Arbitrator’s Misconduct Stemming from Comment about the Use of Arbitration Interpreter
Legal interpreting services in rare, exotic, less common foreign languages are often needed in arbitration proceedings, In general, when parties enter into an arbitration agreement, they agree to limited judicial review in exchange for a speedier resolution of their claims. There are limited situations in which courts will review an arbitration award. One instance is when the potential misconduct on the part of a neutral arbitrator substantially prejudices the rights of one of the parties to the arbitration. Misconduct includes instances where an arbitrator’s actions leave a reasonable impression of bias. The following California appeals case – FCM Investments, LLC v. Grove Pham, LLC, et al., 2023 WL 6826821 (Cal.App.4th, Oct. 17, 2023) – involves the arbitrator misconduct exception to the general rule of limited judicial review of arbitration awards.
The Real Estate Deal
In 2019, FCM Investments, LLC (FCM) entered into a purchase agreement to buy real property in Riverside, California from Grove Pham, LLC. Phuong Pham was the owner of Grove Pham, LLC (Grove). The property in issue consisted of a nursing home with resident patients. In the Purchase Agreement, FCM agreed to pay $7.45 million with a deposit of $500,000. Escrow was to close after 30 days.
Disputes Develop Between Buyer and Seller
As a result of disputes during the due diligence process, the parties extended the escrow closing date numerous times. One issue that arose during the due diligence process concerned the license to the facility. FCM believed that Grove and Phuong Pham held the license, but FCM later found out that the license was actually held by others. Additionally, FCM was unable to obtain financial records for the business. Patient numbers at the nursing home were also falling making FCM believe the actual license holders were trying to sabotage the deal and to then buy the property themselves for less.
As a result of these disputes, FCM filed a complaint in Riverside Superior Court against Grove, Phuong Pham, Pham’s daughter and the license holders claiming they were trying to prevent the property sale. The Purchase Agreement included two clauses regarding alternative dispute resolution. One clause required the parties to first mediate any disputes arising out of the agreement and another required arbitration if the mediation was not successful.
The parties participated in mediation and amended the original Purchase Agreement. The amended Purchase Agreement increased the purchase price to $7.7 million and the deposit to $650,000. The seller had to fulfill three requirements under the amended Purchase Agreement: (1) maintain 66 residents; (2) license holder had to allow use of its license for 12 months until FCM could obtain its own license; and (3) the license had to be kept in good standing.
Unable to obtain confirmation that it could use the existing license and certain due diligence documents, FCM pulled out of the deal prior to escrow closing.
The parties then went to arbitration. The main issue during the arbitration was whether or not Grove had fulfilled its obligations under the amended Purchase Agreement. If not, FCM’s pulling out of the deal would be justified.
The arbitrator determined that Pham had breached the amended Purchase Agreement by neither providing proof of the 66 residents nor the agreement by the license holder allowing FCM temporary use of the license. FCM was found to have been justified in pulling out of the deal. FCM was entitled to a return of its deposit with interest, loss-of-bargain damages of $9.1 million plus interest, $127,040 in attorney’s fees and $20,048 in costs.
The Arbitrator’s Decision
The arbitrator found that the case was a complicated one and her decision was “made easier by an evaluation of the credibility of the witnesses.” The arbitrator did not find Pham credible and in explaining why that was so, she highlighted Pham’s use of a Vietnamese interpreter during the arbitration.
FCM sought to have the arbitration award confirmed while Pham moved to vacate the award. The lower court affirmed the award and Pham then appealed.
Pham Did Not Forfeit Arbitrator Bias Claim By Not Raising It before Lower Court
As discussed above, judicial review of arbitration awards is limited. However, the relevant California statute (Code Civ. Proc. 1286.2 subd. (a)(3)) allows review if there is misconduct of a neutral arbitrator. Actions that create a reasonable impression of bias are considered to be “misconduct.”
Generally, a claim of a procedural defect or an erroneous ruling not brought before the lower court is forfeited and this is what FCM argued on appeal. The goal of the forfeiture rule is to promote fairness by allowing errors to be determined in the trial court and the development of a factual record. Pham argued that forfeiture of a claim is not automatic and that bias went to the integrity of the arbitration process warranting the Court to depart from the general rule.
The Court explained that there are two exceptions to the forfeiture rule. First, it explained that the rule does not apply when there is a question of law that can be decided from facts in the record that are uncontroverted and cannot be altered by the presentation of new evidence. Second, the rule does not apply in matters of public interest or the due administration of justice.
With respect to the first exception, the Court held that no additional factual record would be needed to determine if the award creates a reasonable impression of possible linguistic and/or national origin bias. Thus, the first exception applied.
Additionally, the second exception applied because questions of linguistic and national origin bias implicate the public interest and the due administration of justice. The Court noted that all litigants have the right to impartial adjudication of claims free from race, gender and national origin bias.
The issue was so important that the Court even noted that even if the forfeiture rule applied, it would have exercised its discretion to hear the bias claim.
Was There a Reasonable Impression of Possible Bias?
Pham did not need to show actual bias rather she had to show that a hypothetical reasonable person would form an impression of possible bias by the arbitrator.
The Court explained that the arbitrator’s decision in favor FCM was based on witness credibility. According to the arbitrator, the only reason Pham lacked credibility was her use of a Vietnamese arbitration interpreter. The arbitrator described Pham’s decision to use a Vietnamese interpreter as a “ploy to appear less sophisticated than she really is.” The reasons the arbitrator gave for this conclusion were that Pham had lived in the US for decades, Pham had been engaged in sophisticated business transactions and Pham had been an English to Vietnamese interpreter.
The Court found the impression of possible bias. First, the Court noted FCM’s complaint stated that Pham had used her daughter as a Vietnamese translator during a conference call early on in the deal. Second, the Court reasoned that living in the US for many years does not necessarily mean that a person has sufficient English language fluency to participate in an arbitration without an arbitration interpreter. The Court also pointed to Census data that showed that over 40 percent of foreign-born residents continue to speak English “less than very well” after living in the US for over 20 years.
Further, Pham’s participation in sophisticated business transactions does not mean her English proficiency was good or that she should participate in an arbitration without a Vietnamese interpreter.
Finally, without details on how and where Pham served as a Vietnamese interpreter, the mere fact that Pham had served as one at some point, could not be used to determine her credibility. It was possible that she had simply interpreted for family or a friend to fill a language gap – something that is done quite often in the immigrant community.
The Court found that the arbitrator’s decision was sparse and only four pages long. In deciding whether or not there was a breach, the arbitrator relied on her assessment of witness credibility and that assessment was based on misconceptions about English proficiency and language acquisition.
The Court concluded that living in the US for many years, participating in sophisticated business transactions, and an unspecified prior role as an interpreter does not create a reasonable inference that Pham used a Vietnamese arbitration interpreter as a ploy. The Court stated the importance of ensuring that the choice to use a legal interpreter not be held against those who use interpreters during arbitration proceedings.
While the Court vacated the award, it noted that the parties could participate in a new proceeding. Pham and her daughter could not question the validity of the arbitration agreement on appeal after they had agreed to it.
Get in touch with All Language Alliance, Inc. to retain court-certified and qualified interpreters for the arbitration proceedings where disputing parties require arbitration interpreters fluent in Vietnamese; French; Persian; Nepali; Amharic; Thai; German; Tigrinya; Korean; Anuak; Mennonite Low German; Cantonese; Italian; Somali; and other rare, uncommon, exotic and common foreign languages.
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