Opinion
B309176
04-29-2022
BERKELEY RESEARCH GROUP, LLC, Plaintiff and Respondent. v. CARL LLOYD SHEELER, Defendant and Appellant.
Williams Iagmin, Jon R. Williams, for Defendant and Appellant. Alston & Bird, Deborah Yoon Jones and Debolina Das, for Plaintiff and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of the County No. 19STCP04774 of Los Angeles, Barbara M. Scheper, Judge. Affirmed.
Williams Iagmin, Jon R. Williams, for Defendant and Appellant.
Alston & Bird, Deborah Yoon Jones and Debolina Das, for Plaintiff and Respondent.
KIM, J.
I. INTRODUCTION
The trial court confirmed and entered judgment on an arbitration award in favor of plaintiff Berkeley Research Group, LLC (Berkeley) and against defendant Carl Sheeler (Sheeler). On appeal from the confirmation order, Sheeler contends the court erred because: (1) the arbitrator exceeded his authority by awarding consequential and punitive damages; (2) the award on certain counterclaims violated Sheeler's nonwaivable rights under the Labor Code; and (3) the arbitrator failed to timely and adequately disclose his ownership interest in the arbitration service provider, JAMS. We affirm.
II. FACTUAL AND PROCEDURAL BACKGROUND
The facts are taken from the arbitrator's findings of fact in support of his award.
A. The Parties
Berkeley provided clients with a range of expert services and its "principal source of revenue was its percentage (usually 25% or less) of the money clients paid upon completion of the projects for which they had retained the individual experts." Sheeler was a "valuation professional" who specialized in the valuation of closely held businesses for which there was no established market.
B. Director Agreement
On October 8, 2013, Sheeler executed a Director Agreement with Berkeley pursuant to which he agreed to "bill all of [his] professional consulting activities exclusively through [Berkeley]." The agreement provided that Sheeler's compensation for engagements on which he worked would vary, depending on the extent of his role as the "finder" and the "[p]rimary [e]xpert." For example, on engagements for which he was considered at least "a 50% finder," Sheeler would receive "80% percent of [his] [b]illing [r]ate for amounts billed and collected by [Berkeley] . . . ." Similarly, on engagements for which he acted as the "[p]rimary [e]xpert," and was at least "a 25% finder," he would also receive 80 percent of his billing rate.
The Director Agreement included a "Dispute Resolution" clause, which provided: "[A]ny controversy, dispute or claim of whatever nature arising out of, in connection with, or in relation to the interpretation, performance or breach of this Agreement, including any claim based on contract, tort, or statute, will be resolved at the request of any party to this Agreement by final and binding arbitration administered by and in accordance with the existing Rules of Practice and Procedure of [JAMS], or any successor entity. . . . The party most prevailing in any arbitration or other action between the parties shall be entitled to attorney's fees and costs incurred in enforcing this Agreement, including such attorney's fees and costs in appealing or enforcing any judgment entered by the arbitrator or court. The parties shall not be liable to each other for any consequential, incidental, special or punitive damages." (Italics added.)
C. Disputes Between the Parties
Following Sheeler's execution of the Director Agreement, three disputes arose between the parties over Sheeler's compensation for expert services provided on: the Business Valuations, Ltd. (BVL) client matters; the Michaels Enterprises matter; and the Worley engagement.
1. BVL Clients
While subject to the exclusivity provision of the Director Agreement, Sheeler continued to perform valuation services for clients through his own company, BVL. The work for these clients "generated considerable revenue" that, according to Berkeley, belonged to it under the Director Agreement. Although Sheeler claimed that Berkeley was aware of and had approved his work through BVL, Berkeley maintained that those engagements were performed without its "knowledge or approval" and without complying with its contract requirements and conflicts approval policies.
2. Michaels Enterprises Matter
Sheeler informed a Berkeley client for whom he had performed services under the Director Agreement, Michaels Enterprises, that he had permission from Berkeley to invoice clients directly, and thereafter offered a 10 percent discount if the company paid him, instead of Berkeley. To take advantage of the offered discount, Michaels Enterprises paid $62,060.92 directly to Sheeler; and Sheeler failed to disclose to Berkeley either his direct invoice to or his subsequent receipt of the invoice amount from the client.
3. Worley Engagement
During 2016, Sheeler, without Berkeley's knowledge or consent, performed services for an existing Berkeley client, Adrienne Smith Worley, on a transaction involving the valuation and potential buyout of her interest in a family business, Young's Holdings, Inc. (Young's Holdings). Among other services, Sheeler participated in communications, negotiations, and a mediation that resulted in a deal in principle that valued Ms. Worley's interest in the family business at $60 million. The Young's Holdings transaction closed in mid-August 2016, and Ms. Worley received $60 million a few weeks later.
Within days of the closing, Sheeler invoiced Ms. Worley directly on his own letterhead for a five percent success fee- $3,000,000-and for 753.25 hours for "'consultation'" services-an additional $451,950. The invoice instructed Ms. Worley to wire the total amount to Sheeler's personal bank account.
On September 15, 2016, Ms. Worley wired the entire invoice amount directly to Sheeler's account. On November 30, 2016, Berkeley learned of the invoice by and payment to Sheeler when Ms. Worley's attorneys sent Berkeley's general counsel a letter demanding that Sheeler and Berkeley indemnify Ms. Worley against claims brought by investment bankers who were also involved in the Young's Holdings transaction and claiming a $3,000,000 success fee.
On December 9, 2016, Sheeler wired to Berkeley $672,390 from the funds he had received from Ms. Worley, taking the position that Berkeley was only entitled under the Director Agreement to 20 percent of the funds he had received, less deductions for payments he made to certain third parties. On December 12, 2016, Berkeley informed Sheeler by letter that he had been terminated for cause.
D. The Worley Arbitration
The investment bankers claiming an entitlement to a $3,000,000 success fee from Ms. Worley initiated an arbitration against her (the Worley arbitration); she then brought Sheeler and Berkeley into the matter which proceeded to a hearing and award. The arbitrator awarded the bankers $3,000,000 against Ms. Worley, and also found Sheeler liable to Ms. Worley for improperly billing her $491,950. Although the arbitrator found that Berkeley was not liable to Ms. Worley for any amount, it nevertheless incurred substantial attorney fees in defending itself against her claims.
E. The JAMS Arbitration
On April 26, 2017, while the Worley arbitration was pending, Berkeley initiated the arbitration proceeding at issue here against Sheeler through JAMS. Following the completion of the Worley arbitration, the parties to the JAMS arbitration each filed on October 31, 2018, the operative amended pleadings. As relevant to the issues on appeal, Berkeley asserted a claim for breach of contract for damages resulting from, among other conduct, Sheeler's improper billing and receipt of fees generated in the Worley engagement and Michaels Enterprises matter- instead of passing them through Berkeley first-and Sheeler's improper receipt of fees from client engagements billed and collected through BVL.
The parties agreed that retired United States Magistrate Judge Wayne D. Brazil would act as arbitrator.
For his part, and as relevant to this appeal, Sheeler submitted counterclaims for violation of Labor Code section 2802 for Berkeley's failure to reimburse him for certain employment-related expenses, including the fees and costs he incurred defending the Worley arbitration, and Labor Code sections 200 through 203 for withholding wages earned and payable at termination of employment.
The arbitration proceeded over the course of six days, during March and April 2019. On August 20, 2019, the arbitrator issued an interim award in which he made extensive findings of fact and conclusions of law and ruled on the substance of the parties' claims, counterclaims, and defenses. The arbitrator also made certain damage awards to Berkeley and found that it was the prevailing party under the Director Agreement which entitled it to recover from Sheeler attorney fees and costs. On September 4, 2019, Sheeler filed a motion to correct the award, which the arbitrator denied on September 24, 2019.
Following further briefing, the arbitrator issued a final award on October 24, 2019, which incorporated the interim award and included additional awards to Berkeley for interest, attorney fees, and costs.
As relevant to this appeal, the arbitrator ruled as follows:
1. Berkeley's Breach of Contract Claims
The arbitrator found that any time Sheeler did valuation work or performed other specialized services through entities other than Berkeley, while still under contract with Berkeley, he breached the exclusivity provision of the Director Agreement. The arbitrator also found that the majority of Sheeler's dealings with Ms. Worley during the Worley engagement breached the Director Agreement, including its implied covenant of good faith and fair dealing. And, the arbitrator found that Sheeler's conduct during the Michaels Enterprises matter, including his misrepresentation that he was authorized to bill that client directly and his unauthorized offer of a 10 percent billing discount, breached the Director Agreement and its implied covenant of good faith and fair dealing.
On the issue of damages from Sheeler's breaches during the Worley engagement, the arbitrator concluded that "because of the multiple, material breaches [] Sheeler committed both before and during the Worley engagement, [Berkeley] would have been relieved of any obligation it otherwise might have had to 'pass through' a percentage of the success fee to [] Sheeler. Stated differently, [] Sheeler's conduct before and during the Worley engagement stripped him of any contractually based entitlement to any part of the Worley success fee." (Fn. omitted.) The arbitrator therefore awarded Berkeley the entire $3,000,000 success fee, less the $672,390 Sheeler had previously remitted by wire transfer, for a total award on the Worley engagement of $2,327,610.
On the Michaels Enterprises matter, the arbitrator similarly concluded that if Sheeler "had not unlawfully redirected the Michael Enterprises payment to himself, the payment would have gone directly to [Berkeley]. When [Berkeley] received this payment, it would have been relieved, by [] Sheeler's multiple material breaches and unethical conduct, of any duty to share any percentage of these funds with [] Sheeler. Because only [Berkeley] would have had a legally enforceable claim to this revenue, [] Sheeler must remit it to [Berkeley]." The arbitrator therefore awarded Berkeley $62,060.92, the discounted amount Sheeler actually received from Michaels Enterprises.
On the BVL matters, the arbitrator reasoned that, if Sheeler "had not materially breached [the Director Agreement] and had invoiced these engagements through [Berkeley], he would have been entitled to 80% of the revenue generated through these engagements. But he chose not to comply with his contractual obligations. Instead, he intentionally hid the revenue from [Berkeley] and kept it all for himself. By following this intentionally deceitful course, he relieved [Berkeley] of any contractual or equitable obligation it would have had to him to remit to him 80% of this revenue. [H]is ethically and contractually unjustifiable course of conduct stripped him of any right to retain any portion of the revenue from these secret contracts." Accordingly, the arbitrator awarded Berkeley the entire sum that Sheeler had received on the BVL matters, $251,250.
The total principal amount awarded to Berkeley, and against Sheeler, for breach of contract was $2,640,921, to which the parties stipulated that $462,161.18 should be added as interest. In addition, the arbitrator awarded Berkeley $1,185,413 in attorney fees and $74,597 in costs, for a total award of $4,363,092.
2. Labor Code Counterclaims
The arbitrator also rejected Sheeler's counterclaim under Labor Code section 2802, finding that he was not an employee entitled to the expense-reimbursement rights and remedies conferred under that section. And, although the arbitrator concluded that Sheeler was an employee for purposes of Labor Code sections 200 through 203, he nevertheless concluded that Berkeley was not liable to Sheeler for violation of the wage-payment requirements of those sections because, due to Sheeler's multiple, material breaches of the Director Agreement, there were no wages due to him at the time of his discharge.
F. Petitions to Confirm and Vacate the Award
On November 6, 2019, Berkeley filed a petition to confirm the award in the trial court. On December 23, 2019, Sheeler filed an answer and a petition to vacate the award. On July 8, 2020, the court held a hearing on the petitions and took the matter under submission.
The record does not include a reporter's transcript of the hearing on the petitions to confirm and vacate, or a suitable substitute such as a settled or agreed statement.
On July 14, 2020, the trial court issued an order denying the petition to vacate and granting the petition to confirm the award. On Sheeler's contention that the award exceeded the limitation on consequential and punitive damages, the court concluded that "[i]t does not appear that the arbitrator awarded punitive or consequential damages to [Berkeley] by refusing to offset the 80% success fee. The arbitrator specifically refused to classify these damages as 'consequential' damages, because the funds at issue were already the property of [Berkeley] and Sheeler converted them for his own use. . . . [¶] Even if Sheeler were correct and the arbitrator misinterpreted the contract, that would not be grounds for this [c]ourt to vacate the award. As the United States Supreme Court held, 'courts have no authority to disagree with [the arbitrator's] honest judgment in that respect . . . . [A]s long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision.' ([United Paperworkers Intern. Union AFL-CIO v. Miso, Inc.] (1987) 484 U.S. 29, 38.)"
On Sheeler's contention that the award on his counterclaims under the Labor Code violated his nonwaivable statutory rights, the trial court ruled that "Sheeler's argument rests on his contention that the arbitrator misapplied the Supreme Court's tests in [Dynamex Operations West v. Superior Court] (2018) 4 Cal.5th 903 [(Dynamex)] and in [S.G. Borello & Sons, Inc. v. Department of Industrial Relations] (1989) 48 Cal.3d 341 [(Borello)] . . . in determining whether Sheeler was an employee entitled to the protections of the Labor Code or an independent contractor. But in coming to his conclusion the arbitrator necessarily evaluated the facts defining the relationship between Sheeler and [Berkeley]. The [c]ourt cannot relitigate the case that was presented to the arbitrator, nor can the [c]ourt perform a de novo review of the arbitrator's findings of fact and [conclusions] of law, because that is outside the scope of the [c]ourt's authority on this petition and the exceptions to the [Moncharsh] rule do not apply. . . . The arbitrator found that Sheeler was not a Labor Code [section] 2802 employee under the [Dynamex] and [Borello] tests. Sheeler's disagreement[] with the arbitrator's decision does not provide any statutory basis for the [c]ourt to vacate the award. [¶] The [c]ourt finds that the arbitrator did not violate well-defined public policy when he concluded based on the facts and his review of the law that Sheeler was not an employee."
Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1 (Moncharsh).
Finally, on Sheeler's disqualification claim under Code of Civil Procedure section 1286.2 based on the arbitrator's acquisition of an ownership interest in JAMS, the trial court determined that Sheeler had the burden of demonstrating "with admissible evidence" that the arbitrator failed to make a timely disclosure that resulted in prejudice to Sheeler, but "failed to carry his burden." According to the court, "Sheeler presented evidence that on [July 20, 2017], the arbitrator represented to the parties through his disclosures that he did not have any financial or equity interest in JAMS. . . . Then on [November 12, 2019], after the arbitration had concluded and the [f]inal [a]ward had issued, [the arbitrator] made further [s]upplemental [d]isclosures in which he indicated he had become a shareholder of JAMS. . . . This [did] not establish that [the arbitrator] had an ownership interest [in JAMS] during the arbitration and failed to timely disclose it."
On August 25, 2020, the trial court entered a judgment on the arbitration award and, on October 5, 2020, the court entered an amended judgment. On November 11, 2020, Sheeler filed a notice of appeal from the judgment.
III. DISCUSSION
A. Contract Damages in Excess of Jurisdiction
Sheeler contends that the award for breach of contract exceeded the limited powers granted to the arbitrator under the arbitration clause concerning damages. According to Sheeler, under that clause, the arbitrator was explicitly limited to awarding "'benefit-of-the-bargain'" contract damages and prohibited from awarding consequential, incidental, special, or punitive damages for breach of contract. Because the contract damage award went beyond that limitation-by awarding Berkeley substantially more than the 20 percent of the expert fees for Sheeler's services to which it would have been entitled if Sheeler had performed under the agreement-Sheeler maintains that the arbitrator exceeded the scope of his contractual authority and gave Berkeley an unauthorized "windfall" (italics omitted), i.e., the remaining 80 percent of the fees to which it was not otherwise entitled under the compensation provisions of the Director Agreement.
1. Legal Principles
a. Rule of Arbitral Finality
"'Because the decision to arbitrate grievances evinces the parties' intent to bypass the judicial system and thus avoid potential delays at the trial and appellate levels, arbitral finality is a core component of the parties' agreement to submit to arbitration.' (Moncharsh[, supra, ] 3 Cal.4th [at p.] 10 . . . .) Generally, courts cannot review arbitration awards for errors of fact or law, even when those errors appear on the face of the award or cause substantial injustice to the parties. (Id. at pp. 6, 28.) This is true even where . . . an arbitration agreement requires an arbitrator to rule on the basis of relevant law, rather than on principles of equity and justice. (Cable Connection, [Inc. v. DIRECTV, Inc. (2008)] 44 Cal.4th [1334, ] 1360 ['A provision requiring arbitrators to apply the law leaves open the possibility that they are empowered to apply it "wrongly as well as rightly [ ]"'] [(Cable Connection)]; see City of Richmond v. Service Employees Internat. Union, Local 1021 (2010) 189 Cal.App.4th 663, 669, fn. 1 . . . ['The arbitration provision here, reciting generally that the arbitrator "shall . . . make no decisions in violation of existing law" is a standard arbitration provision that does not provide for [judicial] review[ ]'] [(City of Richmond)].)
"The California Arbitration Act (Code Civ. Proc, § 1280 et seq.) and the Federal Arbitration Act (9 U.S.C. § 10 et seq.) provide limited grounds for judicial review of an arbitration award. Under both statutes, courts are authorized to vacate an award if it was (1) procured by corruption, fraud, or undue means; (2) issued by a corrupt arbitrator; (3) affected by prejudicial misconduct on the part of the arbitrator; or (4) in excess of the arbitrator's powers. (Code Civ. Proc, § 1286.2, subd. (a); 9 U.S.C. § 10(a).) An award may be corrected for (1) evident miscalculation or mistake; (2) issuance in excess of the arbitrator's powers; or (3) imperfection in the form. (Code Civ. Proc, § 1286.6; 9 U.S.C. § 11.)" (Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 916 (Richey).)
"The scope of arbitration is a matter of agreement between the parties, and the arbitrator's powers 'derive from, and are limited by, the agreement to arbitrate.' (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 375 . . . [(Advanced Micro Devices)]; see also Moncharsh, supra, 3 Cal.4th at p. 8; Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 323 . . . .) '[A]s such, a party cannot be required to arbitrate an issue or grievance it has not agreed would be subject to arbitration.' (Pacific Crown Distributors v. Brotherhood of Teamsters (1986) 183 Cal.App.3d 1138, 1143 . . . .) An arbitrator that resolves issues the parties did not agree to arbitrate or awards a remedy the parties did not authorize exceeds the scope of his or her powers. (Service Employees Internat. Union, Local 1021 v. County of San Joaquin (2011) 202 Cal.App.4th 449, 462 . . . .)" (Harshad & Nasir Corp. v. Global Sign Systems, Inc. (2017) 14 Cal.App.5th 523, 542-543.)
b. Contract Damages
Sheeler contends that the arbitrator exceeded the authority granted by the arbitration clause by awarding Berkeley more than 20 percent of the fees improperly collected by him, which excess amount he classifies as "'consequential, '" "'incidental, '" "'special, '" or "'punitive'" damages. We disagree with Sheeler's classification.
"Contractual damages are of two types-general damages (sometimes called direct damages) and special damages (sometimes called consequential damages). [Citations.]" (Lewis Jorge Construction Management Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 968.) "General damages are often characterized as those that flow directly and necessarily from a breach of contract, or that are a natural result of a breach. [Citations.]" (Ibid.) "[S]pecial damages are those losses that do not arise directly and inevitably from any similar breach of any similar agreement. Instead, they are secondary or derivative losses arising from circumstances that are particular to the contract or to the parties. Special damages are recoverable if the special or particular circumstances from which they arise were actually communicated to or known by the breaching party (a subjective test) or were matters of which the breaching party should have been aware at the time of contracting (an objective test). [Citations.] Special damages 'will not be presumed from the mere breach' but represent loss that 'occurred by reason of injuries following from' the breach. [Citation.] Special damages are among the losses that are foreseeable and proximately caused by the breach of a contract." (Id. at pp. 968-969.)
2. Analysis
We do not read the arbitrator's award for breach of contract as including any "incidental" damages. Based on the arbitrator's analysis of applicable contract law-which we cannot review on a petition to confirm/vacate an arbitration award-the expert fees in excess of 20 percent represented damages that flowed directly and necessarily from Sheeler's multiple material breaches of the Director Agreement. The award does not mention "incidental" damages or describe any category of damages "incident" to the identified breaches and based on the particular circumstances of the Director Agreement.
"In California the compensation which may be awarded incident to a decree of specific performance is not for breach of contract and is not legal damages. The complainant affirms the contract and asks that it be performed. Since the time for performance has passed, the court relates that performance back to that date, by treating the parties as if the change in ownership had taken place at that time." (Hutton v. Gliksberg (1982) 128 Cal.App.3d 240, 248.) The term "incidental damages" is used to describe such recoveries (see, e.g., Di Loreto v. Shumake (1995) 38 Cal.App.4th 35, 40), but the remedy is "'"more like an accounting between the parties than like an assessment of damages."'" (Stratton v. Tejani (1982) 139 Cal.App.3d 204, 212.) Incidental damages are also recoverable in certain actions based on statute, including claims brought pursuant to the California Uniform Commercial Code. (See e.g. Cal. U. Com. Code, §§ 2714, 2715.)
Nor do we read the award as imposing extra-contractual punitive damages against Sheeler. The award does not use the term "punitive" damages to describe a separate type of compensation beyond actual damages, much less discuss the necessary elements for that remedy, such as oppression, fraud, or malice. (Civ. Code, § 3294, subd. (a) ["In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant"].)
Similarly, the award does not purport to grant "special" or "consequential" damages based on Sheeler's multiple breaches of the express and implied provisions of the Director Agreement, as those terms are commonly understood in the context of a contractual breach. Instead, the arbitrator concluded that the nature and extent of Sheeler's breaches "stripped" him, as a matter of contract law, of any rights he may otherwise have had under the Director Agreement to any portion of the Worley success fee, the Michaels Enterprises expert fees, or the BVL expert fees.
Although Sheeler characterizes the financial result of the arbitrator's legal conclusion as punitive or akin to an equitable decree of disgorgement, that assertion is premised on his view that under the Director Agreement, the "additional 80% of client fees did not belong to [Berkeley], which could assert no legitimate claim to them" in light of the limitations on damages set forth in that agreement. Thus, at bottom, Sheeler contends that the arbitrator erred when he concluded that as a result of Sheeler's breaches, Berkeley was relieved of its obligation to remit the lion's share of the fees to Sheeler. As we discuss above, an arbitration award cannot be vacated for any such asserted errors of law or fact.
B. Award in Violation of Nonwaivable Statutory Rights
Sheeler next contends that the arbitration award must be vacated because it "vitiated" his nonwaivable statutory rights under the Labor Code. And, because the arbitrator's determination was contrary to Sheeler's nonwaivable rights under the Labor Code, he maintains that he is entitled to de novo review of the issue. We disagree.
1. Legal Principles
"Arbitrators may exceed their powers by issuing an award that violates a party's unwaivable statutory rights or that contravenes an explicit legislative expression of public policy. (See, e.g., Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269, 272-277 . . . [arbitrator exceeded powers by giving effect to collective bargaining provisions that violated statutory rights in Ed. Code]; California Dept. of Human Resources v. Service Employees Internat. Union, Local 1000 (2012) 209 Cal.App.4th 1420, 1434 . . . [arbitrator lacked power to make an award that violated explicit public policy favoring legislative oversight of state employee contracts when he interpreted a memorandum of understanding between union and state to require salary increases the Legislature did not approve].) However, '"[a]rbitrators do not ordinarily exceed their contractually created powers simply by reaching an erroneous conclusion on a contested issue of law or fact, and arbitral awards may not ordinarily be vacated because of such error . . . ."' (Cable Connection, supra, 44 Cal.4th at pp. 1360-1361.)" (Richey, supra, 60 Cal.4th at pp. 916-917.)
2. Analysis
Sheeler argues that the arbitrator misapplied precedent, including Dynamex, supra, 4 Cal.5th 903, when it rejected his counterclaims under the Labor Code. Sheeler's reliance on Ahdout v. Hekmatjah (2013) 213 Cal.App.4th 21 (Ahdout) to support his assertion that such a purported error implicates the public policy exception to the rule of finality is misplaced. In Ahdout, the court concluded that a litigant's claims under Business and Professions Code section 7031 (section 7031), subdivision (b), fell "within the 'public policy' exception to the general prohibition of judicial review of arbitration awards, because section 7031 constitutes a clear-cut and explicit legislative expression of public policy mandating the disgorgement of compensation received by an unlicensed contractor." (Ahdout, supra, 213 Cal.App.4th at p. 24.) "'[W]here a public policy is articulated explicitly by the Legislature, as with section 7031, courts are vested with the final word on whether the provision applies.' (Ahdout, supra, 213 Cal.App.4th at pp. 38, 39.)" (SingerLewak LLP v. Gantman (2016) 241 Cal.App.4th 610, 620.) But, where no explicit expression of public policy by the Legislature is involved and the issue before the arbitrator merely involves a determination of the law governing the claim, courts have applied the rule of arbitral finality and refused to review the arbitrator's decision. (Id. at p. 620.)
In this case, there is no clear-cut and explicit policy at issue akin to that expressed by the Legislature in section 7031. Rather, Sheeler made routine claims under the Labor Code for unreimbursed expenses incurred during the course of employment and wages due at termination. His entitlement to such sums depended on the interpretation of the relevant code sections and the application of the common law of contract. Accordingly, the arbitrator's conclusions that Sheeler was not an employee entitled to expense reimbursement and that no wages were due at discharge did not implicate, much less contravene, any explicit public policy regarding employee compensation that is similar to the one at issue in Ahdout.
Although the Labor Code sections on which Sheeler relied gave him nonwaivable statutory rights to the remedies conferred by those sections, such statutory employment claims can be adjudicated in arbitration. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99-103 [statutory employment claims, such as those asserted under the Fair Employment and Housing Act, Government Code section 12940 et seq., can and should be arbitrated as long as the arbitration includes basic procedural requirements that enable the plaintiff to vindicate his or her statutory rights].) Sheeler does not suggest that the JAMS arbitration procedural rules denied him a fair opportunity to litigate his Labor Code claims.
C. Inadequate Disclosure of Arbitrator's Economic Interest
Sheeler's last contention on appeal is that the trial court erred when it refused to vacate the award and instead found that Sheeler had failed to prove the arbitrator had a conflict of interest requiring his disqualification and warranting vacatur of the award. According to Sheeler, the arbitrator's supplemental disclosure concerning his ownership interest in JAMS was "[w]oefully [i]nadequate" and raised "[r]easonable [d]oubts [a]bout [h]is [e]vident [i]mpartiality."
1. Background
On July 20, 2017, prior to the beginning of the arbitration hearings, the arbitrator executed a "DISCLOSURE CHECKLIST FOR ALL ARBITRATIONS" form and a "SUPPLEMENTAL ARBITRATOR DISCLOSURE FOR CONSUMER ARBITRATIONS" form, both provided by JAMS. In the latter form, the arbitrator, in response to disclosure number 6(A), answered "[n]o" to the question: "Is the arbitrator a shareholder or member panelist [of JAMS]?"
The form explained in disclosure number 6 that "some JAMS panelists are shareholders of JAMS, Inc. and/or members in JAMS/Endispute, LLC, a nationwide ADR provider. All JAMS panelists share in the professional fees paid to JAMS for cases over which the panelist presides."
On October 24, 2019, the arbitrator issued his final award, which incorporated the interim award and included additional awards of interest, attorney fees, and costs.
Approximately three weeks later, on November 12, 2019, the arbitrator executed a second "SUPPLEMENTAL ARBITRATOR DISCLOSURE FOR CONSUMER ARBITRATIONS" form which was served on the parties by JAMS that same day. In that second disclosure form, the arbitrator changed his answer to the question in disclosure number 6(A) to "[y]es," indicating that he was either a shareholder in JAMS, Inc. or a member in JAMS/Endispute, LLC.
Approximately three months later, on February 18, 2020, Sheeler filed his memorandum of points and authorities in opposition to the petition to confirm and in support of the petition to vacate, as well as a supporting declaration attaching the arbitrator's disclosure forms. In his memorandum, he argued that the award should be vacated due to the arbitrator's inadequate disclosure of his ownership or equity interest in JAMS.
2. Legal Principles
In Haworth v. Superior Court (2010) 50 Cal.4th 372 (Haworth), the Supreme Court summarized the rules concerning arbitrator disclosure requirements: "The statutory scheme, in seeking to ensure that a neutral arbitrator [footnote omitted] serves as an impartial decision maker, requires the arbitrator to disclose to the parties any grounds for disqualification. Within 10 days of receiving notice of his or her nomination to serve as a neutral arbitrator, the proposed arbitrator is required, generally, to 'disclose all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.' ([Code Civ. Proc., ] § 1281.9, subd. (a).) Based upon these disclosures, the parties are afforded an opportunity to disqualify the proposed neutral arbitrator. ([Code Civ. Proc., ] § 1281.91, subds. (b), (d).) If an arbitrator 'failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware,' the trial court must vacate the arbitration award. ([Code Civ. Proc., ] § 1286.2, subd. (a)(6)(A).)
"The applicable statute and standards enumerate specific matters that must be disclosed. The arbitrator must disclose specified relationships between the arbitrator and the parties to the arbitration, including involvement in prior arbitrations, an attorney-client relationship with any attorney involved in the arbitration, and any significant personal or professional relationship with a party or an attorney involved in the arbitration. ([Code Civ. Proc., ] § 1281.9, subd. (a)(3)-(6).) The arbitrator also must disclose 'any ground specified in [Code of Civil Procedure s]ection 170.1 for disqualification of a judge,' as well as 'matters required to be disclosed by the ethics standards for neutral arbitrators adopted by the Judicial Council.' ([Code Civ. Proc., ] § 1281.9, subd. (a)(1), (2); see Cal. Rules of Court, Ethics Stds. for Neutral Arbitrators in Contractual Arbitration (Ethics Standards).) The Ethics Standards require the disclosure of 'specific interests, relationships, or affiliations' and other 'common matters that could cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial.' (Ethics Stds., com. to std. 7.)" (Haworth, supra, 50 Cal.4th at p. 381.)
"The [E]thics [Standards impose a continuing duty of disclosure, 'applying from service of the notice of the arbitrator's proposed nomination or appointment until the conclusion of the arbitration proceeding.' (Ethics [S]tds., std. 7(f); see Honeycutt[ v. JPMorgan Chase Bank, N.A. (2018)] 25 Cal.App.5th [909, ] 922-923.) If, after the time for initial disclosures has passed, 'an arbitrator subsequently becomes aware of a matter that must be disclosed . . ., the arbitrator must disclose that matter to the parties in writing within 10 calendar days after the arbitrator becomes aware of the matter.' (Ethics [S]tds., std. 7(c)(2).)" (Grabowski v. Kaiser Foundation Health Plan, Inc. (2021) 64 Cal.App.5th 67, 77 (Grabowski).)
"'Under the applicable California statute, an arbitrator's failure to make a required disclosure requires vacation of the award, without a showing of prejudice.' (Haworth, [supra, 50 Cal.4th] at p. 394.) The statute 'leaves no room for discretion.' (Ovitz v. Schulman (2005) 133 Cal.App.4th 830, 845 . . .; accord, Benjamin, Weill & Mazer v. Kors (2011) 195 Cal.App.4th 40, 73 . . . .)" (Grabowski, supra, 64 Cal.App.5th at p. 76.)
We review issues of arbitrator disqualification de novo. (Haworth, supra, 50 Cal.4th at pp. 386-388.) The party seeking to vacate an arbitration award bears the burden of establishing that one of the six grounds listed in Code of Civil Procedure section 1286.2 applies. (Royal Alliance Associates, Inc. v. Liebhaber (2016) 2 Cal.App.5th 1092, 1106.)
3. Analysis
We agree with the trial court that Sheeler fell short of showing that the arbitrator's subsequent disclosure of his ownership interest in JAMS warranted disqualification under section 1286.2, subdivision (a)(6)(A). Based on the record before us, which does not include a reporter's transcript of the July 8, 2020, hearing, it appears that Sheeler's evidence on this issue consisted of (1) the arbitrator's initial disclosure that he did not have an ownership interest in either JAMS, Inc. or JAMS/Endispute, LLC; and (2) the arbitrator's subsequent disclosure, after he entered his award, that he had acquired an ownership interest in one or both of those entities. But there is no indication that Sheeler produced any evidence as to when the arbitrator acquired his interest. In addition, Sheeler apparently made no showing of diligence in attempting to obtain information necessary to his showing, such as, for example, requesting further information from JAMS or the arbitrator concerning the timing of the arbitrator's acquisition of the interest.
Instead, in the months following the arbitrator's disclosure, Sheeler apparently chose to do nothing to obtain further information. As a result, he filed his petition to vacate supported only by the subsequent disclosure and his own speculation that the arbitrator may have acquired the interest prior to the award and knowingly failed to disclose it in a timely manner. Sheeler thus failed to meet his burden of demonstrating that the arbitrator's disclosure was untimely.
IV. DISPOSITION
The order denying the petition to vacate and confirming the arbitration award is affirmed. Plaintiff is awarded costs on appeal.
We concur: RUBIN, P. J., MOOR, J.