable to agree on the rent for the five-year term renewal and went to arbitration to determine what the rent would be. None of the above facts were disputed. Both parties had agreed to this form of arbitration and it was clearly written in the lease.

Ross selected Steven L. Soboroff as arbitrator, and Casden selected James Travers as arbitrator. The two arbitrators then selected Timothy Bower as the third neutral arbitrator. During the process the neutral arbitrator signed a Neutral Arbitrator Disclosure statement and verbally told both of the other arbitrators that he was a real estate broker with CB Richard Ellis, a worldwide real estate company, and that given the size of that company, he would assume that the parties have done business with CB Richard Ellis on many occasions, but that he was not personally aware of any "pending or prospective transactions involving either of the parties and CB Richard Ellis, except as described below" and goes on to indicate that he was Casden's representative in leasing a shopping center where Ross had shown an interest but was not the exclusive negotiator.

Bower had been involved in a deal in the past with a business associate of the arbitrator chosen by Ross. He assured the other arbitrators that these matters would not affect impartiality as an arbitrator. Both of the arbitrators still asked him to become the neutral arbitrator notwithstanding the disclosed information and he agreed.

During the arbitration process, there was not a majority agreement on what the rent should be set at and according to the terms Ross' figure was the closest to the average figure and therefore should be the rent for the next five-year lease term.

After the arbitration, from searching on the Internet, Casden discovered that there were "certain facts" that Mr. Bower, the neutral arbitrator, did not disclose. Because of this, Casden filed a Petition to Vacate the Arbitration Award and the trial court agreed. Ross appealed this decision.

Casden stated that Mr. Bower did not disclose that he had contributed money to Mr. Soboroff's campaign many years earlier when he was running for mayor; that some other CB Richard Ellis employees had also contributed to this campaign, and that one of the Vice Presidents of CB Richard Ellis that is located in a different state, had represented Ross in the past.

The Court of Appeal reversed the decision in Ross' favor based on the fact that Mr. Bower did not need to disclose any transactions in which he had no financial interest and that he had no duty to find out information about business transactions or political contributions unknown to him at the time the disclosures were made.

The Court of Appeal disagreed with the trial court's finding that the disclosure of the contributions would have caused Casden to entertain a doubt about Mr. Bower's impartiality - - particularly since Mr. Casden and Mr. Travers each contributed $1,000 to Mr. Soboroff's campaign.

We believe that the last disclosure that Travers and Casden both contributed gave some credence to the decision.