New unpublished UCL "fraudulent" prong decision: Morgan Phillips, Inc. v. JAMS

In the published portion of Morgan Phillips, Inc. v. JAMS/Endispute, ___ Cal.App.4th ___ (Jun. 20, 2006), the Court of Appeal (Second Appellate District, Division Four) rejected the doctrine of "arbitral immunity." That holding got a lot of press, including an article (subscription) from the Recorder entitled "Court: Arbitrators Not Immune From Suits."

In the unpublished portion of the decision, the Court of Appeal held that the plaintiff's UCL "fraudulent" prong claim should be allowed to proceed as well:

If we understand the claim correctly, it is that JAMS permits arbitrators with whom it contracts to retain a “secret right” to withdraw from the arbitration without legal cause. JAMS’ failure to disclose that secret right is misleading, because JAMS’ advertising suggests that its arbitrators reach binding decisions based on the facts and law. We are bound to accept these allegations at face value.

JAMS argues that the law requires arbitrators to withdraw because of a conflict of interest, and that the failure to advertise the law on disqualification cannot be deemed deceptive advertising or an unfair business practice. The flaw in JAMS’ argument is that Morgan Phillips alleges that arbitrators provided by JAMS withdraw from the arbitration without legal cause. Thus, Morgan Phillips does not complain of a failure to disclose the circumstances in which the law requires an arbitrator to withdraw. It complains, rather, that JAMS-affiliated arbitrators have a “secret” practice of withdrawing without legal cause, and that JAMS fails to disclose that practice. Morgan Philips adequately pleads violations of Business and Professions Code section 17200 and 17500.

Slip op. at 12-13.