Jevne v. Superior Court (2005) 35 Cal.4th 935

In this California Supreme Court case, Horvitz & Levy LLP was retained by the Judicial Council of California to file an amicus curiae brief supporting the council’s authority to broadly apply its arbitration standards to private arbitrators appointed by dispute resolution provider organizations. The Supreme Court agreed with the position taken in Horvitz & Levy’s amicus brief. On another issue, the court held that the ethics standards were preempted by federal law in securities arbitrations.

Concerned about the lack of regulation of ethics in private arbitrations, in 2001 the California Legislature enacted a new statute directing the Judicial Council to “adopt ethical standards for all neutral arbitrators.” (Code Civ. Proc., § 1281.85, subd. (a).) The standards that the council adopted apply broadly, covering, among others, arbitrators who are appointed “[b]y a dispute resolution provider organization, under an agreement of the parties.” (Cal. Rules of Court, appen., div. VI, std. 2(a)(1)(C), Ethics Standards for Neutral Arbitrators in Contractual Arbitration.)

The Jevne case involved an arbitrator appointed by a dispute resolution provider organization — the National Association of Securities Dealers (NASD). The defendants claimed, however, that the Judicial Council exceeded its authority in bringing that type of arbitrator within the scope of ethics standards for neutral arbitrators. The defendants argued that the Legislature’s definition of “neutral arbitrator” includes an arbitrator who is selected jointly by the parties or is appointed by the court, but does not include an arbitrator appointed by a dispute resolution provider. (Code Civ. Proc., § 1280, subd. (d) [“neutral arbitrator” is “an arbitrator who is (1) selected jointly by the parties or by the arbitrators selected by the parties or (2) appointed by the court when the parties or the arbitrators selected by the parties fail to select an arbitrator who was to be selected jointly by them”].)

The defendants also contended that, for securities arbitrations, the Judicial Council’s ethics standards are preempted by federal law. The defendants were joined in their contentions by the NASD itself and by the New York Stock Exchange.

On the threshold question of the permissible scope of the Judicial Council’s ethics standards, the Supreme Court agreed with the position urged by Horvitz & Levy LLP, concluding that the statutory direction to “adopt ethical standards for all neutral arbitrators” (Code Civ. Proc., § 1281.85, subd. (a)) authorized the council to apply the standards to an arbitrator appointed by a dispute resolution provider even though such an arbitrator was not expressly within the statutory definition of a “neutral arbitrator.” The Supreme Court explained that a council rule “may be broader than the literal terms of its authorizing statute, provided it reasonably furthers the statutory purpose.” Specifically relying on legislative history that Horvitz & Levy’s amicus brief discussed at length, the Supreme Court further held that “the Legislature . . . intended to authorize the Judicial Council to formulate and adopt ethical standards for neutral arbitrators in private (nonjudicial) arbitration generally, including neutral arbitrators appointed by third-party dispute resolution providers.”

On the issue not addressed in the amicus brief, the Supreme Court held that, in securities arbitrations administered by NASD, California’s arbitrator ethics standards are preempted by the federal Securities Exchange Act of 1934. However, because of the court’s decision upholding the Judicial Council’s authority, those standards should apply to other types of arbitrators appointed by dispute resolution providers, such as the American Arbitration Association.

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