Mills and Woods v. Weiss ( 2022 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
MILLS AND WOODS LAW PLLC, Plaintiff/Appellee,
v.
MARK WEISS, et al., Defendants/Appellants.
No. 1 CA-CV 21-0403
FILED 10-04-2022
Appeal from the Superior Court in Maricopa County
No. CV2020-095587
The Honorable Tracey Westerhausen, Judge
AFFIRMED
COUNSEL
Stone Canyon Law, PLC, Mesa
By Taylor W. Tondevold, Rylan J. Stewart
Counsel for Plaintiff/Appellee
Ahwatukee Law Office, P.C., Phoenix
By David L. Abney
Co-Counsel for Defendants/Appellants
Wilenchik & Bartness, P.C., Phoenix
By Dennis I. Wilenchik
Co-Counsel for Defendants/Appellants
MILLS and WOODS v. WEISS, et al.
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Maria Elena Cruz delivered the decision of the Court, in
which Judge Angela K. Paton and Judge Samuel A. Thumma joined.
C R U Z, Judge:
¶1 Mark Weiss, Shari Weiss, and Nesco Investment, LLC
(collectively “Nesco”) appeal the superior court’s orders confirming an
arbitration award in favor of Mills and Woods Law PLLC (“Mills and
Woods”) and denying their motion to vacate the award. For the following
reasons, we affirm.
FACTUAL AND PROCEDURAL HISTORY
¶2 In 2017, Nesco retained Mills and Woods to represent them in
a civil lawsuit. The parties’ written representation agreement (“the
Agreement”), contained a detailed provision requiring any disputes
between Nesco and Mills and Woods arising out of representation to be
submitted to binding arbitration, “including, without limitation, issues as
to legal fees and costs and claims for professional malpractice . . . .” Under
the Agreement, each side had a right to name a party-designated arbitrator,
provided the arbitrators selected were “disinterested individuals
knowledgeable in disputes between legal counsel and clients,” with “not
less than fifteen (15) years’ experience in litigating, arbitrating or
adjudicating disputes between legal counsel and clients . . . .” If the two
party-designated arbitrators could not agree on the resolution of a dispute,
they would jointly select a third arbitrator and, collectively, the three
arbitrators would resolve the dispute.
¶3 When Nesco failed to pay its invoices for legal services, Mills
and Woods served Nesco with a demand for arbitration. Nesco responded
to the demand and brought a counterclaim for malpractice. Mills and
Woods named William Klain as its party-designated arbitrator and Nesco
named two possible party-designated arbitrators, although it ultimately
selected Lawrence H. Fleischman.
¶4 In the response, Nesco objected to Klain, asserting Klain was
a relative of and had represented Russell Piccoli, an attorney who had sued
the Weisses. Mark Weiss, who is also an attorney, later sent an email to the
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Decision of the Court
parties and Klain requesting Klain recuse himself because of his
relationship with Piccoli. Klain responded and further disclosed that “Mills
& Wood[s] (and its various attorneys) have been opposing counsel on a
number of actions in which I have been involved over the past several years.
By virtue of such contact, I have gotten to know Mr. Woods and Mr. Mills
and have on occasion socialized with them.” Klain ultimately determined
that he did not have any conflict that would prevent him from serving as
arbitrator and further disclosed that he had engaged Fleischman as a
mediator in the past. Nesco did not file a motion to disqualify Klain or
object to his participation based on his relationship with Mills and Woods
until after the two party-designated arbitrators issued their award.
¶5 The arbitrators held an evidentiary hearing and issued an
award in October 2020 finding in favor of Mills and Woods on its claim for
breach of contract, and against Nesco on its counterclaim alleging
malpractice. The arbitrators reduced the amount of fees sought by Mills
and Woods by nearly twenty percent, awarding it $220,000 plus post-award
interest, but did not award Mills and Woods attorneys’ fees and costs in
connection with the arbitration proceedings.
¶6 Later that month, Mills and Woods filed an application for
confirmation of the arbitration award.1 In December 2020, Nesco moved to
vacate the award, or alternatively to stay it. Nesco argued that (1) arbitrator
Klain was not neutral and had failed to disclose in sufficient detail his
relationship with Mills and Woods, (2) the arbitrators failed to postpone the
arbitration hearing after Nesco provided sufficient cause for postponement
of the hearing, and (3) the arbitrators exceeded their power under the
Agreement. Mills and Woods countered that Klain’s relationship with
Mills and Woods was insubstantial, had been disclosed, and Nesco’s only
objection to Klain serving as an arbitrator had been his relationship with
Piccoli. In reply, Nesco disputed that Klain’s relationship with Mills and
Woods was insubstantial, noting that Klain’s Facebook page showed that
Klain and Sean Woods were Facebook friends, that Klain had thanked
Woods on Facebook for tickets to a Rolling Stones concert in August 2019,
and that Woods had “liked” or otherwise reacted to a number of Klain’s
1 Mills and Woods sought confirmation under Arizona’s Uniform
Arbitration Act, see A.R.S. § 12-1501 et seq., when (given the dates involved)
the applicable statute is Arizona’s Revised Uniform Arbitration Act, see
A.R.S. § 12-3003. The parties, however, have not asserted that the
substantive provisions of the revised act, which govern this dispute, differ
in any meaningful way.
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Decision of the Court
Facebook posts, including a post dated August 4, 2020, about the death of
Klain’s cat.
¶7 After evidentiary hearings in February and April 2021,2 the
superior court confirmed the award and denied the motion to vacate. The
court found that Klain was a “disinterested” arbitrator within the meaning
of the Agreement, and that if Nesco had believed Klain’s disclosure about
Mills and Woods was insufficient and “vague and ambiguous, then the time
to explore and object to that defect was [during the arbitration proceeding],
not now.” After entry of a final judgment, we have jurisdiction over
Nesco’s appeal pursuant to Arizona Revised Statutes (“A.R.S.”) sections 12-
2101(A)(1), -2101.01(A)(6).
DISCUSSION
I. Arbitrator’s Disclosure
¶8 Nesco first argues Klain failed to fully disclose his personal
connections with Mills and Woods, that he was not a “disinterested
individual” under the Agreement and the facts evidence partiality that
warrants vacating the arbitration award. We review the superior court’s
order confirming an arbitration award or denying a motion to vacate an
award for an abuse of discretion. Chang v. Siu, 234 Ariz. 442, 448, ¶ 23 (App.
2014); Fisher v. USAA Cas. Ins. Co., 245 Ariz. 270, 272, 274, ¶¶ 9, 18 (App.
2018).
¶9 “[T]he goal of arbitration is to make a final disposition of
controversies in a speedier, less expensive manner than is available under
normal litigation proceedings.” Pima County v. Maya Constr. Co., 158 Ariz.
151, 154 (1988). The law favors arbitration in disputes that the parties have
agreed to arbitrate. Allstate Prop. & Cas. Ins. Co. v. Watts Water Techs., Inc.,
244 Ariz. 253, 257, ¶ 10 (App. 2018). The party challenging an arbitration
award has the burden of proving the existence of grounds to vacate the
award. Wages v. Smith Barney Harris Upham & Co., 188 Ariz. 525, 530 (App.
1997). As Nesco acknowledges, “[t]he superior court may reject an
arbitration award only on narrow statutorily enumerated grounds.” Nolan
v. Kenner, 226 Ariz. 459, 461, ¶ 5 (App. 2011).
2 At the April 2021 hearing, Klain testified that he had over 500
Facebook friends and had socialized with Woods approximately six times
in the six years he had known Woods. He did not consider Woods a close
friend.
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Decision of the Court
¶10 Under Arizona’s Revised Uniform Arbitration Act (the Act),
A.R.S. §§ 12-3001 to -3029, “[a]n individual who has a known, direct and
material interest in the outcome of the arbitration proceeding or a known,
existing and substantial relationship with a party may not serve as an
arbitrator required by an agreement to be neutral.” A.R.S. § 12-3011(B). The
Act imposes disclosure requirements on arbitrators and prospective
arbitrators:
A. Before accepting appointment, an individual who is
requested to serve as an arbitrator, after making a reasonable
inquiry, shall disclose to all parties to the agreement to
arbitrate, to the arbitration proceeding and to any other
arbitrators any known facts that a reasonable person would
consider likely to affect the impartiality of the arbitrator in the
arbitration proceeding, including both:
1. A financial or personal interest in the outcome of the
arbitration proceeding.
2. An existing or past relationship with any of the parties to
the agreement to arbitrate or the arbitration proceeding, their
counsel or representatives, a witness or another arbitrator.
A.R.S. § 12-3012(A). “If an arbitrator discloses a fact required by subsection
A or B of [A.R.S. § 12-3012] and a party timely objects to the appointment
or continued service of the arbitrator based on the fact disclosed, the
objection may be a ground under § 12-3023, subsection A, paragraph 2 for
vacating an award made by the arbitrator.” A.R.S. § 12-3012(C) (emphasis
added). The Act provides that the superior court “shall” vacate an
arbitration award in certain limited circumstances, including (1) when there
was “[e]vident partiality by an arbitrator appointed as a neutral arbitrator,”
(2) when “[a]n arbitrator refused to postpone the hearing on showing of
sufficient cause for postponement,” and (3) when an arbitrator exceeds the
powers of the arbitrator. A.R.S. § 12-3023(A)(2)(a), (3), (4). When an
agreement requires an arbitrator “to be neutral,” “[a]n arbitrator appointed
as a neutral arbitrator who does not disclose a known, direct and material
interest in the outcome of the arbitration proceeding or a known, existing
and substantial relationship with a party is presumed to act with evident
partiality under § 12-3023, subsection A, paragraph 2.” A.R.S. § 12-3012(E)
(emphasis added).
¶11 “[I]n determining whether ‘evident partiality’ exists, courts
take a case-by-case approach.” Wages, 188 Ariz. at 531. Whether evident
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Decision of the Court
partiality exists is “highly dependent on the unique factual settings of each
particular case.” Id. (citation omitted). “Evident partiality” is distinct from
actual bias. Commonwealth Coatings Corp. v. Cont’l Cas. Co., 393 U.S. 145, 147
(1968) (under the Federal Arbitration Act (“FAA”), party seeking to vacate
an arbitration award for evident partiality need not show that the arbitrator
“was actually guilty of fraud or bias in deciding th[e] case.”). “[E]vident
partiality is present when undisclosed facts show a reasonable impression
of partiality.” Schmitz v. Zilveti, 20 F.3d 1043, 1046 (9th Cir. 1994)
(construing FAA) (citations and internal quotation marks omitted).
¶12 Parties must, when possible, raise their complaints about the
arbitration during the arbitration process itself. “[P]arties who know or
have reason to know of possible partiality must raise an objection with the
arbitrator during the course of the arbitration proceeding . . . [i]t would
defeat th[e] primary purpose [of arbitration] to allow parties to withhold
such objections until after an unfavorable award.” Fisher, 245 Ariz. at 273,
¶ 14. “Ensuring prompt, efficient, and inexpensive dispute resolution . . .
requires parties to raise objections to be handled by the arbitrator during
the proceedings to avoid unnecessary and protracted litigation.” Id.
(citation and internal quotation marks omitted).
¶13 Citing A.R.S. § 12-3012(E), Nesco argues the superior court
should have vacated the award because this is a “nondisclosure” case
requiring a presumption of evident partiality. Klain, however, disclosed
that he had known both Mills and Woods for several years, had served as
opposing counsel on cases with them, and had occasionally socialized with
them. The disclosure provided the general nature and scope of the
relationship and complied with A.R.S. § 12-3012(A). None of the evidence
cited by Nesco, including the Facebook relationship with Woods, the night
out in 2019 including dinner, drinks and a concert, and several other in-
person social contacts occurring “long before” the arbitration, is
inconsistent with that disclosure. After Klain’s disclosure, Nesco did not
timely object to Klain’s appointment based on his social relationship with
Mills and Woods or ask Klain for additional details about the relationship.3
Instead, Nesco fully participated in the arbitration proceedings and did not
raise any issue about the disclosed relationship with Mills and Woods until
after the arbitrators issued their award. Because it was on notice, Nesco
should have raised its objection to Klain based on his relationship with
Mills and Woods or sought further details during the arbitration
3 Nesco’s claim that Klain “deliberately refused” to disclose any
substantive details about his relationship is not supported by the record.
Nor is its claim that Klain and Woods had a “deep friendship.”
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Decision of the Court
proceeding. See Fisher, 245 Ariz. at 273, ¶ 14. We find no abuse of discretion
in the superior court’s decision not to vacate the arbitration award.
II. Failure to Postpone
¶14 Nesco next argues the superior court erred in its decision not
to vacate the award because the arbitrators refused to postpone the
arbitration hearing. See A.R.S. § 12-3023(A)(3) (“On motion to the court by
a party to an arbitration proceeding, the court shall vacate an award made
in the arbitration proceeding if . . . [a]n arbitrator refused to postpone the
hearing on showing of sufficient cause for postponement . . . so as to
prejudice substantially the rights of a party to the arbitration proceeding.”).
¶15 Without citation to the record, Nesco argues that it asked the
arbitrators to postpone or stay the arbitration hearing because the case
underlying its malpractice claim against Mills and Woods, World Egg Bank,
Inc. v. Nesco Investments, LLC, 251 Ariz. 377 (App. 2021), was still pending
on appeal. In its motion to vacate the arbitration award, Nesco argued that
it had provided the arbitrators with sufficient cause for postponement in its
June 3, 2020 response to the demand for arbitration based on the following
statement:
At this juncture, I must point out that Nesco is appealing
Judge Whitten’s decision on valuation. Since Mills & Woods
elected to initiate the arbitration before knowing the results of
the appeal [in World Egg Bank, Inc.], we are now forced to
bring our malpractice claim. We cannot wait for the results of
the appeal to fully evaluate their malpractice. Due to Mills &
Woods decision to initiate arbitration before conclusion of the
appeal, they have waived any benefit that might have accrued
pending the results of the appeal.
The superior court found that nothing in the record showed that Nesco
moved to postpone or stay the arbitration hearing before the arbitration
award, and instead found the June 3, 2020 answer showed that Nesco had
pursued its malpractice claim in the arbitration proceedings. The court
found that Nesco waived its postponement argument. We agree that Nesco
waived its postponement argument by affirmatively bringing its
malpractice claim in the arbitration proceeding and not seeking a
continuance. The record further supports this conclusion. In its September
21, 2020 response brief, Nesco wrote the following:
As discussed in the emails and conference call prior to the
Opening Briefs, this arbitration is independent of the appeal.
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Decision of the Court
It was Mills & Woods decision to force binding arbitration
prior to the final appellate court ruling. Nesco should not be
made to suffer in that it was Mills & Woods who forced the
timing of this dispute. Therefore, Nesco requests that the total
payment to Nesco from Mills & Woods, as a result of this
binding arbitration, be immediately due and payable.
We find no abuse of discretion.
III. Exceeding Powers
¶16 Nesco next argues the superior court erred by failing to vacate
the arbitration award under A.R.S. § 12-3023(A)(4) because the arbitrators
exceeded their powers under the Agreement. See A.R.S. § 12-3023(A)(4) (on
motion to the court, the court shall vacate an arbitration award if “[a]n
arbitrator exceeded the arbitrator’s powers.”). It contends the arbitrators
exceeded their powers by (1) failing to appoint a third arbitrator after
arbitrator Fleischman “determined that he could not reach a decision on the
matters in dispute”; (2) holding an evidentiary hearing more than twenty
days after the arbitrators received the demand for arbitration and answer;
and (3) failing to allow post-hearing briefing. It cites no legal authority
other than section 12-3023(A)(4) for its argument.
¶17 We agree with the superior court’s assessment that the email
cited by Nesco did not “reveal[] an impasse between [Fleischman] and
Arbitrator Klain, or one that only a third arbitrator could resolve.” In that
email, Fleischman informed the parties about a conference call for the
parties “to discuss how best to proceed,” given that the parties wanted to
resolve their disputes “as quickly and inexpensively as possible.”
Fleischman then stated, “Perhaps some more briefing and oral argument
can result in a unanimous decision. The process described in 4.1(b) seems
only to apply if a third arbitrator is necessary. We need to discuss if it
makes sense for another arbitrator to be selected now to avoid having to do
things twice, but those issues can be dealt with in the conference call.” As
the superior court noted, Nesco failed to cite to any objection it made about
proceeding with two arbitrators instead of three or about the procedures
the arbitrators followed. Nor does it do so on appeal. Similarly, Nesco
cannot square its argument (addressed in the previous section) that the
hearing should have been continued with its argument here that the
hearing was not held promptly enough. Nor has Nesco shown that any
refusal to allow post-hearing briefing precluded the superior court’s
rulings. Nesco has shown no abuse of discretion in the superior court’s
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Decision of the Court
decision declining to vacate the award based on the arbitrators exceeding
their powers.
IV. Null and Void
¶18 Finally, Nesco argues the arbitrator’s decision, which found
that Mills and Woods’ representation of Nesco did not fall below the
standard of care, is null and void because it was incompatible with this
court’s opinion in World Egg Bank, Inc. According to Nesco, “the outcome
of [World Egg Bank, Inc.] was an implicit recognition that [Mills and Woods]
had committed malpractice by, as the arbitrators themselves had
concluded, believing that April 17, 2015 was the fair-value valuation date
and litigating the underlying case based on that fallacious and incompetent
belief.” Nesco cites no legal authority other than World Egg Bank, Inc. for its
argument. Even if Nesco has not waived this argument on review, nothing
in World Egg Bank, Inc. compels a conclusion that Mills and Woods
committed legal malpractice. Any alleged malpractice on the part of Mills
and Woods was not an issue raised by any party to the World Egg Bank, Inc.
appeal, and Nesco prevailed in that appeal. Nesco has not shown that the
arbitration award is null and void.
V. Attorneys’ Fees
¶19 Mills and Woods seeks an award of attorneys’ fees pursuant
to A.R.S. § 12-341.01(A) and costs pursuant to A.R.S. §§ 12-331, -341, -342.
As the successful party, Mills and Woods is entitled to costs pursuant to
A.R.S. § 12-341 and in our discretion, we award it reasonable attorneys’ fees
upon compliance with ARCAP 21.
CONCLUSION
¶20 For the foregoing reasons, we affirm.
AMY M. WOOD • Clerk of the Court
FILED: JT
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