Like a judge presiding over a trial, an arbitrator charged with arbitrating a dispute must not only treat all parties fairly, but must avoid doing anything that might suggest his or her decision was affected by bias.

Determining what constitutes evidence of bias is not always simple, as is demonstrated by a recent case presented to the California Court of Appeal (FCM Investments v Grove Pham).

In January of 2019, FCM Investments, LLC, signed an agreement to buy some real estate in Riverside County from Grove Pham, LLC, which operated a nursing home on the property. The price was $7.45 million. FCM put down a $500,000 deposit, with escrow to close in 30 days.

During its due diligence process, FCM learned that the licenses needed to operate the facility were not held by Pham but by other entities. FCM also did not receive certain financial records for the business, and was concerned about declining patient counts at the facility.

In April of 2019, FCM filed a lawsuit in Riverside Superior Court against the seller and the entities operating the nursing home, alleging that their actions were preventing completion of the sale.

The purchase agreement included dispute resolution provisions requiring the parties to mediate “any dispute or claim” related to the agreement and, if mediation did not resolve the dispute, to proceed to arbitration.

The mediation process resulted in the parties agreeing to an increased purchase price and deposit, and other modifications to the purchase agreement. But further tensions arose, and FCM pulled out of the deal.

Pham moved to compel arbitration, and an arbitration proceeding was held in June of 2021.

The arbitrator, a retired Los Angeles County Superior Court judge, concluded that the Pham had breached the terms of the revised agreement. She awarded FCM a return of its deposit, damages of over $9 million, and nearly $150,000 in attorney’s fees and costs.

The arbitrator acknowledged that the transaction “was rather complicated,” but said her decision was “made easier by an evaluation of the credibility of the witnesses.” Based on her more than 24 years as a judge and another 12 as an arbitrator, she said, issues related to a lack of credibility were “rampant and obvious.”

One of the points that stood out to her, she said, was that Phuong Pham, the wife of Grove Pham and a principal of the company selling the property, used an interpreter when she testified.

The arbitrator concluded this was “a ploy to look less sophisticated than she really is,” since Mrs. Pham has lived in the United States for decades, had engaged in sophisticated business transactions, and had served as a translator herself.

The court confirmed the arbitration award.

The Phams then appealed on multiple grounds, including a claim that the arbitrator exhibited “linguistic and/or national origin bias” in finding that Mrs. Pham’s use of a translator undermined her credibility.

The appellate justices noted that, while arbitration awards are “nearly immune from attack,” they can be challenged based on “bias on the part of the arbitrator.” Maintaining the public’s confidence in the justice system is so important, the justices said, arbitrators “not only must be unbiased but also must avoid even the appearance of bias.”

In a decision only four pages long, the arbitrator based much of her ruling on her perception that Phuong Pham was not credible because she used a translator.

But the justices noted that the court record showed that Phuong had used a translator for other aspects of the negotiations with FCM, and was not a certified translator herself; she had simply helped other refugees when she first emigrated to America.

Many immigrants operate successful businesses with less than complete fluency in English, the justices said; it is understandable that, when testifying in a complex legal matter, some may prefer to speak in their native language and use a translator. The justices pointed out that California courts now recognize a statutory right to an interpreter in all civil proceedings.

The arbitrator’s decision was based on “uninformed misconceptions about English proficiency and language acquisition,” they said. “Without any elucidation of supporting facts, the award raises an impression of possible bias.”

The justices vacated the award, sending the dispute back for further arbitration, and awarded the Phams their costs on appeal.

By Laurie Murphy