Johnson v. Gruma Corp.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

DENNIS JOHNSON, 
Plaintiff,
and
ARNOLD ROSENFELD, individually
and on behalf of others similarly
situated,
Plaintiff-Appellant, No. 08-56911
v.
 D.C. No.
2:02-cv-08557-R-E
GRUMA CORPORATION, a Nevada
corporation, DBA Mission Foods OPINION
Corporation,
Defendant-Appellee,
and
GRUMA S. A. DE C. V., a Mexican
corporation,
Defendant.

Appeal from the United States District Court
for the Central District of California
Manuel L. Real, District Judge, Presiding

Argued and Submitted
March 4, 2010—Pasadena, California

Filed August 13, 2010

Before: Alex Kozinski, Chief Judge, William A. Fletcher,
Circuit Judge, and John R. Tunheim, District Judge.*

*The Honorable John R. Tunheim, United States District Judge for the
District of Minnesota, sitting by designation.

11641
11642 ROSENFELD v. GRUMA CORPORATION
Opinion by Judge William A. Fletcher
11644 ROSENFELD v. GRUMA CORPORATION

COUNSEL

Jonathan Weiss (argued), LAW OFFICE OF JONATHAN
WEISS, Los Angeles, California, for the appellant.

Rex Heinke (argued), R.D. Kirwan, AKIN GUMP STRAUSS
HAUER & FELD LLP, Los Angeles, California, Paul Gross-
man, PAUL HASTINGS JANOFSKY & WALKER LLP, Los
Angeles, California, Gregory S.C. Huffman, Nicole L. Wil-
liams, THOMPSON & KNIGHT LLP, Dallas, Texas, for the
appellee.

OPINION

W. FLETCHER, Circuit Judge:

Plaintiff-Appellant Arnold Rosenfeld appeals the district
court’s confirmation of an arbitration award in favor of
Defendant-Appellee Gruma Corporation. Rosenfeld was one
of two class representatives in an action against Gruma. The
matter was submitted to binding arbitration, and the arbitrator
found for Gruma. The district court confirmed the arbitrator’s
award over Rosenfeld’s objection.

Rosenfeld argues, first, that California law provides the
standard for vacatur of the award; second, that vacatur is
 ROSENFELD v. GRUMA CORPORATION 11645
required under California law because the arbitrator failed to
disclose a ground for his disqualification; and, third, that
vacatur is required because the arbitrator exceeded his pow-
ers. We agree with the first argument, but disagree with the
second and third. We therefore affirm the district court.

I. Background

Appellant Arnold Rosenfeld is one of two plaintiff repre-
sentatives in a class action against Gruma. The plaintiff class
members are drivers (“distributors”) who deliver products to
Gruma’s customers. Each distributor signed a “Store Door
Distributor Agreement” with Gruma. The agreement states
that the distributors are independent contractors.

Dennis Johnson filed a class action in California Superior
Court against Gruma in 2001. The action alleged that Gruma
“misrepresent[ed] to Claimants and Class Members that
Claimants and Class Members were and/or are independent
contractors when they were and/or are, in fact, employees.”
The complaint included claims of breach of contract, labor
code violations including failure to pay agreed wages and
overtime pay and failure to provide meal and rest breaks, and
unfair business practices. Gruma removed the suit to federal
district court. Upon Gruma’s motion, the district court ordered
the claims submitted to binding arbitration.

The case was assigned to arbitrator Richard Neal, a retired
justice of the California Court of Appeal. On August 5, 2002,
the arbitrator held that the California Arbitration Act gov-
erned the proceedings. The arbitrator then stayed the arbitra-
tion to allow a judicial determination whether the arbitration
agreement permitted class-wide arbitration. The district court
prohibited arbitration of class-wide claims and dismissed the
complaint with prejudice. We vacated and remanded to the
district court in light of the Supreme Court’s decision in
Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003).
See Johnson v. Gruma Corp., 123 Fed. App’x 786, 788 (9th
11646 ROSENFELD v. GRUMA CORPORATION
Cir. 2005). On remand, the district court returned the case to
arbitration.

In March 2007, the arbitrator certified a nationwide class
action, designating Johnson and Rosenfeld as class represen-
tatives. After a hearing in April 2007, the arbitrator reconsid-
ered the certification and limited the class to Gruma
distributors in California. Attorney Paul Grossman argued
Gruma’s case for reconsideration at the April 2007 hearing.
On August 12, 2008, the arbitrator found for Gruma, conclud-
ing that the distributors “properly are classified as indepen-
dent contractors” rather than employees. The district court
confirmed the arbitration award.

Rosenfeld timely appealed. Johnson did not appeal.

II. Standard of Review

We review de novo the district court’s confirmation of an
arbitration award. Poweragent Inc. v. Elec. Data Sys. Corp.,
358 F.3d 1187, 1193 (9th Cir. 2004). Our review of the award
itself is highly limited. See, e.g., Moncharsh v. Heily & Blase,
3 Cal. 4th 1, 11 (1992) (“[I]t is the general rule that, with nar-
row exceptions, an arbitrator’s decision cannot be reviewed
for errors of fact or law.”).

III. Discussion

A. State or Federal Arbitration Rules

The arbitration clause in the parties’ agreement requires
that arbitration be “conducted and subject to enforcement pur-
suant to the provisions of California Code of Civil Procedure
sections 1280 through 1295, or other applicable law.” The
specified code sections comprise the California Arbitration
Act (“CAA”). The arbitrator interpreted this clause as an
agreement that California arbitration rules would govern the
conduct of the arbitration.
 ROSENFELD v. GRUMA CORPORATION 11647
The parties dispute whether the district court should have
applied the CAA or Federal Arbitration Act (“FAA”) disclo-
sure and vacatur standards when deciding whether to confirm
the arbitration award. Rosenfeld contends that because Cali-
fornia law governed the arbitration, the district court should
have applied the CAA standards. Gruma contends that
because the arbitration agreement recognizes the application
of “other applicable law,” the FAA’s rules apply.

The CAA and the FAA provide different grounds for vaca-
tur of an arbitration award. The CAA provides that a court
reviewing an arbitration award shall vacate the award if the
court determines:

(1) The award was procured by corruption, fraud or
other undue means.

(2) There was corruption in any of the arbitrators.

(3) The rights of the party were substantially preju-
diced by misconduct of a neutral arbitrator.

(4) The arbitrators exceeded their powers and the
award cannot be corrected without affecting the mer-
its of the decision upon the controversy submitted.

(5) The rights of the party were substantially preju-
diced by the refusal of the arbitrators to postpone the
hearing upon sufficient cause being shown therefor
or by the refusal of the arbitrators to hear evidence
material to the controversy or by other conduct of
the arbitrators contrary to the provisions of this title.

(6) An arbitrator making the award either: (A) failed
to disclose within the time required for disclosure a
ground for disqualification of which the arbitrator
was then aware; or (B) was subject to disqualifica-
tion upon grounds specified in Section 1281.91 but
11648 ROSENFELD v. GRUMA CORPORATION
failed upon receipt of timely demand to disqualify
himself or herself as required by that provision. . . .

Cal. Civ. Proc. Code § 1286.2(a). These statutory grounds are
the exclusive grounds for judicial review of arbitration
awards. Moncharsh, 3 Cal. 4th at 11.

The FAA provides that a district court may vacate an arbi-
tration award:

(1) where the award was procured by corruption,
fraud, or undue means;

(2) where there was evident partiality or corruption
in the arbitrators . . . ;

(3) where the arbitrators were guilty of . . . misbe-
havior by which the rights of any party have been
prejudiced; or

(4) where the arbitrators exceeded their powers, or
so imperfectly executed them that a mutual, final,
and definite award upon the subject matter submitted
was not made.

9 U.S.C. § 10(a). The scope of a confirmation proceeding
applying these factors is “extremely limited.” G.C. & K.B.
Invs., Inc. v. Wilson, 326 F.3d 1096, 1105 (9th Cir. 2003); see
also Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S.
576, 585 (2008).

[1] The agreement in this case is a contract “evidencing a
transaction involving commerce” that comes within the pur-
view of the FAA. See 9 U.S.C. § 2. “The FAA, while it does
not itself create independent federal jurisdiction, ‘creates a
body of federal substantive law establishing and regulating’
arbitration agreements that come within the FAA’s purview.”
Wilson, 326 F.3d at 1105 (quoting Moses H. Cone Mem’l
 ROSENFELD v. GRUMA CORPORATION 11649
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983)).
When an agreement falls within the purview of the FAA,
there is a “strong default presumption . . . that the FAA, not
state law, supplies the rules for arbitration.” Sovak v. Chugai
Pharm. Co., 280 F.3d 1266, 1269 (9th Cir. 2002). “To over-
come that presumption, parties to an arbitration agreement
must evidence a ‘clear intent’ to incorporate state law rules
for arbitration.” Fid. Fed. Bank, FSB v. Durga Ma Corp., 386
F.3d 1306, 1311 (9th Cir. 2004) (quoting Sovak, 280 F.3d at
1269).

[2] “[A] general choice-of-law clause within an arbitration
provision does not trump the presumption that the FAA sup-
plies the rules for arbitration.” Sovak, 280 F.3d at 1270; see
also Fid. Fed. Bank, 386 F.3d at 1312. In Fidelity Federal
Bank, we considered an arbitration clause providing that con-
troversies were to be resolved “in accordance with the laws of
the State of California and the rules of the American Arbitra-
tion Association.” 386 F.3d at 1312 (internal quotation marks
omitted). We saw no “clear intent” to incorporate California
arbitration rules and therefore read the agreement as electing
state substantive law and federal procedural rules. Id. at 1311-
12; see also Sovak, 280 F.3d at 1270 (reaching the same con-
clusion under a similar arbitration provision).

[3] In this case, however, the arbitration clause is more
than a general choice-of-law provision. It requires arbitration
to be “conducted and subject to enforcement pursuant to the
provisions of California Code of Civil Procedure sections
1280 through 1295, or other applicable law.” The arbitrator
read the arbitration clause to mean that the parties intended to
be governed by the CAA’s rules. We agree. The clause exhib-
its the parties’ “clear intent” that the CAA’s procedures shall
govern.

[4] We have previously held that where the FAA’s rules
control arbitration proceedings, a reviewing court must also
apply the FAA standard for vacatur. Fid. Fed. Bank, 386 F.3d
11650 ROSENFELD v. GRUMA CORPORATION
at 1312 (where FAA rules apply, “[w]e look to the FAA and
federal law to determine whether [the arbitrator] was evi-
dently partial, whether vacation of the arbitration award was
required and whether Fidelity’s evident partiality challenge is
waived”). The converse of that holding applies here. Where
state arbitration rules control arbitration proceedings, we must
apply the state vacatur standard.

B. Grounds for Vacatur

Applying the CAA vacatur standard, we conclude that
Rosenfeld has failed to demonstrate that the district court
erred in confirming the award. First, the arbitrator did not vio-
late California disclosure rules. Second, the arbitrator did not
exceed his powers.

1. Disclosure

In March 2007, five years into the arbitration, Paul Gross-
man, a partner at Paul Hastings, Janofsky & Walker (“Paul
Hastings”), became one of Gruma’s counsel. The arbitrator’s
wife, Barbara A. Reeves Neal, had been a partner at Paul Has-
tings from 1997-1999. Grossman and Reeves were listed
together as co-counsel for at least one case litigated by Paul
Hastings. See Lane v. Hughes Aircraft Co., 22 Cal. 4th 405,
408 (2000). The arbitrator did not disclose to the parties his
wife’s prior relationship with Grossman.

[5] Rosenfeld contends that the arbitrator’s failure to dis-
close this relationship constitutes grounds for mandatory
vacatur under the CAA, Cal. Civ. Proc. Code § 1286.2(a)(6).
Section 1286.2(a)(6)(A) provides that a reviewing court “shall
vacate the award if the court determines . . . [a]n arbitrator
making the award . . . failed to disclose within the time
required for disclosure a ground for disqualification of which
the arbitrator was then aware.”

There are two kinds of disclosures relevant to this dispute
— initial disclosures and supplemental disclosures. Initial dis-
 ROSENFELD v. GRUMA CORPORATION 11651
closure requirements are set forth in California Code of Civil
Procedure § 1281.9. That section begins:

In any arbitration pursuant to an arbitration agree-
ment, when a person is to serve as a neutral arbitra-
tor, the proposed neutral arbitrator shall disclose all
matters that could cause a person aware of the facts
to reasonably entertain a doubt that the proposed
neutral arbitrator would be able to be impartial,
including all of the following . . .

Id. § 1281.9(a). Required disclosures include “[a]ny profes-
sional or significant personal relationship the proposed neutral
arbitrator or his or her spouse . . . has or has had with any
party to the arbitration proceeding or lawyer for a party.” Id.
§ 1281.9(a)(6). The proposed arbitrator must “disclose all
matters required to be disclosed pursuant to this section to all
parties in writing within 10 calendar days of service of notice
of the proposed nomination or appointment.” Id. § 1281.9(b).

[6] Initial disclosures under § 1281.9 are provided to assist
the parties in determining whether to accept a particular per-
son as an arbitrator. The wording of § 1281.9 makes clear that
its disclosure requirements apply only at the beginning of the
arbitration process. For example, § 1281.9(a) provides,
“[W]hen a person is to serve as a neutral arbitrator, the pro-
posed neutral arbitrator shall disclose . . . .” (emphasis added).
Section 1281.9(b) provides that the “proposed neutral arbitra-
tor shall disclose all matters required to be disclosed . . .
within 10 calendar days of service of notice of the proposed
nomination or appointment.” (emphasis added). The arbitrator
completed his initial disclosures in May 2002. There is no dis-
pute that the arbitrator made all required initial disclosures.
The question at issue is whether the arbitrator made sufficient
supplemental disclosures later in the arbitration.

[7] Supplemental disclosures are governed by § 1281.85 of
the CAA and by the Ethics Standards implemented in accor-
11652 ROSENFELD v. GRUMA CORPORATION
dance with that section. Section 1281.85 provides that “a per-
son serving as a neutral arbitrator pursuant to an arbitration
agreement shall comply with the ethics standards for arbitra-
tors adopted by the Judicial Council pursuant to this section.”
Cal. Civ. Proc. Code § 1281.85(a). The Ethics Standards
adopted by the Judicial Council under § 1281.85(a) “supple-
ment and expand the statutory listing of required disclosures
contained in [§ 1281.9(a)].” Ovitz v. Schulman, 133 Cal. App.
4th 830, 839 (2005). Unlike § 1281.9, the Ethics Standards
impose a “continuing duty” of disclosure. Id. at 840; see Eth-
ics Std. 7(f) (an arbitrator’s duty to disclose matters is “a con-
tinuing duty, applying from service of the notice of the
arbitrator’s proposed nomination or appointment until the
conclusion of the arbitration proceeding”).

[8] In March 2007, when Grossman joined as counsel for
Gruma, the arbitrator provided supplemental disclosures.
However, he did not disclose his wife’s connection to Gross-
man or to Paul Hastings as part of these supplemental disclo-
sures. None of the Ethics Standards required a supplemental
disclosure of the relationship between Grossman and the wife
of the arbitrator.

[9] Ethics Standard 7(d)(2)(C) requires disclosure if the
arbitrator or the arbitrator’s spouse is “[c]urrently associated
in the private practice of law with a lawyer in the arbitration.”
The arbitrator’s wife was not “currently associated” with
Grossman or with Paul Hastings at the time of the arbitration.
Ethics Standard 7(d)(8)(C) requires disclosure if “[t]he arbi-
trator or a member of the arbitrator’s immediate family is or,
within the preceding two years, was an employee of or an
expert witness or a consultant for a lawyer in the arbitration.”
Even if this section applies to a lawyer whose partner repre-
sents a party to the arbitration (a question we do not decide),
it does not apply in this case. The arbitrator’s wife’s employ-
ment at Paul Hastings ended more than two years before
Grossman became involved in the arbitration.
 ROSENFELD v. GRUMA CORPORATION 11653
[10] Ethics Standard 7(d)(14)(A) requires disclosure of
“[a]ny other matter that . . . [m]ight cause a person aware of
the facts to reasonably entertain a doubt that the arbitrator
would be able to be impartial.” Rosenfeld contends that “the
arbitrator’s wife’s undisclosed partnership with Gruma’s
counsel conclusively creates apparent bias — or, at least,
doubt about impartiality.” We disagree. Rosenfeld has not
demonstrated that the relationship would create a reasonable
impression of partiality on the part of the arbitrator. The pro-
fessional relationship between the arbitrator’s wife and Gross-
man ended eight years before Grossman began to represent
Gruma in the arbitration. Rosenfeld does not provide any evi-
dence that the connections between the arbitrator’s wife and
Grossman were more significant or substantial than one case
in which they were both listed as attorneys. See Guseinov v.
Burns, 145 Cal. App. 4th 944, 959 (2006) (only “significant
or substantial business relationships” must be disclosed). Nor
does Rosenfeld demonstrate that the arbitrator’s wife’s con-
nection with Paul Grossman “color[ed] the arbitrator’s judg-
ment,” see Luster v. Collins, 15 Cal. App. 4th 1338, 1345
(1993), in his ruling in favor of Gruma.

Finally, Ethics Standard 7(d)(3) requires disclosure if “[t]he
arbitrator or a member of the arbitrator’s immediate family
has or has had a significant personal relationship with any
party or lawyer for a party.” Rosenfeld did not argue below
or in his briefs here that there was a “significant personal rela-
tionship” between Grossman and the arbitrator’s wife that
would have to be disclosed under Ethics Standard 7(d)(3).
Rosenfeld’s counsel hinted at that possibility for the first time
at oral argument, so any such argument was waived. Butler v.
Curry, 528 F.3d 624, 642 (9th Cir. 2008).

We note that Rosenfeld’s attorney was well aware of the
relationship between the arbitrator’s wife and Grossman long
before he raised the issue. He informed us at oral argument
that he learned of the relationship at least “a year or two”
before the arbitrator decided the dispute. Rosenfeld’s failure
11654 ROSENFELD v. GRUMA CORPORATION
to raise the issue until after the arbitrator ruled suggests two
things: First, it suggests that Rosenfeld did not himself
believe that the relationship rose to a level that required dis-
closure under any of the applicable standards. Second, it sug-
gests that Rosenfeld may have been sand-bagging, holding his
objection in reserve in the event that he did not prevail in the
arbitration. Even if disclosure had been required, we would
hold that Rosenfeld waived any objection by not raising it in
a timely fashion. See, e.g., Dornbirer v. Kaiser Found. Health
Plan, Inc., 166 Cal. App. 4th 831, 846 (2008); Britz, Inc. v.
Alfa-Laval Food & Dairy Co., 34 Cal. App. 4th 1085, 1096-
97 (1995); cf. Fid. Fed. Bank, 386 F.3d at 1313.

2. Scope of the Arbitrator’s Powers

[11] Section 1286.2(a)(4) of the CAA provides for vacatur
if “[t]he arbitrators exceeded their powers and the award can-
not be corrected without affecting the merits of the decision
upon the controversy submitted.” California courts have
found that an arbitrator exceeds his powers when he (1) acts
without subject matter jurisdiction, (2) decides an issue that
was not submitted to arbitration, (3) arbitrarily remakes the
contract, (4) upholds an illegal contract, (5) issues an award
that violates a well-defined public policy, (6) issues an award
that violates a statutory right, (7) fashions a remedy that is not
rationally related to the contract, or (8) selects a remedy not
authorized by law. See Jordan v. Cal. Dep’t of Motor Vehi-
cles, 100 Cal. App. 4th 431, 443 (2002) (citing cases) (inter-
nal citations omitted). “In other words, an arbitrator exceeds
his powers when he acts in a manner not authorized by the
contract or by law.” Id. The enumerated statutory grounds in
the CAA are the exclusive grounds for judicial review of arbi-
tration awards. See Cable Connection, Inc. v. DIRECTV, Inc.,
44 Cal. 4th 1334, 1343 (2008) (“[I]n the absence of some lim-
iting clause in the arbitration agreement, the merits of the
award, either on questions of fact or of law, may not be
reviewed except as provided in the statute.” (internal quota-
tion marks omitted)).
 ROSENFELD v. GRUMA CORPORATION 11655
[12] Rosenfeld disagrees with the arbitrator’s interpreta-
tion of California law, but he has not demonstrated that the
arbitrator exceeded his powers.

Conclusion

We hold that the parties agreed to arbitration under the
rules provided by the CAA. We hold, further, that Rosenfeld
has shown no basis for vacatur of the arbitrator’s award under
the CAA.

AFFIRMED.