(CN) - The 9th Circuit reinstated a $2.1 million arbitration award for two former gallery owners who claimed they were duped into pouring their life savings into a doomed partnership with the company that licenses paintings by Christian artist Thomas Kinkade.
A three-judge panel said the Morgan Hill, Calif.-based Thomas Kinkade Co. "received a fair hearing from the arbitrators," despite its claim that one of the arbitrators unduly influenced the panel's 2-1 ruling for former gallery owners Karen Hazlewood and Jeff Spinello.
Hazlewood and Spinello operated art galleries in Virginia and were married when they accepted a pitch to become Kinkade Signature Gallery owners, which allowed them to sell the American artist's idyllic pastels.
The arbitration panel said company officials exploited the couple's faith by using terms like "partner," "trust" and "Christian" to create "a certain religious environment designed to instill a special relationship of trust."
But the owners said they quickly lost their trust for the company after they discovered that it had fraudulently concealed key elements of the dealer agreements. For example, they said the dealer agreement required them to sell Kinkade's art at minimum retail prices, while the self-proclaimed "Painter of Light" undercut them with discount sales. The plaintiffs' galleries opened in 1999 and 2000 and closed in 2003.
The arbitration panel found the company and its senior vice president, Richard Barnett, liable for fraud, saying they had "painted an unrealistic and misleading picture of the prospects of success for a dealer." It awarded Hazlewood and Spinello $860,000 in damages and $1.2 million in attorney fees and arbitration expenses.
The Thomas Kinkade Co., formerly known as Media Arts Group, moved to vacate the award, arguing that the arbitration panel's decision had been biased. The panel was composed of two non-neutral arbitrators - one appointed by each party - and a neutral arbitrator.
The company claimed that the plaintiffs' non-neutral arbitrator, Detroit attorney Mayer Morganroth, became "fast friends" with the neutral arbitrator, James Grossman. Grossman allegedly picked up Morganroth at his hotel each morning and drove him to arbitration, and the two men "almost always ate lunch together." The company said Morganroth used their time together to improperly influence Grossman.
The Thomas Kinkade Co. also accused opposing counsel, Norman Yatooma & Associates, of engaging in misconduct during the arbitration proceedings. The firm allegedly stole a privileged email from the company's headquarters, threatened Kinkade with prosecution during his deposition and used abusive tactics and language toward opposing counsel, among other allegations.
U.S. District Judge Marilyn Hall Patel threw out the arbitration award in 2007, saying the company had not been given a fair chance to dispute the fraud allegations.
However, the 9th Circuit judges reversed and reinstated the award.
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