Arbitrator Restored for Vegas Condo Dispute

(CN) - An arbitrator's flirtation with "high-value" litigation investment did not warrant his removal from a dispute over luxury Las Vegas condominiums, the 9th Circuit ruled Tuesday.

Attorney Brendan Hare was appointed in 2010 to arbitrate three consolidated cases alleging that Turnberry/MGM Grand Towers cheated investors in the Signature at the MGM Grand Hotel and Casino.

Hundreds of plaintiffs who purchased rental units in the high-rise condo-hotel complex claimed in 2008 that the developers had fraudulently withheld facts about hidden fees and other charges, and that the units had "produced rental income far below the amounts forecasted by defendants."

After arbitration of the claims got underway in 2011, Hare founded Bowdoin Street Capital, a firm that "invests in high-value, high-probability legal claims and litigations."

Though he participated in two panels on "litigation finance and investment" in the ensuing months, Hare did not disclose his new business venture to the parties in the case. Turnberry in turn sought his removal as arbitrator, citing a conflict of interest.

The American Arbitration Association refused to remove Hare, who had told its investigators that his venture had "raised no money, and made no investments," and that his company was "completely dormant."

Turnberry then filed a motion to disqualify Hare in Las Vegas, where a federal judge took the unusual step of intervening in an ongoing arbitration to remove Hare from the case in late 2013.

According to the 9th Circuit's retelling of events Tuesday, the U.S. District Court determined that "the undisclosed facts regarding Hare's litigation financing activities suggested he had a financial interest in the outcome of the arbitration, because a victory and large financial award for Sussex would help Hare promote his company, which was designed to generate profits from funding large, potentially profitable litigations."

Granting a writ of mandamus Monday to return Hare to the case, a unanimous appeals panel called the lower court's ruling "clearly erroneous as to the legal standard for 'evident partiality' and the nature of the equitable concerns sufficient to justify a mid-arbitration intervention."

"The undisclosed facts regarding Hare's modest efforts to start a company to attract investors for litigation financing do not give rise to a reasonable impression that Hare would be partial toward either party," Judge Sandra Ikuta wrote for the three-judge panel. "Turnberry concedes that no relationship existed between Hare and either party, and Hare's potential ability to profit from a large award to Sussex can best be described as 'attenuated' and 'insubstantial.'"

The San Francisco-based panel also shot down finding that removing Hare early in the process would avert the allegedly inevitable "delays and expenses" of a vacated arbitration award.

Such speculation though is "manifestly inadequate to justify a mid-arbitration intervention, regardless of the size and early stage of the arbitration," Ikuta wrote, adding that the circuit had "repeatedly held that financial harm is insufficient to justify collateral review."

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit