Fund Raising, Inc. v. Alaskans for Clean Water, Inc. et al
Filing
96
MINUTES (IN CHAMBERS): ORDER by Judge A. Howard Matz. Fund Raising Inc.'s motion to vacate the arbitration award 82 in this case is DENIED. Respondents are directed to file a [Proposed] Judgment by July 2, 2012. (kbr)
O
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 09-4106 AHM (VBKx)
Title
FUND RAISING, INC. v. ALASKANS FOR CLEAN WATER, INC. et al.
Present: The
Honorable
Date
June 26, 2012
A. HOWARD MATZ, U.S. DISTRICT JUDGE
Stephen Montes
Not Reported
Deputy Clerk
Court Reporter / Recorder
Attorneys NOT Present for Plaintiffs:
Proceedings:
Tape No.
Attorneys NOT Present for Defendants:
IN CHAMBERS (No Proceedings Held)
Petitioner Fund Raising Inc. (“FRI”) filed this suit to compel Respondents to
arbitrate a dispute between the parties. FRI’s motion to compel was successful—some
Respondents proceeded to arbitration voluntarily and the Court ordered the remaining
Respondents to arbitration. At the conclusion of arbitration, in a remarkably detailed 59
page initial order, the arbitrator, retired Superior Court Judge G. Keith Wisot, found in
favor of Respondents and awarded them over $4,000,000 in compensatory damages,
punitive damages, and attorneys’ fees and costs. Motion to Vacate Ex. C at 25. In
accordance with the parties’ arbitration agreement, the award was doubled to over eight
million dollars when FRI failed to pay it within thirty days. Notice of Final Arbitration
Award at 25–26, Dkt. 86.
Predictably dissatisfied with this result, FRI has filed the present motion to vacate
the arbitration award.1 A court may vacate an arbitration award only for a few narrowly
circumscribed reasons. Because none of those reasons is applicable here, FRI’s motion is
DENIED.
I.
LEGAL STANDARD
Congress enacted the Federal Arbitration Act to overcome judicial hostility to
arbitration agreements. Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576, 581
(2008). Because broad judicial review would diminish the benefits of private arbitration,
federal courts have only limited authority to review arbitration awards. Kyocera Corp. v.
1
Dkt. 82.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 09-4106 AHM (VBKx)
Date
June 26, 2012
Title
FUND RAISING, INC. v. ALASKANS FOR CLEAN WATER, INC. et al.
Prudential-Bache Trade Services, Inc., 341 F.3d 987, 998 (9th Cir. 2003). “Neither
erroneous legal conclusions nor unsubstantiated factual findings justify federal court
review of an arbitral award under the [FAA], which is unambiguous in this regard.” Id. at
994. Instead, section 10 of the FAA provides the “exclusive means by which a court
reviewing an arbitration award under the FAA may grant vacatur of a final arbitration
award.” Biller v. Toyota Motor Corp., 668 F.3d 655, 664 (9th Cir. 2012).
Section 10(a)(4) of the FAA permits a court to vacate an arbitration award “where
the arbitrators exceeded their powers . . . .” 9 U.S.C. § 10(a)(4).2 Under this provision,
an award may not be vacated simply for “failure on the part of the arbitrators to
understand and apply the law” or even for “an erroneous interpretation of the law.”
Collins v. D.R. Horton, Inc., 505 F.3d 874, 879 (9th Cir. 2007). Instead, an award may
be vacated only where it is “completely irrational” or exhibits “manifest disregard” for
the law. Kyocera, 341 F.3d at 997.
The “manifest disregard” of the law standard is extremely demanding. As an
initial matter, the law in question must be “well defined, explicit, and clearly applicable.”
Collins, 505 F.3d at 880. But in addition, “[i]t must be clear from the record that the
arbitrators recognized the applicable law and then ignored it.” Id. at 879.
Similarly, the “completely irrational” standard is narrow. Despite its name, this
basis for vacatur is not concerned with the internal consistency or coherence of the award.
Bosack v. Soward, 586 F.3d 1096, 1106 (9th Cir. 2009). Instead, it tests whether the
award is rationally related to the underlying agreement. Under this standard of review,
the court does not evaluate the “rightness or wrongness of the arbitrators’ contract
interpretation.” Id. (internal citations omitted). An award is completely irrational only
where it “fails to draw its essence from the agreement.” Id. (citing Hoffman v. Cargill
Inc., 236 F.3d 458, 461–62 (8th Cir. 2001)). “An arbitration award ‘draws its essence
from the agreement’ if the award is derived from the agreement, viewed in light of the
agreement’s language and context, as well as other indications of the parties’ intentions.”
Biller, 668 F.3d at 665 (internal citations omitted).
An arbitration award may also be vacated if the relief awarded by the arbitrator is
2
The other grounds specified in the FAA for vacating an award are inapplicable.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 09-4106 AHM (VBKx)
Date
June 26, 2012
Title
FUND RAISING, INC. v. ALASKANS FOR CLEAN WATER, INC. et al.
contrary to public policy. Aramark Facility Services v. Service Employees International
Union, 530 F.3d 817, 823 (9th Cir. 2008). To vacate an award on this basis, a court must
find that (1) an explicit, well defined, and dominant policy exists and (2) that the policy is
one that specifically militates against the relief ordered by the arbitrator. Id. In
evaluating a public policy argument, courts must focus on the award itself, not the
behavior of the parties. Id. Furthermore, a court should be reluctant to vacate an arbitral
award on this basis because “the finality of arbitral awards must be preserved” if
arbitration is to remain a desirable alternative.” Id. (internal citations omitted).
In deciding whether an award should be vacated, a court must accept the
arbitrator’s factual findings. Aramark, 530 F.3d at 823; Coutee v. Barington Capital
Group, L.P., 336 F.3d 1128, 1133 (9th Cir. 2003). This is because “[t]he parties did not
bargain for the facts to be found by a court, but by an arbitrator chosen by them.”
Aramark, 530 F.3d at 823 (internal citations omitted).
II.
FACTS3
Respondents Alaskans for Clean Water Inc. (“AFCW”), Renewable Resources
Coalition Inc. (“RRC”), and Renewable Resources Foundation Inc. (“RRF”) are nonprofits that are engaged in environmental advocacy. The remaining Respondents,
Hackney & Hackney and Arthur Hackney, assist the non-profit Respondents in their
advocacy efforts. In 2008, Respondents were involved in supporting Alaska’s Ballot
Measure 4, a law that would have imposed new environmental regulations on large mines
in Alaska.
Respondents hired FRI to assist them. In the short term, FRI was to raise money in
support of Ballot Measure 4. In the long term, FRI was to develop a financial support
base for the non-profit Respondents. The parties signed a consulting agreement to that
effect. That agreement contained a mandatory arbitration clause.
A few months after the parties signed the consulting agreement, the relationship
between FRI and Respondents broke down and Respondents terminated the agreement.
The arbitrator found that Respondents violated the consulting agreement by the timing
3
These facts are taken from the arbitrator’s final award, located at Docket Number 86.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 09-4106 AHM (VBKx)
Date
June 26, 2012
Title
FUND RAISING, INC. v. ALASKANS FOR CLEAN WATER, INC. et al.
and nature of their termination of the contract. But, in addition, the arbitrator found that
FRI’s subsequent conduct constituted unclean hands and barred FRI from recovering
damages under the agreement.
After FRI was fired by Respondents, it contacted the Alaska attorneys who
represented one of Respondents’ opponents, a large mining partnership that would be
negatively affected by Alaska’s Ballot Measure 4. FRI apparently informed these
attorneys that it had documents from Respondents that showed that Respondents had
violated Alaska’s campaign finance laws. The Alaska attorneys responded to this
overture and indicated that they were interested in filing a complaint with the Alaska
Public Offices Commission (“APOC”). The attorneys met FRI’s sole employee and
president, Robert Kaplan, and later agreed to (and did) pay $50,000 for the documents.
Robert Kaplan worked with these attorneys by helping them review the documents and
identify various violations of Alaska campaign laws.
The arbitrator found that Robert Kaplan perjured himself repeatedly during the
arbitration proceedings. As relevant here, he found that Robert Kaplan lied about why
and how he initially came to contact the Alaska attorneys. Kaplan testified that he
contacted these attorneys in order to secure representation for FRI for the arbitration
proceeding. But one of the Alaska attorneys contradicted Robert Kaplan’s story and
testified that there was no discussion of the merits of the arbitration proceedings. Instead,
the whole point of the initial meeting was to interest that attorney’s clients in obtaining
documents that Robert Kaplan’s brother, Allan, had said were in FRI’s possession.
Robert Kaplan also lied about the extent of his involvement with the Alaska attorneys.
He claimed that he was surprised when the Alaska attorneys listed him as a consultant in
the complaint before APOC. The arbitrator found that, in reality, Robert Kaplan had
signed an engagement letter with these attorneys and had spent several hours working
through the documents he had disclosed to the attorneys.
Based on FRI’s conduct, the arbitrator concluded that FRI had unclean hands and
was barred from enforcing the consulting agreement. Moreover, he ruled, FRI’s conduct
entitled Respondents to prevail on their counterclaims. Specifically, the arbitrator found
that FRI had violated its fiduciary duties and duty of loyalty that were inherent in the
consulting agreement. The arbitrator determined that FRI was liable for conversion of
Respondents’ proprietary information, misappropriation of trade secrets, and unjust
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 09-4106 AHM (VBKx)
Date
June 26, 2012
Title
FUND RAISING, INC. v. ALASKANS FOR CLEAN WATER, INC. et al.
enrichment.
III.
DISCUSSION
A.
FRI’s Public Policy Arguments
FRI contends that the arbitration award violates public policy in two ways. First,
the award holds FRI liable for conduct specifically protected by California’s litigation
privilege. Second, the award disregards California’s public policy against contracts that
bar whistleblowing. FRI’s arguments do not justify vacating the arbitration award on the
basis of public policy, because when analyzed carefully it becomes clear that FRI is
merely challenging the arbitrator’s application of law. As such, these challenges to the
award are subject to the manifest disregard standard, not the public policy exception. As
the next section demonstrates, under that standard FRI’s challenges fail.
As briefly noted above moreover, to vacate an award on the basis that it violates
public policy, a federal court must find that the relief ordered by the arbitrator is contrary
to a well-defined and dominant public policy. For example, in Misco, the Supreme Court
considered whether an arbitrator’s ruling reinstating an employee who had been fired
(ostensibly because he used marijuana on company property) would violate a public
policy against the operation of dangerous machinery by persons under the influence of
drugs. United Paperworkers Int’l Union, AFL-CIO v. Misco, 484 U.S. 29, 42–44 (1987).
The Supreme Court chided the Court of Appeals for vacating the arbitrator’s award on
the basis of a public policy that was not “‘ascertained by reference to the laws and legal
precedents and . . . [instead] from general considerations of supposed public interests.’”
Id. at 44 (citing W.R. Grace & Co. v. Rubber Workers, 461 U.S. 757, 766 (1983)).
Similarly, in Aramark, the Ninth Circuit considered whether a reinstatement order would
violate a public policy against hiring undocumented workers. Aramark, 530 F.3d at 820.
In both Misco and Aramark, the court declined to vacate the arbitration award. In Foster
Poultry, the Ninth Circuit examined whether an order that required an employer to
bargain with a union over drug testing policy violated Department of Transportation
regulations. United Food & Commercial Workers International Union v. Foster Poultry
Farms, 74 F.3d 169, 174–175 (9th Cir. 1995). There, however, the court upheld the
award, finding that the arbitrator’s ruling requiring an employer to reinstate a discharged
employee unless it engaged in further bargaining with the union did not violate a public
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 09-4106 AHM (VBKx)
Date
June 26, 2012
Title
FUND RAISING, INC. v. ALASKANS FOR CLEAN WATER, INC. et al.
policy embodied in regulations mandating random drug testing. In each of these
cases—Misco, Aramark, and Foster—the issue was whether the relief ordered by the
arbitrator directly conflicted with a contrary public policy or regulation. Misco, 484 U.S.
at 42–44; Aramark, 530 F.3d at 820; Foster Poultry, 74 F.3d at 174–175.4
In contrast, where, as here, the challenge to an arbitration award is to the legal
reasoning employed by the arbitrator—as opposed to the relief ordered by the
arbitrator—the manifest disregard standard applies. See, e.g., Biller, 668 F.3d at
667–670. There, an arbitrator awarded an employer over $2,000,000 in damages after
finding that the employee-petitioner had violated his duty of confidentiality. Id. at 660.
The employee argued before the Ninth Circuit that the award should be vacated because
the arbitrator incorrectly rejected his defenses of unclean hands and equitable estoppel.
Id. at 667–670. In rejecting this argument, the Ninth Circuit applied the manifest
disregard standard, not the public policy exception. Id. Biller implicitly demonstrates
that an attack on an arbitrator’s reasoning or an argument that an arbitrator failed to give
credence to an affirmative defense is evaluated under a manifest disregard standard.
B.
Manifest Disregard
FRI argues that the arbitrator manifestly disregarded the law in two ways. First, he
4
At the hearing on this motion, FRI argued that Prudential-Bache Securities, Inc. v. Tanner, 72
F.3d 234 (1st Cir. 1995), demonstrates that the public policy exception can require overturning
monetary awards if they violate a well-defined public policy. The Court has considered this out-ofcircuit decision and finds it does not justify a change in this Court’s conclusion. In Tanner, the
arbitrators awarded monetary damages to former employees of Prudential who proved they were
wrongfully discharged. Prudential sought to vacate the rulings on two grounds: (1) “manifest disregard”
of the law (see below) and (2) that the arbitrators had found that the employees were fired because they
acted against public policy by failing to keep records of securities transactions in the manner required by
the securities laws. The First Circuit upheld the arbitration awards because the petitioners failed to
prove that the arbitrators had even found record-keeping violations. The First Circuit explicitly stated
that “[w]e need not address . . . whether these reporting requirements establish an explicit public policy
such that the ‘award create[s] any explicit conflict with other laws and legal precedents . . . .” Id. at 251
(citing Misco, 484 U.S. at 43). Because the court rejected the petitioner’s challenge on the basis of the
factual record, it was not squarely confronted with the question of whether the public policy exception
requires vacating damages awards that do not directly address, much less violate, a public policy. See
id.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 09-4106 AHM (VBKx)
Date
June 26, 2012
Title
FUND RAISING, INC. v. ALASKANS FOR CLEAN WATER, INC. et al.
misinterpreted the consulting agreement’s confidentiality clause. Second, he held that
FRI violated fiduciary duties which it did not have and that are not supported by the
parties’ contract.
1.
The confidentiality clause
The consulting agreement contains the following confidentiality clause:
Confidentiality. Contractor shall, with respect to any information
designated by Client or its member organizations as confidential,
hold such information in confidence and use same only in
connection with the services provided hereunder
Final Arbitration Award at 9. FRI argues that this clause applies only to documents
marked confidential. The arbitrator, in contrast, held that the clause applied also to
material that the parties discussed as confidential. Id.
The Court finds that the arbitrator’s construction of the confidentiality clause was
reasonable. The plain language of the clause does not require documents to be “marked”
as confidential. It applies to any information that is designated confidential. It was
reasonable for the arbitrator to conclude, as he did at page nine, that information was
designated confidential when Kaplan and Respondents’ representative Jameson
“specifically discussed” that it was confidential.
2.
Fiduciary duties
FRI argues that the arbitrator incorrectly found that FRI owed fiduciary duties to
Respondents. FRI does not even come close to demonstrating that the arbitrator
manifestly disregarded the law in making this finding. First, FRI does not identify well
defined, explicit, and clearly applicable California law that establishes that fiduciary
duties may not be implied by a contractual agreement. Second, FRI fails to show that the
arbitrator identified the applicable law and then proceeded to ignore it. Indeed, he
discussed a key case that FRI cited. Final Award at 13.
3.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 09-4106 AHM (VBKx)
Date
June 26, 2012
Title
FUND RAISING, INC. v. ALASKANS FOR CLEAN WATER, INC. et al.
The arbitrator held FRI liable for disclosing confidential information to the Alaska
attorneys who represented Respondents’ adversaries. FRI challenges this decision on the
grounds that its communications with those attorneys are protected by California’s
litigation privilege. But, as FRI concedes, the arbitrator found that FRI was judicially
estopped from raising the litigation privilege as a defense. Motion at 15. Accordingly,
FRI’s burden is to show that the arbitrator manifestly disregarded the law in concluding
that FRI was judicially estopped from raising this defense. It failed to do so.
First, FRI does not identify any case that explicitly holds that judicial estoppel is
inapplicable to California’s litigation privilege. Instead, FRI merely points to cases that,
in general terms, establish that California’s litigation privilege is extremely broad. This
showing is insufficient. To demonstrate manifest disregard of the law, a litigant must
show that the purported law was “well defined, explicit, and clearly applicable.” Collins,
505 F.3d at 880. Because there is no explicit rule that judicial estoppel is inapplicable to
the litigation privilege, FRI cannot show that the arbitrator manifestly disregarded the
law.
FRI’s argument fails for a second reason. Even when a clearly applicable law
exists, vacatur is appropriate only where the arbitrator correctly states the rule and then
proceeds to disregard it. Here, the arbitrator did no such thing. At most, he may have
incorrectly construed the scope of judicial estoppel.
4.
Contracts that bar whistleblowing
FRI claims that its communications with the Alaska attorneys were a form of
whistleblowing. In FRI’s view, the arbitrator violated California’s public policy against
enforcing contracts that bar whistleblowing when he held FRI liable for communicating
with those attorneys.
To start with, here the parties’ contract says nothing whatsoever about
whistleblowing, much less bars such activity. Moreover, the arbitrator found that the
claimed whistleblowing—the meetings FRI had with the Alaska attorneys— was “not to
consult counsel for representation . . . but to attempt extortion in ongoing settlement talks
. . . .” Finally, and perhaps more important, he concluded that FRI’s disclosure of
confidential information to the Alaska attorneys was not a “report to the proper
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 09-4106 AHM (VBKx)
Date
June 26, 2012
Title
FUND RAISING, INC. v. ALASKANS FOR CLEAN WATER, INC. et al.
authorities.” Final Award at 11. To prevail, FRI must show that this conclusion
manifestly disregards the law. It has not done so.
FRI points to In re JDS Uniphase Sec. Litig., 238 F. Supp. 2d 1127, 1130 (N.D.
Cal. 2002) for the proposition that a “report” to a private party is shielded by the public
policy in favor of whistleblowing. There are at least two reasons why FRI’s reliance on
JDS Uniphase is misplaced.
First, JDS Uniphase was a federal securities litigation lawsuit. In construing the
confidentiality provision of a contract, the court explicitly stated that it was applying
federal and not state law. JDS Uniphase, 238 F. Supp. 2d at 1137. In fact, the court
acknowledged that a different result was possible under state law. Id. (“[A] reasonable
argument could be made that the Ninth Circuit would not find the confidentiality
agreements at issue here to be in violation of public policy, at least under Arizona law.
This Court, of course, is applying federal law.”). Accordingly, JDS Uniphase is not
“clearly applicable” to this case.
Next, the JDS Uniphase court invalidated the parties’ confidentiality agreement
only “[t]o the extent that those agreements preclude former employees from assisting in
investigations of wrongdoing that have nothing to do with trade secrets or other
confidential business information.” Id. (emphasis added). In this case, in contrast, the
arbitrator concluded that FRI did disclose trade secrets and other confidential
information.
Accordingly, FRI fails to show that there is an explicit and clearly applicable legal
rule that contradicts the arbitrator’s conclusion that Kaplan was not a legitimate
whistleblower. For these reasons, he did not manifestly disregard the law.
5.
Punitive Damages
The arbitrator awarded punitive damages to Respondents, “arising from the tort
causes of action, and perjury of FRI/Kaplan.” Final Award at 20. FRI argued at the
hearing that this portion of the award should be vacated because punitive damages may
not be based on a finding of perjury. There is no well-defined, explicit, and clearly
applicable rule that prohibits basing a punitive damages award on a finding of perjury.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 09-4106 AHM (VBKx)
Date
June 26, 2012
Title
FUND RAISING, INC. v. ALASKANS FOR CLEAN WATER, INC. et al.
The record does not reveal, moreover, that the arbitrator understood the existence of any
such rule and then rejected it. Indeed, there is no evidence that this so-called “rule” was
ever called to the attention of the arbitrator. In fact, FRI conceded at the hearing on this
motion that during arbitration it did not litigate this issue in any substantial fashion.
Under California law, punitive damages are available for tort causes of action
where the defendant acted with “oppression, fraud, or malice.” Cal. Civ. Code. § 3294.
FRI has cited no case that holds that a finding of oppression, fraud, or malice may not be
based on a finding of perjury. Instead, FRI relies on Bosack v. Soward, which states that
“‘a defendant’s trial tactics and litigation conduct may not be used to impose punitive
damages in a tort action.’” 586 F.3d 1096, 1105 (9th Cir. 2009) (quoting De Anza Santa
Cruz Mobile Estates Homeowners Ass’n v. De Anza Santa Cruz Mobile Estates, 94 Cal.
App. 4th 890 (2001)). Bosack neither explains nor applies this rule of California law.
See id.
As to De Anza, there a homeowners association sued the defendant under the
Mobilehome Residency Law, challenging excessive utility charges. De Anza, 94 Cal.
App. 4th at 896. After the association prevailed on its claim, the jury awarded it punitive
damages based, in part, on evidence of the defendant’s “hardball” litigation tactics. Id. at
920. The court of appeal reversed the punitive damages award on the basis that the
Mobilehome Residency Law does not permit statutory damages. Id. at 916. Before
remanding the case, however, the court explained that on retrial evidence of the
defendant’s litigation tactics could not be used to support an award of punitive damages.
Id. at 918–922. In reaching this conclusion, the court focused on two concerns. First, the
court explained that “[a] lay jury is not well suited to evaluate the relative merits of a
legal position taken by a party.” Id. at 918. Second, the court noted that “pursuing
authorized forms of relief before courts or other governmental tribunals is a protected
right and cannot be the basis for tort liability . . . .” Id.
Neither of De Anza’s concerns is clearly implicated in this case. Here, an
experienced arbitrator, not a jury, found that FRI was responsible for Kaplan’s perjury.
Furthermore, De Anza involved litigation conduct that did not include perjury. FRI
argued at the hearing that the term “litigation conduct” encompasses perjury, but it has
cited no cases for this proposition. In fact, De Anza suggests that there is a relevant
distinction between litigation conduct and perjury: basing punitive damages on litigation
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 09-4106 AHM (VBKx)
Date
June 26, 2012
Title
FUND RAISING, INC. v. ALASKANS FOR CLEAN WATER, INC. et al.
conduct could improperly punish the client for the attorney’s litigation strategy. Id. at
921 (citing Palmer v. Ted Stevens Honda, Inc., 193 Cal. App. 3d 530, 539 (1987)). The
same principle does not hold true for perjury, which involves the client’s own conduct.
FRI has failed to present a basis to vacate the arbitrator’s award of punitive
damages.
C.
Complete Irrationality
1.
Fiduciary Duties
The arbitrator determined that FRI owed a fiduciary duty to Respondents. FRI
contends that this conclusion was completely irrational with respect to the contract
because the plain language of the contract does not create a fiduciary relationship
between FRI and Respondents. But just because the plain language of the contract does
not mention a fiduciary relationship does not mean that the arbitrator’s conclusion was
untethered from the contract or failed to draw its essence from the contract. As the
arbitrator explained, “[n]o case cited holds that a party must agree to a fiduciary
relationship; instead, that relationship is a matter of law, determined by the agreement
between the parties.” Final Award at 14. In other words, the arbitrator concluded that
parties who enter into a contract could create a fiduciary relationship even if the contract
does not explicitly say so. The arbitrator’s legal conclusion in this regard was not in
manifest disregard of the law. See City of Hope Nat. Medical Center v. Genentech, Inc.,
43 Cal. 4th 375, 386 (2008) (“Before a person can be charged with a fiduciary obligation,
he must either knowingly undertake to act on behalf and for the benefit of another, or
must enter into a relationship which imposes that undertaking as a matter of law.”)
(emphasis added) (internal citations and alterations omitted). In short, the arbitrator did
not conjure up a fiduciary relationship out of thin air, as FRI argues. To the contrary, he
found that a fiduciary relationship was implied, as a matter of law, by the consulting
agreement. This ruling did not “fail to draw its essence” from the parties’ agreement.
2.
Punitive Damages
FRI contends that the punitive damages award does not draw its essence from the
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 09-4106 AHM (VBKx)
Date
June 26, 2012
Title
FUND RAISING, INC. v. ALASKANS FOR CLEAN WATER, INC. et al.
consulting agreement because the underlying perjury occurred “years after Respondents
terminated the [consulting agreement].” Motion at 12. The court rejects this argument.
As Respondents point out in their brief, “the punitive damages award . . . was not based
solely on a finding of perjury. . . . Fairly read in the context of the rest of the award, the
perjury cited by the arbitrator supports the punitive damage award not by the fact of its
being perjury, but rather what [it] tells us about the Kaplans’ state of mind in
orchestrating the sale of FRI’s clients’ documents . . .” Opp. at 9–10. The Court agrees
with Respondents. Once the arbitrator found that FRI violated its duties to
Respondents—duties created by the consulting agreement—the arbitrator was entitled to
consider Kaplan’s perjury as evidence of bad faith.
IV.
CONCLUSION
For the reasons stated above, FRI’s motion to vacate the arbitration award in this
case is DENIED. Respondents are directed to file a [Proposed] Judgment by July 2,
2012.
:
Initials of Deputy Clerk
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