The Appraiser in Arbitration - PowerPoint Presentation

Slide1

The Appraiser in Arbitration

Paula K. Konikoff, JD, MAI, AI-GRS

Peter T. Christensen, Esq.

General Counsel, LIA Insurance Administrators

Slide2

What is Arbitration?

A dispute resolution process

Slide3

What is Arbitration?

One type of “alternative dispute resolution” or “ADR”NegotiationMediationArbitrationLitigation

3

Slide4

Mediation v Arbitration

Slide5

What We Can Do in Arbitration

Consultant

Expert

Witness

Arbitrator

Slide6

Arbitrator or Expert Witness?

“Arbitrator” makes the final decisionExpert Witness presents valuation evidence

CONFUSING LANGUAGE IN LEASES

Controlling lease may pre-date current usage

Drafters of leases not sensitive to valuation terminology

Drafters of leases not sensitive to valuation definitions

Drafters of leases not familiar with valuation Standards

Slide7

Lease Language

Renewal FMRV (fair market rental value) is to be determined by each party selecting a

real estate professional

with at least 10 years’ experience in the property type at the relevant location and the selected

Qualified Professionals

shall each submit a

memorandum

to the

third arbitrator

. Further evidence is to be presented at the arbitration hearing in the form of oral testimony and opening and closing arguments of counsel. The

third arbitrator

“shall

choose the estimate

set forth in either Landlord’s or Tenant’s memorandum,

whichever the third arbitrator believes most accurately reflects the fair market rental value

of the Premises in accordance with Article xxx

Slide8

LEASE LANGUAGE

Slide9

LEASE LANGUAGE

The function and authority of the Impartial Person shall be only as herein provided, and he

shall not act as an arbitrator or appraiser

.

Slide10

Why Does it Matter?

Which Tasks Will You Perform?Which Parts of USPAP Apply to Your Work?

Slide11

Arbitration and Standards

USPAPstate certificationAdvisory Opinion 21Other standardsAI CPEAI Guide Note 16, “Arbitration"

Slide12

AO-21

Slide13

What does “acting as an appraiser” mean?

USPAP definition of

appraiser

:

One who is expected to perform valuation services competently and in a manner that is independent, impartial and objective.

(USPAP, 2018-19 edition, lines 78-79)

Slide14

What does “acting as an appraiser” mean?

Slide15

Important takeaways:

You are “acting as an appraiser” because the client believes you: (1) have valuation competency and (2) will be unbiased.

You are “acting as an appraiser” because the client expects that you will.

We do not CHOOSE whether to “act as appraisers” or not. The client does that.

Appraisal practice

= valuation services provided by appraisers. (USPAP definition

)

Slide16

Important takeaways:

Appraisal practice includes appraisal, appraisal review, and “other.”

Appraisal = opinion of value.

Appraisal review = opinion of quality of another appraiser’s work.

Other = ?

All fall under USPAP.

Slide17

Applicable parts of USPAP:

Slide18

Applicable parts of USPAP:

Slide19

Applicable parts of USPAP:

Slide20

Applicable parts of USPAP:

If NOT acting as an appraiser (Sitting in the consultant chair,

but only sometimes

):

USPAP doesn’t apply, but

Don’t misrepresent your role.

Slide21

Party-appointed Arbitrators: Neutrals v Advocates

Slide22

Important takeaways:

A final award is not an opinion of value.Arbitration processes can vary.To answer the question, “Does USPAP apply?” first determine if you are “acting as an appraiser.” Then determine the nature of the service or types of tasks involved.

Slide23

Liabilities of Appraisers in Arbitration

Differences between the expert witness/consulting role versus serving as an arbitrator.

For the discussion, we will use a key appellate case in California relevant to the details of these roles:

Lambert v. Carneghi,

158 Cal.App.4th 1120 (2008).

First, we’ll look at what the case has to say about the appraiser working as an expert.

We’ll then later look at what it has to say about the appraiser sitting in an arbitrators’ chair.

Along the way, we’ll cover some tips to avoid claim-producing situations.

Slide24

Lambert v. Carneghi, 158 Cal.App.4th 1120 (2008)

The lesson: an expert witness appraiser is a fair target for claims by his or her own client – but not by the other side. The story of the case:A couple owned a high-end home in Los Altos Hills in the Bay Area. The home had been destroyed by fire.They could not agree with their fire insurance company on the amount of the property loss and had commenced a proceeding set forth in the insurance policy to resolve that dispute.

Case citation: Lambert v. Carneghi, 158 Cal.App.4th 1120 (2008).

Slide25

Lambert v. Carneghi, 158 Cal.App.4th 1120 (2008)

The provision in the policy was required by California insurance law and provided:“In case the insured and this company shall fail to agree as to . . . the amount of loss, then, on the written request of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days . . .   the appraisers shall first select a competent and disinterested umpire . . .   Appraisal proceedings are informal unless the insured and this company mutually agree otherwise. For purposes of this section, ‘informal’ means that no formal discovery shall be conducted, including depositions, interrogatories, requests for admission, or other forms of formal civil discovery, no formal rules of evidence . . .   The appraisers shall then appraise the loss, . . . and, failing to agree, shall submit their differences, only, to the umpire. An award in writing . . . of any two when filed with this company shall determine the amount of . . . loss.  (Business hint: with the recent fires and floods, there are new work opportunities in property loss determinations.)

Case citation: Lambert v. Carneghi, 158 Cal.App.4th 1120 (2008).

Slide26

Lambert v. Carneghi

The homeowners retained two appraisers in connection with the insurance loss determination: one appraiser to serve as one of the two appraisers on each side involved in making the decision) and another to assist them as an expert consultant.The proceeding went forward and the loss was determined.The homeowners were unhappy with the award and blamed everybody. They claimed that the replacement cost covered by the policy should have been $1.8 million more.They sued the appraiser they hired as a decision-making appraiser (let’s call him an arbitrator) and the appraiser they hired as an expert, blaming them both for the unfavorable outcome. Let’s focus on the expert appraiser here.

Case citation:

Lambert v. Carneghi, 158 Cal.App.4th 1120 (2008).

Slide27

Litigation Privilege/Witness Immunity

What is the “litigation privilege” or “witness immunity?”

Protection for witnesses, including expert witnesses, from claims by unhappy parties in litigation (and in arbitration as well).

Immunizes witnesses from civil lawsuits about their testimony, regardless of whether their testimony is right or wrong.

The idea behind the immunity is to foster an environment in which witnesses feel safe to give honest and open testimony without fear that the other side can sue you over what you said.

Slide28

What Happened to the Appraiser Expert Witness?

The appraiser contended in defense that as an expert witness, he should be shielded by the litigation privilege. He initially won that argument at the trial court level, but then the homeowners appealed.The California Court of Appeal decided: “litigation privilege [aka witness immunity] does not apply to prevent a party from suing his own expert witness, even if that suit is based upon the expert's testimony.”The Court then held that the homeowners’ case could go forward against their own expert witness appraisers.Courts in many other states have reached similar conclusions, and a general rule has developed that experts – as hired professionals – still have legal responsibility to their own clients and can still be sued for professional negligence by their own clients.

Case citation:

Lambert v. Carneghi, 158 Cal.App.4th 1120 (2008).

Slide29

Most Common Claims Against Expert Witnesses

The most common claims against experts fall into three categories:

1.

Disclosure Issues

.

Expert witness failed to disclose a factual matter to the client that later made the expert’s report or testimony less credible and led to a poor outcome.

Examples of undisclosed matters that clients have sued valuation experts over include:

that the valuer had appraised very similar property in other assignments for different parties at values making the valuation testimony not credible,

that the valuer failed to disclose to the client prior discipline or litigation against the valuer.

Slide30

Most Common Claims Against Expert Witnesses

2.

Overly Optimistic Valuations

.

Another allegation seen in multiple claims has been that overly optimistic, negligent valuations at the outset of a proceeding caused the client to pursue a case that ended poorly for the client.

The client typically alleges it would not have pursued the case except for the erroneous initial valuation and seeks to recover its attorneys’ fees and expenses from its valuer expert.

3.

Outright Errors

.

Some cases are based on the straightforward allegation that the expert valuer committed errors in the valuation or errors in testimony that led the court to disregard the valuation or reach an erroneous conclusion, causing a poor outcome for the valuer’s client. The client then sues its expert, blaming the expert for the unfavorable outcome and seeking to recover the loss from the valuer.

Slide31

Bottom Line for Serving as an Expert in Arbitration (or Court)

Client is the only source of legitimately sustainable claims.

Focus on using a good engagement agreement and getting it

signed

by the client:

Clear right to withdraw.

Payment terms – upfront as much as possible.

No promises about the outcome.

Potential limitations of liability.

Slide32

Sitting in the Arbitrator Chair

Slide33

You Can Do This – and do it well

You don’t need to be a lawyer to be a good arbitrator

You don’t need to know the Rules of Evidence to be a good arbitrator

What attributes do you need to be a good arbitrator?

Sound judgment based on common sense and logic

The ability to hear and understand what you listen to

The ability to make decisions

Confidence in your abilities

Arbitration organizations and Bar associations offer helpful webinars.

Slide34

Tasks for the Arbitrator

Interacting with parties and counsel to establish ground rules for process

Conduct preliminary hearing to clarify and confirm issues to be arbitrated, whether award will be reasoned, number and length of briefs and reply briefs to be submitted, dates for submission and replies, times for property visits, location and length of arbitration hearings, general housekeeping issues

Decide any pre-hearing issues and prepare interim awards

Conduct arbitration hearings

Come to a decision and write final award

Slide35

Practice Tip: Conflicts Disclosure

35

Slide36

Control the Room

The arbitrator is the trier of factAttempts to intimidateAttempts to confuseAttempts to show arbitrator not knowledgeable“agreed” or “upheld” v “sustained”

36

Slide37

Preliminary Hearing

37

Slide38

SCHEDULING ORDER

38

Slide39

INTERIM AWARDS

After reviewing the Motion submitted by Tenant and the reply submitted in response by Landlord, the Panel met by telephone on October 18, 2014 and rules as follows.Landlord may present the testimony of the lay witnesses identified in Disclosure of Lay Witnesses dated October 14, 2014. However, any testimony proffered by any lay witness that is determined by the Panel to be expert opinion(s) shall be stricken from the record. Briefs are limited to 10 pages. This limit includes all exhibits, addenda, and other attachments or related items submitted in conjunction with the brief.

39

Slide40

THE ARBITRATION HEARING

40

Slide41

FINAL DECISION and AWARD

41

Slide42

Practice Tip:

WHAT’S IN MY WORKFILE?

42

Slide43

Liability When Sitting in the Arbitrator’s Chair?

What if one of the parties to an arbitration doesn’t like your number? Your decision?

Can they sue you for negligence? For being a bad arbitrator?

It’s a rational fear. These parties are probably already mad about being in an arbitration and they have lawyers.

Under California and Nevada law, the answer is “no.”

To understand why, let’s go back to the case brought by the angry homeowners in Los Altos Hills.

Slide44

Liability When Sitting in the Arbitrator’s Chair?

The trial court first determined that the insurance loss determination proceeding was an

arbitration

within the meaning of California’s arbitration laws.

That’s not a giant hurdle: the law is pretty broad about what an arbitration is and consequently about who is an arbitrator.

Under the case law, arbitration has come to mean

a dispute resolution procedure, outside of court, agreed to in writing in which there is a third party decision maker who makes a final and binding decision and for which there is a process to assure a minimum level of impartiality with respect to the rendering of the decision.

Slide45

Liability When Sitting in the Arbitrator’s Chair?

Under California’s Arbitration Act, arbitration specifically includes insurance loss appraisals.

In cases involving appraisers, we’ve seen the definition of arbitration extended to:

Commercial rent reset determinations.

Property buyout price determinations.

Divorce valuations for both spouses.

This is important because of the concept of arbitral immunity.

Slide46

What is Arbitral Immunity?

In sum, arbitrators are like judges because they perform the duty of resolving disputes between parties.

Therefore, just as a party disappointed with an unfavorable outcome in a trial can’t sue the court judge for being a “negligent judge,” a disappointed party in arbitration can’t be permitted to sue an arbitrator either.

The reasoning is that arbitrators need to be free of concern over being sued by an unhappy party, so that they can remain unbiased and neutral in their decision-making.

It’s a very powerful protection – don’t fear the consequences of rendering a decision when sitting in the arbitrator’s seat! You are free even to be wrong.

Slide47

But There Are Limits – Basic Ones

First, despite the immunity, some lawsuits get filed either by attorneys lacking knowledge of the law or by overly aggressive parties. As to non-frivolous claims, a federal Court of Appeals recently explained, the key to determining if arbitral immunity applies to the claim of an unhappy arbitration party “is whether the claim at issue arises out of a decisional act.”*

* Pfannenstiel v. Merrill Lynch, Pierce, Fenner & Smith

, 477 F.3d 1155, 1159

(10th Cir.2007)

 (citing Maureen A. Weston,

Reexamining Arbitral Immunity in an Age of Mandatory and Professional Arbitration

, 88 Min. L. Rev. 449, 505 (Feb. 2004)).

Slide48

But There Are Limits – Basic Ones

Where have arbitrators been found to exceed the boundaries?

Examples:

Most common - the arbitrator has accepted an assignment but then failed to perform the arbitration at all or failed to render a decision.

In a few cases, where the arbitrator failed to disclose a key conflict of interest.

If a few other, where the arbitrator engaged in outright fraud – e.g., making an award or order to benefit a family member.

Slide49

Suggestions for Decreasing Arbitrator Risk

Spot when you are serving effectively as an arbitrator – it may not always be obvious and seek to cloak yourself in the immunizing robe of the arbitrator.

Make sure there is a written arbitration agreement signed by all the parties. Some type of agreement stating that the parties to the dispute are agreeing to an arbitration of their controversy (whether it’s a number, a fact, a value, etc.).

When considering arbitration assignments, if you are not confident that you can decide a matter within the timeframe contemplated in the parties’ agreement or in the parties’ instructions, do not accept the assignment.

Slide50

Suggestions for Decreasing Arbitrator Risk

Make the full, open disclosures suggested by Paula earlier when taking on a new arbitration assignments, and promptly update the parties about potential conflicts that may arise later.

Read and closely follow all arbitration procedures and instructions given to you by the parties or contained in the relevant arbitration agreement.

Be mindful that parties who are overbearing, unduly aggressive (or who have fired other appraisers) when proposing to hire you are parties more likely to sue later.

But most of all, don’t fear the arbitrator’s seat, it is great work!