Benasra vs. Mitchell, Silberberg & Knupp, No. B147537 (Cal. App., 2/13/02)
The favored mechanism for dealing with disqualification of counsel in an arbitration proceeding must be for the arbitrators to decide the issue.
When Plaintiff looked across the arbitration table and saw former counsel representing the other side, he cried foul to the Arbitrators, insisting that the law firm be disqualified. That oversimplifies the facts underlying this lawsuit against former counsel for breach of the duty of loyalty, but it aptly frames the issue.
The Arbitrators considered the evidence and arguments on the motion and denied it, leading MS&K in this proceeding to assert claim preclusion or res judicata. California case law, writes this Court on appeal, holds that arbitral decisions are not a foundation for the application of collateral estoppel or issue preclusion. Arbitrators do not always explain their decisions and the path by which they reach them is not restricted to guiding legal principles. Arbitration works outside the judicial system, so the usual considerations of judicial economy and consistency of results are not in play. Finally, when collateral estoppel is invoked by a nonparty to the original action, as is the case here, there is no threat of harassment by vexatious litigation.
The issues are not the same, the Court concedes, when claim preclusion is at issue. That distinction has been recognized by this Court in a securities case, Brinton v. Bankers Pension Svcs., Inc., 76 Cal.App.4th 550 (1999), where an arbitral denial of claims led to the application of res judicata when Plaintiff sought to re-litigate in court. Here, though, the issue of attorney disqualification is more a collateral issue than the focus of a fully litigated and adjudicated arbitration claim.
Moreover, the party defending against the disqualification motion in the arbitration, i.e., the conflicted law firm, is not even a party in the arbitration. If those involved faced a re-litigation bar when the tangential issue was raised during arbitration, attorney disqualification could become a question requiring full combat and center stage, as opposed to a side dispute amenable to careful, but summary resolution.
The summary judgment ruling below is reversed and the matter remanded for further proceedings. (SAC ed: The Courts discussion is extensive, but nowhere does it suggest that the parties should have run to court, instead of having the arbitrators decide the disqualification question. In fact, it observes, seeking a TRO in a parallel court action would be a real diversion and waste of judicial resources. The Arbitration Panel is the tribunal most familiar with the facts .)
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