A-1-CA-36309 | Omnilex

Texte intégral

OCR transcription for search; preserved printed pages are authoritative

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Court of Appeals of New Mexico

umber: Filed 12/24/2019 11:27 AM

Filing Date: December 24, 2019

Mark Reynolds

Nos. A-1-CA-36308 & A-1-CA-36309
(consolidated for purpose of opinion)

KAREN L. ROGERS,

Petitioner-Appellee,

Vv.

RED BOOTS INVESTMENTS, L.P.,

Respondent-Appellant.

and

KAREN L. ROGERS,

Petitioner-Appellee,

Vv.

RED BOOTS INVESTMENTS, L.P.,

Respondent

DAVID S. SMOAK,

Arbitrator-A ppellant.

oe 7 Oo P— es

19
20

APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
Valerie A. Huling, District Judge

Www Re

os N

10
11
12
13

Holland & Hart LLP
Larry J. Montano
Charlie S. Baser
Santa Fe, NM

for Appellee

Brant & Hunt, Attorneys
John M. Brant
Albuquerque, NM

for Respondent-Appellant
Hatch Law Firm, LLC
Stanley N. Hatch

Jesse C. Hatch
Albuquerque, NM

for Arbitrator-Appellant

OPINION

VARGAS, Judge.

3 Red Boots Investments, L.P. (Red Boots) and David Smoak (collectively,

Appellants) filed separate appeals, appealing the district court’s orders vacating an

arbitration award! issued by Smoak in favor of Red Boots, disqualifying David

Smoak as arbitrator, and disqualifying Stanley Hatch as legal counsel to the

arbitrator. Because both appeals raise several identical issues, we consolidate the

appeals for decision.

3 On appeal, Appellants’ raise the following issues: (1) whether Smoak, as the

arbitrator, has the right to appeal the district court’s orders; (2) whether the district

court erred in vacating Smoak’s arbitration award for “evident partiality,” under the

New Mexico Uniform Arbitration Act (the NYUAA), NMSA 1978, §§ 44-7A-1 to

-32 (2001); and, (3) whether the district court erred in prospectively disqualifying

Smoak from serving as an arbitrator of future disputes between the parties. We

affirm.

'The parties to these appeals have engaged in several arbitration proceedings
prior to filing these appeals. These appeals are limited to matters related to the
arbitration award entered in favor of Red Boots and against Karen Rogers, dated

May 5, 2016. This award is referred to as the “RB Award II” throughout the opinion.

I. BACKGROUND

(33 Bill R

stipulated judgment (the Stipulated Judgment) entered by a California court.

Pursuant to the Stipulated Judgment, two trusts for the benefit of Husband’s and

Wife’s minor children (collectively, the Trusts) were ordered to pay child support to

Wife. To effectuate the Stipulated Judgment, Husband and Wife formed Red Boots

to hold Husband’s and Wife’s marital assets and distribute those assets at a rate

proportionate to their respective interests in the partnership. Husband served as the

managing member of both Red Boots and Red Boots’ general partner, TexWest,

LLC.

4 Following a dispute over the implementation of the Stipulated Judgment and

the management of Red Boots, Wife sued Husband in California and Texas. Much

of the property involved in the dispute was located in New Mexico and owned by

RSF Land and Cattle Company, LLC (RSF), for which Husband served as managing

member and Smoak served as president. Husband and Wife agreed to mediate their

disputes, with Smoak serving as mediator and Hatch as Smoak’s attorney. Husband

and Wife reached a preliminary settlement on September 11, 2008, but when a

dispute arose regarding the terms of the settlement, arbitration was scheduled.

4¥ 7°

Before the arbitration was commenced, Husband and Wife resolved their disputes

and executed a settlement agreement (the Settlement Agreement) between

themselves, Red Boots, the Trusts, RSF, and Smoak (collectively, the Parties).

district court, seeking an order confirming the Settlement Agreement, which the

Parties presented to the district court as an arbitration award. The district court

confirmed the arbitration award on May 8, 2009

{53} The Settlement Agreement required the Parties to submit all disputes or claims

arising from “the operations of Red Boots, the interpretation of the Red Boots’

partnership, the interpretation of the Stipulated Judgment, and the activities of the

general partner of Red Boots” to an escalating three-step process: (1) informal

discussions; (2) mediation; and (3) “final and binding” arbitration. The Settlement

Agreement provided that the mediator would also serve as the arbitrator if mediation

was unsuccessful, and stated that any necessary arbitration is governed by New

Mexico law. Paragraph 24 of the Settlement Agreement provided that none of the

Parties “shall make any comment, statement, or representation to the guardian ad

litem, [the California court] or any other court of competent jurisdiction contrary to

the established terms of this Setthement Agreement[,]” and that violation of this

provision would result in the mediator or arbitrator ordering “payment of reasonable

costs, attorney[] fees, and expenses incurred by the other Litigating Parties[. |’

{6 The Settlement Agreement designated the possible mediators and, thus,

arbitrators in order of preference as Smoak, Hatch, Ben M. Allen, and George

Bravante. The Parties noted in the Settlement Agreement that Smoak disclosed his

role_as the president anda member of RSF

managing member of RSF, Smoak “may have an interest in the resolution of the

disputes between the Parties and may be susceptible to influence by [Husband].”

The Settlement Agreement also recognized that Hatch served as RSF’s legal counsel

and “may be susceptible to influence by [Husband]” because of Husband’s role as

the managing member of RSF. Nevertheless, the Parties “voluntarily appointed”

Smoak to act as mediator with Hatch acting as Smoak’s legal counsel, and released

and discharged Smoak and Hatch from all claims, complaints, liability, loss, or

damage resulting from mediation, the Settlement Agreement, or any decisions by

Smoak or Hatch relating to the mediation or the Settlkement Agreement. Smoak and

Hatch nonetheless agreed “that they will in any future mediation or arbitration take

all reasonable steps and act in good faith to be neutral and fair to all [P]arties.”

tj The present case arises from separate, but related, arbitration proceedings

conducted pursuant to the terms of the Settlement Agreement. As such, we set forth

the relevant factual and procedural backgrounds of each arbitration proceeding

leading up to the case at bar.

Although the awards in the Trusts Arbitration and those we identify herein to
be RB Arbitrations I, III, 1V and V are not the subject of this appeal, we nonetheless
set forth the relevant background of each of the arbitrations to provide the necessary

context for the appealed district court orders.

A. The Trusts Arbitration

o
ra)
WM

{8} After the Trusts failed to make certain child support payments to Wif

£ ay see So 3 vY

required by the Settlement Agreement, Wife sent a letter to Hatch, as counsel for the

Trusts, demanding immediate payment. Hatch wrote to Wife, demanding mediation

of the disputes she raised in her letter. In response, Wife wrote that she was willing

to participate in mediation provided that “[a]n independent and neutral mediator

shall be selected by agreement of the parties or if the parties cannot agree, the parties

shall ask for such a mediator to be appointed by the [district c]ourt.”

(93 Due to the unavailability of the other possible mediators, Bravante was

designated in accordance with the Settlement Agreement to resolve their dispute.

Wife filed a motion seeking to reopen the district court litigation, remove Bravante

as the mediator, and appoint a neutral mediator. The district court denied Wife’s

motion to remove Bravante and appoint a neutral arbitrator, ordered the parties to

mediate the dispute, and appointed Bravante as the mediator. Following

unsuccessful mediation, Bravante withdrew for health reasons and the district court

appointed Bruce Hall as the arbitrator.

410} During arbitration, the Trusts raised several counterclaims against Wife and

argued Wife violated Paragraph 24 of the Settlement Agreement by filing her motion

to remove Bravante in district court and “making comments, statements, and/or

representations to the [district cJourt.” Hall entered an arbitration award in Wife’s

favor (Trusts Award) on February 29, 2012, concluding the Trusts breached the

Trusts’ argument that Wife’s conduct breached “any contractual obligation under

the Settlement Agreement.” The district court confirmed the Trusts Award.

B. Red Boots Arbitration I

4113 During the first arbitration between Wife and Red Boots (RB Arbitration I),

Smoak was appointed to serve as the arbitrator and began the process of scheduling

the arbitration on May 22, 2012. On June 28, 2012, Wife filed (1) an application in

the district court to temporarily restrain and preliminarily enjoin Smoak from

conducting an arbitration in the RB Arbitration I matter, and (2) a motion to

permanently disqualify Smoak from serving as mediator or arbitrator for any

disputes under the Settlement Agreement and to appoint a neutral arbitrator for the

RB Arbitration I matter. To support her motion to permanently disqualify Smoak,

Wife provided an affidavit explaining that she and Smoak spoke shortly after Hall

entered the Trusts Award. Wife stated that Smoak told her during that conversation

“that he thought... Hall was wrong in not penalizing [Wife] for the [motion to

remove Bravante as the mediator] and that... Hall should have awarded attorney

fees against [Wife].” After Red Boots submitted its list of issues for arbitration,

wee

which included Wife’s “violation of the Settlement Agreement’s Alternative Dispute

Resolution provisions against going to court which led to .. . large amounts of Red

Boots’, Tex[W]est’s and [Husband’s] [sic] time and efforts to defend, and .. . large

amounts of the time

and Wife that the issues within the scope of arbitration included “[d]isputes

concerning the violation of the provisions of [Paragraph] 24 of the Settlement

Agreement as it relates to present court actions initiated by [Wife].”

6] 4123 The district court denied Wife’s motion to disqualify Smoak in the RB
7| Arbitration I, and denied her motion to permanently disqualify Smoak “as not being
8] ripe for decision.” Addressing the scope of the upcoming RB Arbitration I, the
9} district court limited the arbitrability of the Paragraph 24 issue:

10 Regarding the scope of the issues for the [RB A]rbitration [I],

11 with respect to any issue relating to reasonable costs, attorney fees, and

12 expenses which might be sought against [Wife] pursuant to [Paragraph]

13 24 of the .. . Settlement Agreement. . ., the arbitration is limited to

14 considering only costs, attorney fees and expenses related to disputes

15 between [Wife] and Red Boots... beginning with the [application to

16 temporarily restrain and preliminarily enjoin Smoak]| filed in [the

17 district court on] June 28, 2012[,] and the [motion to disqualify Smoak

18 and appoint a neutral arbitrator] also filed June 28, 2012. Nothing

19 contained herein suggests whether or not any costs, attorney fees or

20 expenses should be awarded. (Emphasis added.)

21} Neither Red Boots nor Smoak filed a motion to reconsider the district court’s order

and neither appealed the order.

43} Following the RB Arbitration I, Smoak issued the RB Award I which

acknowledging the district court’s limitation concerning the costs, fees and expenses

that could be sought against Wife, Smoak concluded that Paragraph 24 was and

]’ that_it “beg[ged]_to_be
4d oOLo a |

Lae

addressed in detail and directly[,]” and that “[i]t was not raised or responded to in

the [district] court pleadings.” Notwithstanding the district court’s order, Smoak then

awarded litigation costs dating back to September 12, 2008, against Wife in conflict

6] with that order, concluding:

7 [Wife’s] court actions with respect to the present arbitration constitute

8 a single violation of [Paragraph] 24 harming Red Boots, [TexWest],

9 and the member of [TexWest]. Thus, [t]he damages to be awarded in
10 favor of Red Boots as a result of [Wife’s] violation of [Paragraph] 24
11 in this matter are the payment of reasonable litigation costs incurred by
12 Red Boots in disputes with [Wife] since the closing of the original
13 mediation on September 12, 2008... . The litigation costs incurred by
14 Red Boots from September of 2008 through June of 2012 amount to
15 $730,173.58.
16] In his summary of the decision and award, Smoak stated, “Red Boots is awarded

7| damages for [Wife’s] breach of the Settlement Agreement under [Paragraph] 24 in

the amount of $730,173.58 plus an amount equal to the costs incurred in this dispute

after June 30, 2012.” Wife filed a motion to vacate RB Award I. Finding Wife’s

21\| Award I

22] C RB Arbitrations II, I, IV, and V

23] 4143 In 2013 Red Boots and Wife engaged in the second Red Boots Arbitration
24] (RB Arbitration IT). On June 26, 2013, Wife filed a motion in district court to join

Smoak and RSF as parties to the arbitration and to join certain issues to the RB

Arbitration Il. The district_court_denied this motion. On November_7, 2013, Wi

(@)

cos = . = ©. & Ee = ae Soe eS de = ‘ ¥ ao Vs > VV Se

filed an application in the district court to temporarily restrain and preliminarily

enjoin Smoak from conducting the RB Arbitration I. The district court orally

vacated the arbitration scheduled for later that month, but did not rule on Wife’s

application. The RB Arbitration II was subsequently rescheduled and Smoak entered

an arbitration award (RB Award I). In the RB Award II, Smoak again concluded

Wife had violated Paragraph 24, this time by filing her untimely motion to vacate

the RB Award I and by responding to Smoak’s motion to compel payment of fees

related to the RB Arbitration I because it “contained substantive statements and

representations contrary to the established terms of the Setthement Agreement.”

Smoak awarded Red Boots $1,250,000 for each of these two violations. Wife filed

a motion to vacate the RB Award II.

45} In early 2015, Red Boots and Wife engaged in a third arbitration proceeding

(RB Arbitration HI). On May 28, 2015, Wife filed an application in the district court

to temporarily restrain and preliminarily enjoin Smoak from conducting the RB

Arbitration II. Smoak entered an arbitration award in this proceeding on the

following day (RB Award III), again concluding Wife was liable to Red Boots for

violating Paragraph 24 of the Settlement Agreement, this time pointing to “her

filings on June [26], 2013, [to join parties and issues] and November 7, 2013], to

temporarily restrain and enjoin Smoak.]” Smoak awarded Red Boots damages in the

amount_of $850,000. In December_2015, the district_court-denied_ both of Wife’s

EE . = a hod = + ae Se +e Ee = ea YE

applications. Red Boots filed a motion to confirm RB Award HI. The district

confirmed the RB Award III.

416} Following a fourth arbitration between Red Boots and Wife, (RB Arbitration

IV) Smoak entered the RB Award IV, concluding that Wife’s “filings in conjunction

with the [a]pplication for [a temporary restraining order] relating to the [RB

Arbitration HT] breached the provisions of [Paragraph] 24],]” and that such breach

entitled Red Boots to $1,320,000 in damages. The district court vacated RB Award

IV, but deferred ruling on Red Boots’ and Smoak’s motions to reconsider the vacatur

pending the outcome of these appeals.

7; During a fifth arbitration between Red Boots and Wife (RB Arbitration V),

Wife filed (1) a motion to appoint a different arbitrator and (2) an application to

temporarily restrain and preliminarily enjoin Smoak from mediating or arbitrating.

In its order denying Wife’s application for a temporary restraining order and

preliminary injunction, filed on October 21, 2016, the district court nevertheless

cautioned Smoak not to proceed with arbitration pending the outcome of Wife’s

motion to appoint a different arbitrator, stating:

19
20
21

ary

An arbitrator’s refusal to postpone a hearing upon a showing of
sufficient cause is justification for vacating an award. [See]... § 44-
TA-24(a)(3). ... Conducting further arbitration proceedings while there

L2zL

is a pending motion before this Court to appoint a different arbitrator

1 may be considered sufficient cause for postponement. Therefore, if. . .

2 Smoak chooses to proceed, on a proper motion any award may be

3 vacated by this Court.

4) Notwithstanding the district court’s warning, Smoak proceeded with the RB

Arbitration V while Wife’s motion to appoint a different arbitrator was still pending.

4183 During a November 29, 2016, hearing on Wife’s motion to appoint a different

arbitrator, Smoak testified that he did not believe the district court’s scheduling of a

hearing to consider his removal as arbitrator was a reasonable cause to postpone the

arbitration, that he did not “see the point in delaying [the arbitration] further,” and

that notwithstanding the district court’s earlier warning, he proceeded to arbitration

eleven days earlier on November 18, 2016. Smoak also testified that although he

was aware of the district court’s limitation on the arbitrability of Paragraph 24, he

nevertheless declined to adhere to that limitation because he interpreted the

provision and the Settlement Agreement differently from the district court.

419} At this juncture, the district court granted Wife’s motion to appoint a different

arbitrator, finding “that there is clear and convincing evidence that there 1s evident

ats i 4~ LA lage

1 41 at 4 (al 1-_Ay Lee lL Lf, '
Pdalulldality Ol WIG pall OF AATOIUdtOr . 2. OTMOdK GIsQudlityiis DOT TOOT sCrvure ds

arbitrator or mediator in any proceeding conducted pursuant to the Settlement

Agreement[,|” and removing Smoak from serving as an arbitrator under the

counsel to the arbitrator or mediator under the Settlement Agreement on grounds of

evident partiality. Based on its finding that there was evident partiality by Smoak,

EY Gt wa Wa

to reconsider the district court’s rulings.

20} Inits order denying Smoak’s and Red Boots’ motions to reconsider its order

appointing a different_arbitrator, the district court noted that notwithstanding the

waiver of Smoak’s conflicts of interest, he agreed to be “neutral.” The district court

made two findings to support its conclusion that Smoak demonstrated evident

partiality: (1) without appealing or moving to reconsider the district court’s

limitation on the arbitrability of Paragraph 24 in the RB Arbitration I, Smoak

“expressly rejected” the district court’s limitation and awarded “millions of

dollars... against [Wife] and in favor of Red Boots[;]” and (2) Smoak proceeded

with arbitration when he knew a motion to appoint a different arbitrator was pending

and after the district court had warned him that proceeding with arbitration might

result in the vacatur of the arbitration award. The district court concluded that equity

“demand[ed]” Smoak’s removal prior to the entry of an award in the RB Arbitration

V and that pursuant to Section 44-7A-12(a), the district court had the authority to

appoint a new arbitrator because the Settlement Agreement’s method for selecting

arbitrators had failed. The district court relied on Section 44-7A-24 and used the

same findings regarding Smoak’s evident partiality in denying Smoak’s and Red

Boots’ motions to reconsider its order vacating RB Award II. These appeals

followed.

Ul. DISCUSSION

13 Onappeal, all Appellants argue that: (1) the district court erred in vacating the

RB Award I for evident partiality; and (2) the district court erred in prospectively

disqualifying Smoak and Hatch. However, before we address those arguments, we

address Appellant Smoak’s argument that, as the arbitrator, he has a right to appeal

the district court’s decision.

A. Smoak Has a Right to Appeal

2} “The right to appeal is... a matter of substantive law created by constitutional

or statutory provision.” New Mexico v. Armijo, 2016-NMSC-021, 4 19, 375 P.3d

415. “Whether a party has a right to appeal is a question of law reviewed de novo.”

In re Guardianship of C.G., 2019-NMCA-__, 426, —— P.3d_ —_s(No. A-1-CA-

35613, Oct. 29, 2019). “Appellate review, including the mght to appellate

review, . . . 1s governed by the rules applicable to civil appeals to the court of appeals

from the district court.” NMSA 1978, § 45-1-308 (1975). “And NMSA 1978,

Section 39-3-2 (1966), which governs civil appeals from the district court, allows a

right of appeal to ‘any aggrieved party’ by a district court’s decision, order, or

>» A Po

judgment.” /n re Guardianship of C.G.,2019-NMCA- __, § 26. Generally speaking,

“Tajn aggrieved party means a party whose interests are adversely affected.” State v.

Nehemiah G., 2018-NMCA-034, 4 15, 417 P.3d 1175 (internal quotation marks and

citation omitted), Although “New Mexico has always required allegations of direct

te tk. SAE = v Se EGO ALVA =

injury to the complainant to confer standing, ...once the party seeking review

alleges he himself is among the injured, the extent of injury can be very slight.” /n

re Guardianship of C.G., 2019-NMCA-___, 9.29 (alteration, emphasis, internal

quotation marks, and citation omitted). Based on the circumstances in the case at

bar, we conclude Smoak has the right to appeal the district court’s orders.

4233 Smoak argues he was agerieved by the district court’s orders because, among

other reasons, the district court prevented him from serving as an arbitrator under

the Settlement Agreement to which he was a party and from recovering arbitration

costs and fees under the RB Award II. The district court’s orders directly and

sufficiently aggrieved Smoak such that he has a right to appeal those orders.

4; To the extent Smoak challenges the district court’s disqualification of Hatch

as legal counsel under the Settlement Agreement, he fails to demonstrate how /e has

standing to appeal a decision adverse to Hatch. See Headley v. Morgan Mgmt. Corp.,

2005-NMCA-045, ¥ 15, 137 N.M. 339, 110 P.3d 1076 (“We will not review unclear

arguments, or guess at what [a party’s] arguments might be.”). We therefore decline

to address this argument further, affirming the district court on this matter, and we

proceed to discuss the district court’s vacatur of the RB Award II.

B. ‘The District Court Did Not Err in Vacating RB Award II

the NMUAA, there are strict limitations on judicial review of arbitration awards.”

K.R. Swerdfeger Const. v. UNM Bad. of Regents, 2006-NMCA-117, 4 13, 140 N.M.

374, 142 P.3d 962. “In the absence ofa statutory basis to vacate an arbitration award

the district court must enter an order confirming the award.” /d. § 14. However, upon

a party’s motion, the district court shall vacate an arbitration award when, among

other reasons, there was “evident partiality by an arbitrator appointed as a neutral

arbitrator.” Section 44-7A-24(a)(2)(A). “The party seeking to vacate the award bears

the burden of proving partiality.” /n re Arbitration Between Town of Silver City &

Silver City Police Officers Assoc. (Silver City), 1993-NMSC-037, § 16, 115 N.M.

628, 857 P.2d 28.

26} We review the district court’s ruling on motions to confirm or vacate an

arbitration award for an abuse of discretion. See Edward Family Ltd. P’ship v.

Brown, 2006-NMCA-083, 417, 140 N.M. 104, 140 P.3d 525 (“We review the

district court’s order confirming the arbitration award and denying the motion to

vacate for abuse of discretion.”). Similarly, “[w]e review the denial of a motion to

reconsider for an abuse of discretion.” Wilde v. Westland Dev. Co., 2010-NMCA-

Po 440 rT 44 A 41

085, 9 35, 148 N.M. 627, 241 P.3d 628. On appeal, we must determine “whether

substantial evidence in the record supports the [district] court’s findings of fact and

whether the [district] court correctly applied the law to the facts when making its

conclusions of law.” Casias v. Dairyland Ins. Co., 1999-NMCA-046, 4-8, 126 N.M

ENV NS th ee aN GEV

772, 975 P.2d 385. “Substantial evidence is that evidence which is relevant and

which a reasonable mind could accept as adequate to support a conclusion.” Medina

v. Found. Reserve Ins. Co., 1997-NMSC-027, 4 12, 123 N.M. 380, 940 P.2d 1175

“We view the evidence in the light most favorable to the prevailing party and indulge

all reasonable inferences in support of the findings.” Kagle Laundry v. Fireman’s

Fund Ins. Co., 2002-NMCA-056, § 14, 132 N.M. 276, 46 P.3d 1276. Resolving the

question of whether the district court erred in vacating the RB Award II for evident

partiality requires that we discuss three issues: (1) the applicability of the evident

partiality standard as it applies to Smoak under the facts of this case, (2) the evidence

necessary to support a finding of evident partiality, and (3) the sufficiency of the

evidence supporting the district court’s finding of evident partiality on the part of

Smoak.

1. Applicability of the Evident Partiality Standard to Smoak

27; Appellants argue the district court erred in applying the evident partiality

standard to Smoak because he was appointed as a “non-neutral arbitrator.” Indeed,

vacatur on grounds of evident partiality applies only to arbitrators appointed as

neutral arbitrators. See § 44-7A-24(a)(2)(A) (providing that the district court shall

vacate an arbitration award if there was “evident partiality by an arbitrator appointed

as a neutral arbitrator’ (emphasis added)); Unif. Arbitration Act § 12 cmt. 5, 7

U.L.A.27 2000) “The ground_of evident_partiality_in_!
X IX oO Fr J

wt he 4 = EE

terms only applies to an arbitrator appointed as a neutral[.]” (internal quotation

marks omitted)). We must therefore determine whether the terms of the Settlement

Agreement required Smoak to serve as a neutral arbitrator

8} “Courts must interpret the provisions of an arbitration agreement according

to the rules of contract law and apply the plain meaning of the contract language in

order to give effect to the parties’ agreement.” McMillan v. Allstate Indem. Co.,

2004-NMSC-002, 9 10, 135 N.M. 17, 84 P.3d 65. Although Smoak and Hatch

disclosed their relationships which rendered them potentially “susceptible to

influence by [Husband],” they nevertheless agreed “that they will in any future

mediation or arbitration take all reasonable steps and act in good faith to be neutral

and fair to all [Plarties.” (Emphasis added.) Applying the plain meaning of the

Settlement Agreement, we conclude the Parties intended Smoak to be a neutral

arbitrator such that the district court did not err in applying the evident partiality

standard to him.

2. Evidence Necessary to Find Evident Partiality

29} Before turning to the district court’s finding that there was evident partiality

by Smoak, we first consider the proof necessary to establish evident partiality. Our

Supreme Court has explained that “evidence of arbitrator partiality must be direct,

definite and capable of demonstration rather than remote, uncertain, or

adverse evidentiary rulings or from the enforcement of procedural rules.” Si/ver City,

1993-NMSC-037, §§ 16,18 (internal quotation marks and citation omitted).

However, neither this Court nor our Supreme Court has explained what this “direct

definite” and demonstrable evidence must show to support a finding of evident

partiality. /d. 4 16 (internal quotation marks and citation omitted). To do so, we

therefore look to other jurisdictions for guidance.

430} As a starting point for interpreting the term, we first turn to the United States

Supreme Court’s decision in Commonwealth Coatings Corp. v. Continental

Casualty Co., 393 U.S. 145 (1968), which addressed the vacatur of an arbitration

award for evident partiality under the Federal Arbitration Act (the FAA). The Court

was split in its attempt to establish a clear standard. Writing for the four-justice

plurality, Justice Black explained that the Court had no reason to suspect the

arbitrator “of any improper motives.” Commonwealth Coatings Corp., 393 U.S. at

147. Nevertheless, Justice Black appeared to suggest that arbitrators be held to the

same ethical standards as judges, explaining that “we should, if anything, be even

more scrupulous to safeguard the impartiality of arbitrators than judges, since the

former have completely free rein to decide the law as well as the facts and are not

subject to appellate review.” /d. at 149. Accordingly, he suggested “that arbitrators

disclose to the parties any dealings that might create an impression of possible

|? -and_concluded_that arbitrators “not-only _m

dee eS

avoid even the appearance of bias.” /d. at 149-50. In his concurrence, Justice White

repudiated the apparent stringency of Justice Black’s opinion: “The Court does not

decide today that arbitrators are to be held to the standards of judicial decorum of

Article III judges, or indeed of any judges.” /d. at 150 (White, J., concurring).

However, he wrote that an arbitrator’s disclosure is required “where the arbitrator

has a substantial interest in a firm which has done more than trivial business with a

party.” /d. at 151-52. As a result of the split decision in Commonwealth Coatings

Corp., the federal courts were left without a clear standard.

313 Inanearly attempt to provide guidance as to the meaning of evident partiality

under the FAA, the United States Court of Appeals for the Second Circuit concluded

that vacatur on grounds of evident partiality required “a showing of something more

than the mere appearance of bias,” but something less than “proof of actual bias.”

Morelite Constr. Corp. v. N.Y. City Dist. Council Carpenters Benefit Funds, 748

F.2d 79, 83-84 (2d Cir. 1984) (internal quotation marks omitted). Thus, the court

held that evident partiality “will be found where a reasonable person would have to

conclude that an arbitrator was partial to one party to the arbitration.” /d. at 84. The

Second Circuit has since held that a party challenging an arbitration award “must

prove the existence of evident partiality by clear and convincing evidence,” e.g.,

Certain Underwriting Members of Lloyds of London v. Florida, Dep’t of Fin. Servs.,

892 F.3d 501, 505 (2d Cir. 2018), t

inconsistent with impartiality[,]... [and that a] showing of evident partiality must

be direct and not speculative.” F.g., Kolel Beth Yechiel Mechil of Tartikov, Inc. v.

YLL Irrevocable Tr., 729 F.3d 99, 104 (2d Cir. 2013) Ginternal quotation marks and

citation omitted). A majority of the circuits have adopted either this or a similar

construction of evident partiality. See Apperson v. Fleet Carrier Corp., 879 F.2d

1344, 1358 (6th Cir. 1989) (en banc) (“We agree with the Morelite court’s

analysis[.]”); accord Cooper v. WestEnd Capital Mgmt., L.L.C., 832 F.3d 534, 545

(5th Cir. 2016); JCI Commce’ns, Inc. v. Int’l Bhd. of Elec. Workers, Local 103, 324

F.3d 42, 51 (1st Cir. 2003); Dow Corning Corp. v. Safety Nat'l Cas. Corp., 335 F.3d

742, 750 (8th Cir. 2003); Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503,

1523 n.30 (3d Cir. 1994); Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co.,

991 F.2d 141, 146 (4th Cir. 1993); see also Middlesex Mut. Ins. Co. v. Levine, 675

F.2d 1197, 1201 (11th Cir. 1982) (requiring proof establishing “a reasonable

impression of partiality”); Merit Ins. Co. v. Leatherbys Ins. Co., 714 F.2d 673, 681

(7th Cir. 1983) (suggesting that evident partiality may be shown where the

“circumstances are such that a man of average probity might reasonably be suspected

of partiality” and such circumstances are “powerfully suggestive of bias”). Several

circuits have clarified that the party asserting evident partiality “must establish

specific facts that indicate improper motives on the part of the arbitrator.” /reeman

SEW EEL, ES CAG =

yv. Pittsburgh Glass Works, LLC, 709 F.3d 240, 252 (3d Cir. 2013) Gnternal quotation

marks and citation omitted); accord Uhl vy. Komatsu Forklift Co., 512 F.3d 294, 306

(6th Cir. 2008); JCT Comme ns, Inc. v. Int’l Bhd. of Elec. Workers, Local 103, 324

F.3d 42, 51 (1st Cir. 2003): Consolidation Coal Co. v. Local 1643, United Mine

Workers of Am., 48 F.3d 125, 129 (4th Cir. 1995). Many states have followed suit

and adopted these interpretations for purposes of the Uniform Arbitration Act of

2000 (UAA), §§ 1-33, 7 U.L.A. 1-52 (Supp. 2002). E.¢., Denison Mines (USA) Corp.

v. KGL Assoc. Inc., 381 P.3d 1167, 1178 (Utah Ct. App. 2016); Fong v. MPGM

Mirage Int’l Mktg., 381 P.3d 612, *4 (Nev. 2012) (confirming an arbitration award

by order of affirmance); Wilbanks Sec., Inc. v. McFarland, 2010 OK CIV APP 17,

49 26-32, 231 P.3d 714, 722-23; McNaughton & Rodgers v. Besser, 932 P.2d 819,

822 (Colo. App. 1996).

323 Although not binding on this Court, we find the standard adopted by the

Fourth Circuit in Consolidated Coal Co., 48 F.3d at 129, to be most persuasive.

While requiring that a showing of evident partiality be made by evidence that is

“direct, definite and capable of demonstration rather than remote, uncertain or

speculative,” see id. (internal quotation marks and citation omitted), as our Supreme

= oe vel

Court has required, see Silver City, 1993-NMSC-037, 4 16, the Fourth Circuit has

explained that “[t]o demonstrate evident partiality ..., the party seeking [vacatur]

has the burden of proving that a reasonable person would have to conclude that an

arbitrator was partial the_arbitration.” Consolidated Coal Co.,

Gal—e ea ae a

A8 F.3d at 129 (internal quotation marks and citations omitted). “This reasonable

person standard[,]” the Fourth Circuit explained, “requires a showing of something

more than the appearance of bias, but not the insurmountable standard of proof of

actual bias.” /d. (internal quotation marks and citation omitted). “Furthermore, the

party asserting evident partiality must establish specific facts that indicate improper

motives on the part of the arbitrator.” /d. (internal quotation marks and citation

omitted). “A party need not prove that the arbitrator, in fact, had improper motives.”

ANR Coal Co., Inc. v. Cogentrix of N. Carolina, Inc., 173 F.3d 493, 500 (4th Cir.

1999). “To do so would make the standard for evident partiality equivalent to

proving actual bias.” /d. “But a party seeking vacatur must put forward facts that

objectively demonstrate such a degree of partiality that a reason[]able person could

assume that the arbitrator had improper motives.” /d. “The party challenging the

award must prove the existence of evident partiality by clear and convincing

evidence[,]” Certain Underwriting Members of Lloyds of London, 892 F.3d at 505,

which is evidence that “instantly tilt[s] the scales in the affirmative when weighed

against the evidence in opposition and the fact[-]finder’s mind is left with an abiding

conviction that the evidence 1s true.” State ex rel. Children, Youth & Families Dep't

v. Michelle B., 2001-NMCA-071, § 12, 130 N.M. 781, 32 P.3d 790 (internal

quotation marks and citation omitted). Having set forth the standard we view to be

the best

So oe a ¥ ¥ So

t to evaluate claims of evident partiality,

whether sufficient facts support the district court’s finding of evident partiality.

3. The District Court’s Finding of Evident Partiality

(33: Appellants challenge the district court’s finding of evident partiality. The

district court’s finding that Smoak demonstrated evident partiality was based on: (1)

Smoak’s “intentional disregard” for the district court’s ruling limiting the

arbitrability of Paragraph 24; and (2) Smoak’s refusal to postpone the arbitration in

the RB Arbitration V, despite the district court’s express warning not to proceed to

arbitration while the motion to appoint a new arbitrator was pending. After

reviewing for substantial evidence, we will discuss Appellants’ legal challenges to

these findings. We will then turn to Smoak’s more general argument that the district

court is limited in the timing of, and the evidence considered in its vacatur ruling.

a. The District Court’s Finding That Smoak Intentionally Disregarded Its

15
16

Limitation on the Arbitrability of Paragraph 24

34 The district court’s finding that Smoak intentionally disregarded its limitation

—
oO

on the arbitrability of Paragraph 24 is supported by substantial evidence. After the

fees, and expenses was limited to those costs, fees, and expenses “related to disputes

i)
—

between [Wife] and Red Boots... beginning with” Wife’s motion and application

come

under Paragraph 24 for “litigation costs incurred by Red Boots from September of

2008 through Ji une of 2012. a amounting | to $ $730, 173.58.” (Emphasis added.) Indeed,

dow = oe eueiniaiel deiabaseriaiend aT

on several occasions during the hearing on Wife’s motion to appoint a different

arbitrator, Smoak conceded that he did not follow the district court’s limitation.

351 However, Appellants argue the district court’s finding that Smoak

intentionally disregarded the limitation on the arbitrability of Paragraph 24, made

during the RB Arbitration I, was in error because the RB Award I “was res judicata

on the [Paragraph] 24 claim,” the district court wrongly considered the merits of the

RB Award I, and the district court was prohibited from limiting the arbitrability of

Paragraph 24 under its subject matter jurisdiction and the FAA. We acknowledge

that our Supreme Court has held that “when arbitration affords opportunity for

presentation of evidence and argument substantially similar in form and scope to

judicial proceedings, the award should have the same effect on issues necessarily

determined as a judgment has.” Rex, Inc. v. Manufactured Hous. Comm. of State of

N.M., 1995-NMSC-023, 412, 119 N.M. 500, 892 P.2d 947 (alteration, internal

quotation marks, and citation omitted). However, Rex did not discuss, nor have

Appellants cited supporting authority bearing upon, the issue of whether an

arbitrator’s conduct in a prior related arbitration proceeding can be considered in a

IT.

finding of evident partiality. See Curry v. Great Nw. Ins. Co., 2014-NMCA-031T,

4] 28, 320 P.3d 482 (“Where a party cites no authority to support an argument, we

EEE

4363 As to Appellants’ argument that the district court erred in considering the

merits of the RB Award I, it is true that the NUUAA “neither empowers the district

court to review an arbitration award on the merits of the controversy, nor grants the

district court the authority to review an award for errors of law or fact.” Si/ver City,

1993-NMSC-037, 4 7. However, that is not what took place here. The district court’s

finding of evident partiality was not predicated on the merits of the RB Award I, but

on Smoak’s decision to disregard a district court ruling and order Wife to pay costs

in Husband’s favor, evidence from which a reasonable person would have to

conclude that Smoak had improper motives to favor Husband and oppose Wife.

137} Red Boots also challenges the district court’s limitation on the arbitrability of

Paragraph 24 during the RB Arbitration I on grounds that the district court lacked

jurisdiction and that the FAA precluded such a ruling. However, Red Boots misstates

the issue involved in the district court’s finding of evident partiality, which is not

whether Smoak contravened a valid court ruling and was therefore legally mistaken,

but whether Smoak ignored a district court order from which neither Smoak nor Red

Boots appealed or moved to reconsider. And while the district court generally cannot

infer evident partiality from adverse evidentiary rulings, see id. § 18, it did not base

its finding on such grounds. Indeed, in its order denying Smoak’s and Red Boots’

motions to reconsider, the district court explained that the question of whether its

rbitrability of Paragraph 24 “was within th

(@)
me
Q.

istrict c]ourt’s

authority or was incorrect is irrelevant to the [district cJourt’s current ruling.”

Instead, the district court relied upon the fact “that [Smoak] did not attempt to appeal

or move for reconsideration of the [district c]ourt’s determination and in [RB Award

I] expressly rejected that determination resulting in millions of dollars being

awarded against [Wife] and in favor of Red Boots, of which [Husband] had the

ereater interest, in the years following.”

383 Insofar as Red Boots argues for the applicability of the FAA outside the

context explained above, we first note that the Parties expressly agreed that the

NMUAA shall govern arbitration under the Settlement Agreement. See Strausberg

v. Laurel Healthcare Providers, LLC, 2013-NMSC-032, 4 26, 304 P.3d 409 (“New

Mexico respects party autonomy; the law to be applied to a particular dispute may

be chosen by the parties through a contractual choice-of-law provision.” (internal

quotation marks and citation omitted)). Nonetheless, Red Boots fails to explain to

what extent the FAA should apply. We therefore decline to review this argument

further, see Headley, 2005-NMCA-045, 915 (“We will not review unclear

arguments, or guess at what [a party’s] arguments might be.”’), and proceed to review

the district court’s finding that Smoak proceeded with the RB Arbitration V

notwithstanding the district court’s warning.

—

b. The District Court’s Finding that Smoak Disregarded Its Warning Not
To Proceed with the RB Arbitration V

439} The district court’s finding that Smoak disregarded its warning not to proceed

to__arbitration is supported_by the district __court’s unambiguous statement:

“Conducting further arbitration proceedings while there is a pending motion before

this Court to appoint a different arbitrator may be considered sufficient cause for

postponement. Therefore, if... Smoak chooses to proceed, on a proper motion any

award may be vacated by this Court [under Section 44-7A-24(a)(3)].” In spite of the

district court’s admonition, Smoak proceeded with the RB Arbitration V just days

before the scheduled hearing on Wife’s motion.

{40} Appellants argue there is no legal basis from which the district court could

find evident partiality based on Smoak’s refusal to postpone the RB Arbitration V.

Moreover, Smoak argues that his refusal to postpone arbitration was necessary to

comply with Section 44-7A-16(c) (providing that the arbitrator “may not postpone

the hearing to a time later than that fixed by the agreement to arbitrate for making

the award unless the parties to the arbitration proceeding consent to a later date”),

and the Settlement Agreement, which requires the arbitrator to set arbitration within

Sixty days “after notice by the complaining party of the demand for arbitration.”

Here, again, Appellants misstate the issue, which is not whether the NMUAA

expressly provides that an arbitrator’s refusal to postpone arbitration upon showing

N
—

of sufficient cause for postponement is a sufficient basis for a finding of evident

partiality. Nor is the issue whether Smoak’s refusal to postpone arbitration was done

so-as to. comply with the law and Settlement A

KP ACE. = Se oS 5 oo oe die Ge Goi CH VEE =

by the record.? Rather, the issue is whether Smoak’s conduct in refusing to comply

with the district court’s admonition and proceeding to arbitration while Wife’s

motion to remove him as arbitrator was pending in the district court is evidence from

which a reasonable person would have to conclude that Smoak was partial to the

other party to the arbitration.

3Smoak argues November 18, 2016, was the latest date on which he could
have scheduled arbitration while remaining in compliance with the Settlement
Agreement and thus Section 44-7A-16(c). However, the Settlement Agreement

provides that “[t]he arbitrator shall set the arbitration within sixty (60) days after
notice by the complaining party of the demand for arbitration.” Although Smoak
cites several points in the record purportedly demonstrating his scheduling of

arbitration following a demand for arbitration, these citations demonstrate Smoak’s
attempt to schedule mediation after a demand for mediation was made as well as his
scheduling of arbitration based on the demand for mediation, not arbitration. The

earliest point at which we can find a demand for arbitration that would trigger the
sixty-day limitation period under the Settlement Agreement is October 10, 2016.
Based on the record and citations provided to this Court, we are unable to conclude

that November 18, 2016, was the final date on which Smoak could have scheduled
arbitration. See N.M. Cattle Growers’ Assoc. v. N.M. Water Quality Control
Comm’n, 2013-NMCA-046, ¢ 16, 299 P.3d 436 (recognizing that we will not search

the record for facts to support a party’s arguments).

c. Limitations on the Evidence Considered in the District Court’s Vacatur

214413 —Smoak challenges the district court’s vacatur, arguing the district court must
3} wait until after an award is entered before vacating the award and that the district

court’s review for evident partiality is limited to the arbitrator’s disclosures, to

conduct occurring during the arbitration from which the vacated award originates

and to conduct occurring “in the execution of” the vacated award.

{423 Smoak first argues that the district court “cannot consider vacatur or removal

of an arbitrator for partiality before [alternative dispute resolution] commences.” We

agree that vacatur of an arbitration award cannot occur unless and until an arbitration

award is issued. See Section 44-7A-24(a) (providing circumstances under which the

district court “shall vacate an award made in the arbitration proceeding” (emphasis

added)). However, as we will explain further below, we disagree that the district

court erred in prospectively disqualifying Smoak and Hatch from future arbitrations

under the Settlement Agreement.

{433 Smoak also argues the district court’s review of evident partiality was limited

to whether he disclosed his interests and relationships that might affect his partiality.

To be sure, other jurisdictions have recognized that the failure to disclose

information that would be required under their equivalents to Section 44-7A-13 may

provide evidence to support a finding of evident partiality. /.g., Scandinavian

Reinsurance Co. v. Saint Paul Fire & Marine Ins. Co., 668 F.3d 60, 72 (2d Cir.

2012) (“Among the circumstances under which the evident partiality standard is

likely to_be_met

interest that is strongly suggestive of bias in favor of one of the parties.”); Narayan

v. Assoc. of Apartment Owners of Kapalua Bay Condo., 398 P.3d 664, 673 (Haw.

2017) (‘Evident partiality may be found in two situations: when an arbitrator fails

to make necessary disclosures to the parties, or when additional facts show actual

bias or improper motive, even if the arbitrator makes the necessary disclosures.”’).

Smoak relies on Section 44-7A-13(d), which provides a presumption of evident

partiality under Section 44-7A-24(a)(2) when a neutral arbitrator fails to disclose

certain interests or relationships. However, Smoak cites no authority to support his

argument that the district court’s review of evident partiality is exclusively limited

to such evidence, and we therefore assume no such authority exists. See Curry, 2014-

NMCA-031, 9 28 (“Where a party cites no authority to support an argument, we may

assume no such authority exists.”).

{444 Nor has Smoak cited authority limiting the district court’s consideration of an

arbitrator’s conduct to that which occurs during the arbitration from which the

vacated award originates. See id. Instead, Smoak cites /ernandez v. Farmers

Insurance Company of Arizona, 1993-NMSC-035, 115 N.M. 622, 857 P.2d 22, to

Support the argument that vacatur of an arbitration award “should be based on

conduct or events that occur in the execution of that award. In Fernandez, our

Supreme Court, citing NMSA 1978, Sections 44-7-12, and -13 (1971, repealed
2001), held that “[t]he district court’s review thus is generally limited to allegations
of fraud, partiality, misconduct, excess of powers, or technical problems in the
execution of the award.” 1993-NMSC-035, J 9. Our reading of Fernandez and the
relevant statutory authority, however, leads us to conclude that our Supreme Court’s
use of the phrase “in the execution of the award” was not intended to limit the scope
of a district court’s review for evident partiality, but was directed at the modification
or correction of an arbitration award under Section 44-7-13. Indeed, while Section
44-7-13 appeared to concern matters of technical issues in the execution | of an
arbitration award, Section 44-7-12 neither appears to have contemplated nor limited
by its language the evidence the district court may consider in evaluating claims of
evident partiality. Compare § 44-7-13 (permitting the modification or correction of
an arbitration award where there were errors in the arbitration award or with the
arbitrator’s consideration of matters not submitted to them), with § 44-7-12 (listing
conduct by the arbitrator which are grounds for vacating an arbitration award). We

will therefore not read into Section 44-7-12, nor its amended equivalent Section 44-

_7A-24, language which is not there. See NMSA 1978, § 12-2A-19 (1997) (“The text

of a statute or rule is the primary, essential source of its meaning.””); United Rentals
Nw., Inc. v. Yearout Mech., Inc., 2010-NMSC-030, § 9, 148 N.M. 426, 237 P.3d 728

(“The first guiding principle in statutory construction dictates that we look to the

wording of the statute and attempt to apply the plain meaning rule, recognizing that

when_a statute contains language which is clear and unambiguous

COE So =

effect to that language and refrain from further statutory interpretation.” (alteration,

internal quotation marks, and citation omitted); Regents of the Univ. of N.M. v. N.M.

Fed’n_of Teachers, 1998-NMSC-020, 928, 125 N.M. 401, 962 P.2d 1236

(explaining that “we will not read into a statute or ordinance language which is not

there, particularly if it makes sense as written” (internal quotation marks and citation

omitted)).

{453 Based on the foregoing, we conclude the district court’s findings were

supported by substantial evidence of a clear and convincing nature and that its

finding of evident partiality was not an abuse of discretion. Indeed, Smoak’s

repeated disregard for the district court’s rulings, in favor of Husband and against

Wife, is direct, definite, and demonstrative evidence from which a reasonable person

would have to conclude that Smoak was partial and had improper motives in favor

of Husband and against Wife. Having concluded the district court did not err in

vacating the RB Award IJ, we turn to the question of whether it erred in prospectively

disqualifying Smoak and Hatch from further arbitrations under the Settlement

Agreement.

—

C. ‘The District Court Did Not Err in Prospectively Disqualifying Smoak and
Hatch

{46} Appellants argue the district court was without authority to prospectively

disqualify Smoak and Hatch from future arbitrations conducted pursuant to the

Settlement Agreement. Here, the district court prospectively disqualified Smoak and

Hatch under the court’s equitable authority. “The district courts of this State have

broad jurisdiction—legal and equitable, original and appellate.” State ex rel. State

Highway & Transp. Dep ’t of N.M. v. City of Sunland Park, 2000-NMCA-044, ¢ 10,

129 N.M. 151, 3 P.3d 128. “[O]nly if'a statute so provides with express language or

necessary implication will New Mexico courts be deprived of their inherent

equitable powers.” Sims v. Sims, 1996-NMSC-078, 4 30, 122 N.M. 618, 930 P.2d

153. “[W]Je will not disturb the district court’s exercise of its equitable jurisdiction

on appeal [absent an abuse of discretion].” City of Sunland Park, 2000-NMCA-044,

q 10.

—
Nn

A141 1 41 NIRATTA_A 4 ~ 4 sort _A Lf 41 ~ x44
{47} AIMOUsN Me INMOUAAYA dOes NOt expressly provide for the prospective

disqualification of arbitrators, it does indicate an apparent authorization of such

actions. See § 44-7A-12(b) (defining circumstances under which an individual “may

—
ee)

naAt ru, an_arhit
HO I U

(permitting vacatur of an arbitration award when “a party timely objects to the

i)
—

appointment or continued service of the arbitrator based upon” the arbitrator’s

1} necessarily imply that district courts are prohibited from exercising their equitable
2\_authority to prospectively disqualify arbitrators for evident partiality. We therefore
7 F F 7 be 7 F 7
3] conclude the district court did not abuse its discretion in disqualifying Smoak and
A} Hatch based on its finding of evident partiality.
5| TT. CONCLUSION
6] 483 Finding no error by the district court, we affirm.
7| 493 IT ISSO ORDERED.
8 C pale Cf Vago
9 JULIE J. VARGAS, Judge
10] WE CONCUR:
- / } / f if AAA
ll] 6, AAA “re
12|J. MILES HANISEE, Chief Judge

December 24, 2019- Karen L. Rogers v. Red Boots Investments, L.P., and David Smoak, No. A-1-CA-36309

Texte intégral

OCR transcription for search; preserved printed pages are authoritative

Poursuivez vos recherches dans ChatGPT ou Claude