The proper remedy for an arbitrator's failure to disclose grounds for bias under a California statute after an interim award has already been issued is vacatur of the award, not disqualification of the arbitrator, according to the California Court of Appeal.

In Advantage Medical Services, LLC v. Hoffman, No. G037634, 2008 WL 555724 (Cal. Ct. App. Mar. 3, 2008), employee Hoffman and employer Advantage asserted various claims against each other stemming from a prior employment relationship. An arbitrator issued an interim award in favor of Advantage.

Later, Hoffman's attorney discovered that the arbitrator and his law firm had represented certain maritime insurers that purchased reinsurance services from Lloyd's of London. Lloyd's also insured Advantage. In light of this information, Hoffman petitioned the arbitration administrator, the American Arbitration Association (AAA), to disqualify the arbitrator, but the AAA refused the request.

Hoffman then filed petitions in trial court for vacatur of the interim award and disqualification of the arbitrator, based on the arbitrator's failure to disclose a source of potential bias as required by CAL. CODE CIV. P. 1281.9(a). The trial court granted both petitions, vacating the award and disqualifying the arbitrator.

The Court found substantial evidence supported the conclusion that the arbitrator's ties to Advantage's insurer triggered California's statutory disclosure requirement, since the matter "could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial." Because of this failure to disclose, vacatur of the associated award was appropriate under CAL. CODE CIV. P. 1286.2.

However, the Court reversed on the disqualification petition, holding that Hoffman's disqualification request was untimely. Citing CAL. CODE CIV. P. 1281.91(d), the Court noted that a notice of disqualification could not be given "after any ruling by the arbitrator regarding any contested matter." Since Hoffman did not discover any grounds for disqualification until after the interim award was issued, Hoffman could not then move to disqualify; rather, vacatur was the appropriate remedy for the arbitrator's failure to disclose.

Finally, the Court held that the AAA's Commercial Arbitration Rule R-17 did not operate as a waiver to the right of a party to petition a court for vacatur of an award issued by the AAA. The rule clearly stated that the AAA was charged with determining whether an arbitrator should be disqualified, and stated that such determinations "shall be conclusive." However, the Court found the waiver ineffective, citing strong public policy reasons for the state's regulation of arbitrator neutrality, and determining that the right to petition for vacatur was a statutory right created by the legislature that was not subject to modification by contract.