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Arbitration: Provider's Immunity, Despite Wrong Jurisdictional Decision, Is Upheld (Web)

In an unpublished opinion, California's Fourth District Court of Appeal held that the "clear absence" of jurisdiction exception didn’t apply to abrogate an arbitrator’s immunity over the arbitrator’s jurisdictional determinations. Foster v. Judicial Arbitration Mediation Services Inc., No. G035503, 2006 WL 1454799 (Cal. App. 4 Dist. May 26, 2006).

The arbitrator was accused of overstepping his limits in the case by the plaintiff for exercising jurisdiction over the plaintiff, which was later determined to be erroneous.

The plaintiff making the claim, however, had fully participated in the legal proceedings.

Plaintiff Brian Foster is president and sole employee of Newport Custom Estates Inc., a Newport Beach, Calif., custom home developer. In March 1998, J.D. Lincoln signed an agreement with NCE to build a custom home; the agreement included a binding arbitration clause. After starting construction on the home, NCE experienced financial difficulties and left the project uncompleted.

In November 2000, Lincoln filed a demand for arbitration with Irvine, Calif.-based ADR provider Judicial Arbitration Mediation Services Inc., now known as JAMS, seeking damages against NCE and Foster for breach of contract and fraud.

JAMS chose retired California state judge Philip E. Schwab to arbitrate the case. Schwab accepted Lincoln's attorney's alter ego theory in holding both Foster and NCE jointly and severally liable for $1.79 for fraud and breach of contract, plus attorney fees of nearly $203,000.

Foster filed complaints against JAMS alleging, among other things, that JAMS improperly assumed jurisdiction over Foster. In granting JAMS' summary judgment motion, the trial court found that JAMS was immune from suit, because Foster failed to raise a triable issue of fact that Judge Schwab had acted in a clear absence of all jurisdiction.

Foster believed that the trial court erred in applying the doctrine of judicial immunity to bar his claim against JAMS. Foster contended on appeal that Judge Schwab's award was made in "a clear absence of any jurisdiction," because Foster was not made a party to the arbitration agreement.

Associate Justice Richard M. Aronson states that “[j]udicial/arbitral immunity is extremely broad,” and "applies not only to an arbitrator's substantive decisions, but extends to "'jurisdictional determinations made in their capacity as arbitrators.'"" (Citation omitted.) Aronson also recognized that even if an arbitrator makes a mistake in exercising jurisdiction, detection of that mistake, will not, by itself, abrogate immunity.

Since the mistaken jurisdictional determination is covered by arbitral immunity, Aronson analyzed what constitutes a "clear absence of all jurisdiction" sufficient to subject the arbitrator to suit. The opinion examines Foster's conduct during the arbitral proceedings to see if Arbitrator Schwab had reason to believe he had jurisdiction over Foster.

Foster cited his attorney's verbal objection made during opening argument to "Lincoln's stated intention to hold Foster liable as NCE's alter ego," as evidence that Judge Schwab's award was made despite a clear absence of any jurisdiction.

But Foster didn’t object to being named in Lincoln's petition to confirm the arbitration award, nor did he seek injunctive relief to prevent being joined as a party. Also, Foster did not raise objections to "written discovery personally propounded to him as if he were a party."

Even Foster's own attorney referred to Foster as a separate respondent during the proceeding. Finally, when Foster objected to sanctions being imposed against him, he never mentioned the arbitrator's lack of jurisdiction.

Even though the trial court found that Foster was not a party to the agreement and never agreed to arbitrate any claims, the California Fourth District Court of Appeal concluded that "Foster's conduct during the course of the arbitration rendered Judge Schwab's lack of jurisdiction over him anything but clear."

—John Ousley, CPR Intern