SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF LOS ANGELES - CENTRAL DISTRICT

UNLIMITED CIVIL CASE

PETITIONERS' MEMORANDUM OF POIN'TS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO rv ACATE ARBITRATION A WARD

1

Respondent.

Philip M. Aidikoff, Esq. (SB#65014) Robert A. Uhl, Esq. (SB#75154)

2 Ryan K. Bakhtiari, Esq. (SB#199147) AIDIKOFF, UHL & BAKHTIARI 9454 Wilshire Blvd., Suite 303

4 Beverly Hills, CA 90212

Telephone (310) 274-0666

Telecopier (310) 859-0513

6 Email [email protected]

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5

7 Attorneys for Petitioners 8 Larrv Hagman, et al.

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19

Petitioners,

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26 I+-----------------------~~ 27

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vs.

CITIGROUP GLOBAL MARKETS, INC.,

CASE NO. BS128800

(Assigned to the Honorable Michelle R. Rosenblatt)

PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT CITIGROUP GLOBAL MARKETS, INC.'S PETITION TO VACATE ARBITRATION AWARD

[Filed Concurrently with Declaration of Philip M. Aidikoff; and Appendix of Non-California Authorities]

Date: December 17, 2010 Time: 8:30 a.m.

Dept.: 40

Petition of Confirm Award Filed:

October 7,2010

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TABLE OF CONTENTS

TABLE OF CONTENTS i

TABLE OF AUTHORITIES ii, iii

I. INTRODUCTION 1

II. PROCEDURAL HISTORY IN HAQMAN, ET AL., 2

A. Commencement of the Arbitration 2

B. Proceedings Prior to the Arbitration 2

C. The Arbitration 4

D. Post-Arbitration 5

III. THE AWARD OF THE ARBITRATORS IS FINAL AND BINDING 6

IV. THE FACT THAT AN ARBITRATOR DID NOT DISCLOSE PRIOR PUBLICL Y AVAILABLE UNRELATED LITIGATION IS NOT A

GROUND FOR VACATUR 6

A. Respondent Has Previously Conceded That an Arbitrator's Non-Disclosure

of Publicly Available Unrelated Prior Litigation Is Not Grounds for Vacatur 6

B. FINRA Rules Do Not Mandate Arbitrators Disclose Publicly Available Unrelated

P· L" . 7

rior itigation .

C. California Law Does Not Support Vacatur Where an Arbitrator Did Not Disclose

Publicly Available Unrelated Prior Litigation 9

V. RESPONDENT'S ARGUMENT THAT THIS COURT SHOULD VACATE THE ARBITRATION A WARD FOR NOT GRANTING A POSTPONEMENT

IS WITHOUT MERIT 12

A. Non-Party Detanna Was Ordered to Testify Before Her Surgery,

Later Given the Opportunity to testify and Did Testify 12

B. California Law Does Not Support Vacatur For Failure to Grant a Continuance

Where the Witness Was Given the Opportunity to Testify 13

I

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PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO VACATE THE ARBITRATION A WARD

1

2 CALIFORNIA CASES

TABLE QF AUTHORITIES

3 Benjamin, Weill & Mazer v. Kors

4 189 Cal. App.4th 126 (2010) 10

5 Betz v. Pankow,

6 31 Cal.App.4th 1503 (1995) 10

7 Guseinov v. Burns

8 145 Cal. App. 4th 944 (2006) 11

9 Haworth v. Superior Court,

10 50 Cal. 4th 372 (2010) ~ 10, 11

11 Kaiser Found. Hospitals, Inc. v. Superior Court

12 19 Cal. App. 4th 513 (1993) 10

13 Local No. 16 v. Laughon,

14 118 Cal.App.4th 1380 (2004) 10

15 Ovitz v. Schulmani

16 133 Cal. App. 4th 513 (2004) 10

17 Roitz v. Coldwell Banker Residential Brokerage Company,

18 62 Cal.App.4th 716 (1998) 14, 15

19 SWAB Financial, LLC v. E*Trade Securities, LLC,

20 150 Cal. App. 4th 1181(2007) ; 13, 14

21 Wheeler v. St. Joseph Hospital

22 63 Cal. App. 3d 345 (1976) 10

23

24 NON-CALIFORNIA CASES

25 Howsam v. Dean Witter Reynolds,

26 537 U.S. 79 (2002) 2

27 Lagstein v. Certain Underwriters at Lloyd's,

28 607 F.3d 634 (9th Cir. 2010) 14

11

PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO V AC.AlTE THE ARBITRATION A WARD

1 Stolt-Nielsen S. A. v. AnimalFeeds Int'l Corp.,

2 130 S. Ct. 1758 (2010) 1. 14

3 Tempo v. Bertek,

4 120 F.3d 16 (2d. Cir. 1997) 15

5

6 CALIFORNIA STATUTES

7 Cal. Civ. Pro. Code § 1281.9(a) 9

8 Cal. Code. Civ. Pro § 1286.2(a)(5) 13

9

10 OTHER AUTHORITIES

11 FINRA Rule 12904 6

12 FINRA Rule 12408 8

13 FINRA Arbitrator's Manual, August 2007 8,9

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PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO VACATE THE ARBITRATION AWARD

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1 I. INTRODUCTION

2

The Hagman Petitioners hereby submit their opposition to Respondent Citigroup Global

Markets, Inc.'s (hereinafter "Respondent" or "Citigroup") Petition to Vacate Arbitration Award ("Petition"). The arbitration hearing in this matter originally concluded on Friday, August 20, 2010, wherein counsel for Petitioners and Respondent were asked and answered:

"CHAIRMAN STEINBRONER: Do the parties have any other issues or objections that they would like to raise that you have not previously raised? Claimant?

MR. AIDIKOFF: None for the claimant.

MR. HOHAUSER: None at this point, sir." (Declaration of Philip M. Aidikoff ("P A.Decl.") ,-r2, Ex.l)

Thereafter, the Panel granted Respondent's request for one (1) additional hearing day so that the Panel could hear non-party Lisa Detanna's ("Detanna") testimony which was ordered to commence on September 17, 2010. At the conclusion, counsel for Petitioners and Respondent were again asked and answered:

"MR. CHAIRMAN: Do the parties have any other issues or objections that they would like to raise that have not previously been raised?

MR. AIDIKOFF: No.

MR. CHAIRMAN: Counsel?

MR. HOHAUSER: No." (PA.Decl.,-r3, Ex.2).

After stating that it had no other issues or objections on two (2) prior occasions, Respondent Citigroup now seeks to vacate the arbitration award and shift the blame for its own wrongdoing to the Panel. Respondent's Petition is based on the fact that one of the arbitrators did not disclose publicly available unrelated prior litigation, notwithstanding the fact that Respondent accepted the panel on at least four (4) prior occasions. Respondent had a full and fair opportunity to discover the publicly available prior litigation before the commencement of the arbitration. Respondent's Petition is also based on the Panel's decision to not grant a continuance of the arbitration. However, Respondent fails to inform this court that the case was granted expedited treatment by FINRA. In addition, the Panel granted Respondent's request to have non-party Detanna testify in this matter on September 17, 2010. Consequently, Respondent was granted exactly what it asked for- a chance for the Panel to hear the testimony of non-party Detanna after she had a chance to review the entire stenographic record.

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PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO VACATE ARBITRATION A WARD

1 In spite of these facts, Respondent makes this last ditch effort to have this court vacate 2 the arbitration award. The arbitrators have spoken and based their decision on substantial 3 evidence and law finding Respondent liable to Petitioners. Moreover, the Panel quoted the 4 FINRA arbitrators manual, pg. 31, as follows: "[Y]ou may award punitive damages if the 5 claimant requests it, and the respondent has engaged in serious misconduct that meets the 6 standards for such an award ... " (Emphasis added) (PA.Decl.,-r37, Ex.28). The Panel's decision 7 must be respected and Respondent's Petition should be denied.

8 II. 9

PROCEDURAL HISTORY IN HAGMAN. ET AL.

A.

Commencement of the Arbitration

10 Petitioners commenced their FINRA arbitration on or about May 29, 2009 and sought 11 expedited treatment based on Petitioners' age and ill health which FINRA granted on June 10, 12 2009 (PA.Decl.,-r4,5, Ex.3,4). Thereafter, Respondent filed its answer on September 11, 2009 13 (P A.Decl.,-r6, Ex.5). Petitioners and Respondent also filed their FINRA Uniform Submission 14 Agreements agreeing to conduct the arbitration in accordance with the FINRA By-Laws, Rules, 15 and Code of Arbitration Procedure (PA.Decl.,-r7, Ex.6).1 On September 15, 2009, FINRA 16 circulated arbitrator ranking lists to counsel for Petitioners and Respondent wherein FINRA 17 notified counsel that the arbitrator ranking lists were due back to FINRA on or before October 18 5, 2010 (PA.Decl.,-r8, Ex.7). On October 13, 2009, FINRA notified counsel that Peter D. 19 Steinbroner, Kenneth E. Kreh and Michael W. Delaney ("Panel") were appointed as arbitrators 20 (PA.Decl.,-r9, Ex.8). On November 16,2009, the initial pre-hearing conference was held in this 21 matter wherein counsel for Petitioners and Respondent accepted the Panel's composition and 22 agreed to August 16, 2010 through August 20, 2010 as dates for the arbitration hearing 23 (P A. Decl.,-r 10, Ex.9).

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B.

Proceedings Prior to the Arbitration

25 At the conclusion of an unsuccessful mediation in this matter on July 7,2010, seven (7) 26 months and twenty-one (21) days after the initial pre-hearing conference during which the

27 28

1 See also Howsam v. Dean Witter Reynolds, 537 U.S. 79, 86 (2002) wherein the Supreme

Court of the United States found: "[Petitioner's] execution of a Uniform Submission Agreemen with the NASD in 1997 effectively incorporated the NASD Code into the parties' agreement."

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PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO VACATE ARBITRATION AWARD

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1 arbitration dates were selected by counsel and one (1) month and nine (9) days before the 2 commencement of the arbitration, Respondent's counsel, William Hohauser, informed 3 Petitioners' counsel, Philip M. Aidikoff, for the first time that non-party Detanna would not 4 appear at the arbitration due to a knee surgery, which was not life threatening, that she had 5 recently scheduled in June and asked for a continuance of the arbitration (P A.Decl.~11). Mr. 6 Aidikoff told Mr. Hohauser that Petitioners would not agree to a postponement of the arbitration 7 based on the unavailability of one (1) witness, non-party Detanna, for a non-life threatening 8 knee surgery, on the eve of the arbitration in which Petitioners requested and were granted 9 expedited treatment based on their age (seventy-eight (78) and eighty-two (82) at the time of the

10 arbitration) and ill health (PA.Decl.~12).

11 Two days later, on July 9, 2010, Petitioners made a motion for the issuance of three (3) 12 subpoenas, one of which sought the appearance of Detanna to testify at the arbitration on 13 August 16, 2010 at 9:00 a.m. to be signed by Chairperson Peter D. Steinbroner ("Chairperson 14 Steinbroner") (PA.Decl.~13, Ex.lO). On July 15, 2010, FINRA forwarded the uncontested 15 subpoenas to Chairperson Steinbroner stating in relevant part: "Please note that the non-moving 16 party has advised [FINRA] that there are no objections to the issuance of these subpoenas." 17 (PA.Decl.~14, Ex.11) Thereafter, on July 19,2010, FINRA forwarded the executed subpoenas 18 to counsel for Petitioners and Respondent (PA.Decl.~15, Ex.l2). That same day, Monday, July 19 19, 2010, Petitioners forwarded the executed subpoenas to Mr. Hohauser requesting that Mr. 20 Hohauser confirm that he would accept service so that personal service on the individuals would 21 not be required (PA.Decl.~16, Ex. 13). On July 21, 2010, Mr. Hohauser agreed to accept the 22 subpoenas and responded, "there is no need for personal service." (PA.Decl.~17, Ex.l4).

23 On July 29, 2010, twenty-two (22) days after the mediation, eighteen (18) days before 24 the commencement of the arbitration and ten (10) days after the issuance of the executed 25 subpoenas, Respondent filed a motion requesting a postponement of the arbitration 26 (PA.Decl.~18, Ex.l5). Respondent based its motion on the claim that non-party Detanna was 27 scheduled to undergo a non-life threatening knee surgery on Tuesday, August 17, 2010 which 28 she did not schedule until sometime in June (PA.Decl.~18, Ex.l5). It is important to note that

PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO VACATE ARBITRA TION AWARD

20 Notwithstanding the Panel's subpoena ordering non-party Detanna to be present on 21 Monday and the Panel's August 6, 2010 Order denying Respondent's request for a 22 postponement, on August 16, 2010, the first day of the arbitration, Mr. Hohauser again 23 requested (without any new facts) that the Panel allow Detanna the opportunity to testify 24 (PADecl.~25, Ex.22). Specifically Mr. Hohauser plead: "We are simply asking that Lisa 25 Detanna have an opportunity at some point when she is medically ready to testify" and "all we 26 want to ensure is that Lisa Detanna will have the opportunity to testify at some point. That's 27 all." (P ADecl.~25, Ex.22). Mr. Hohauser's attempt to have the Panel reconsider its August 6, 28 2010 Order denying Respondent's motion for a postponement was denied and the Panel ordered

1 the executed subpoena dated July 19, 2010 ordered the appearance of Detanna on the Monday 2 before her Tuesday surgery (i.e. August 16,2010 at 9:00 a.m) (PA Decl.~15, Ex.l2). The next 3 day, July 30, 2010 Petitioners filed an opposition to Respondent's motion setting forth 4 Respondent's purposeful delay in filing its motion, the lack of good cause in Respondent's 5 motion, Petitioners attempt to accommodate Respondent by having her testify on the first day of 6 the hearing before her next day surgery and how Petitioners would be prejudiced by the delay 7 based on their age and health (PADecl.~19, Ex.l6). On August 3, 2010, Respondent replied to 8 Petitioner's opposition and the moving papers were forwarded to the Panel on August 5, 2010

9 (P ADecl.~20, Ex.17).

10 Thereafter, on August 6, 2010 a telephonic pre-hearing conference was held before the 11 Panel at 11 :00 a.m. (PST) to address Respondent's motion for a postponement wherein Mr. 12 Aidikoff and Ryan K. Bakhtiari appeared on behalf of Petitioners and Mr. Hohauser on behalf 13 of Respondent wherein all counsel again accepted the composition of the Panel (P ADecl.~22, 14 Ex.19). On August 6, 2010 after oral argument, counsel for Petitioners and Respondent were 15 informed by FINRA that the Panel denied Respondent's request for the postponement and the 16 arbitration would commence on Monday, August 16, 2010 (PA.Decl.~23, Ex.20). On August 17 11, 2010, the order of the Panel denying the postponement was circulated to counsel (P ADecl. 18 ~24, Ex.21).

19 C. The Arbitration

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PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO VACATE ARBITRATION A WARD

1 that the arbitration proceed as scheduled (P A.Decl.~26, Ex.22). Thereafter, the Panel 2 acknowledged counsel for parties accepted the composition of the Panel. (P A.Decl.~27, Ex.22). 3 Accordingly, five (5) days of arbitration were held in August commencing on August 16,2010 4 through August 20, 2010 (PA.Decl.~28). Without explanation, Detanna did not appear on 5 Monday, August 16,2010, despite being subpoenaed and ordered to be present on Monday and 6 despite the fact that her knee surgery was not until Tuesday (P A.Decl.~29). Instead, her personal 7 lawyer, Scott Rahn, appeared on her behalf and was granted the opportunity by the Panel to 8 remain present for the proceedings which were reported by a court reporter who produced daily 9 transcripts to the parties (P A.Decl.~30, Ex.22). Furthermore, Respondent omits from its Petition

10 that Detanna's former partner, Peter White ("White"), who was present for most of the 11 meetings/telephone conversations with the Petitioners, testified on August 16- August 17, 2010

12 (P A.Decl.~31, Ex.23).

13 Closing arguments took place on August 20, 2010 (P A.Decl.~31). Thereafter, on August 14 24, 2010, counsel for Petitioner and Respondent received an interim Order from Chairperson 15 Steinbroner requesting that the parties submit simultaneous briefings on legal authority for 16 punitive damages by September 7, 2010 (PA.Decl.~32, Ex.24). After receiving the 17 Chairperson's request for briefing on legal authority for punitive damages, on August 30, 2010, 18 Respondent wrote the Director of Arbitration, George Friedman, Esq., to re-argue Respondent's 19 "request to schedule additional hearing sessions so that the Panel can hear the testimony of Lisa 20 Detanna ... " (PA.Decl.~33, Ex.25). Petitioners responded to Respondent's renewed request on 21 August 30, 2010 (PA.Decl.~34, Ex.26). On September 3, 2010 the Panel issued an order 22 granting Respondent's request for an additional hearing day on Friday, September 17, 2010 to 23 hear testimony from Detanna (P A.Decl.~35, Ex.27). An additional full day of hearing was held 24 on September 17, 2010 wherein the parties accepted the Panel's composition for the fourth time 25 and non-party Detanna testified (P A.Decl.~36, Ex.2).

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D.

Post-Arbitration

On October 6, 2010, FINRA Dispute Resolution issued and served a written decision in full and final resolution of all claims between the parties ("Arbitration Award"). The award

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PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO VACATE ARBITRATION A WARD

1 found the Respondent liable to the Petitioners for $1,098,386 in compensatory damages, 2 $10,000,000 in punitive damages payable to charity, $439,354.40 in attorneys' fees and $20,387 3 in costs (P A.Decl.'i[3 7, Ex.28).

4 On October 7, 2010, Petitioners filed a Petition to Confirm the Arbitration Award in this

5 court. Thereafter, on November 5, 2010 Respondent filed its Petition to Vacate. (PA.Decl.'i[38).

6 III. THE AWARD OF THE ARBITRATORS IS FINAL AND BINDING

7

FINRA Rule 12904 states in pertinent part:

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

"a) All awards shall be in writing and signed by a majority of the arbitrators or as required by applicable law. Such awards may be entered as a judgment in any court of competent jurisdiction.

b) Unless the applicable law directs otherwise, all awards rendered under the Code are final and are not subject to review or appeal." (emphasis added). (PA.Decl.'i[39, Ex.29).

The October 6, 2010 award was a unanimous decision signed by all three (3) arbitrators when only two (2) votes were required. Therefore, pursuant to FINRA Rules, this unanimous decision is final and not subject to review or appeal.

IV. THE FACT THAT AN ARBITRATOR DID NOT DISCLOSE PRIOR PUBLICLY AVAILABLE UNRELATED LITIGATION IS NOT A GROUND FOR VACATUR

A. Respondent Has Previously Conceded That an Arbitrator's Non-Disclosure of Publicly Available, Unrelated Prior Litigation Is Not Grounds for Vacatur

By way of background, Respondent Citigroup opposed a petition to vacate an arbitration award on or about April 13, 2006 in the United States District Court for the District of Colorado, Sturm, et al., v. Citigroup, et al., Civil Action No. 06-cv-290-PSF (MJW) (P A.Decl.'i[40, Ex.30) wherein the Movantsl Arbitration Claimants asserted that an arbitrator did not disclose (6) matters, one (1) of which was a prior undisclosed lawsuit. Id. at 14-16. In opposing the petition to vacate, Respondent Citigroup stated:

"Now the [Movants/Arbitration Claimants] want a do-over. Just as the [Movants/Arbitration Claimants] refused to accept responsibility for their investment decisions and tried to shift the blame for their allegedly lost profits to the Citigroup Respondents, they now refuse to accept responsibility for their arbitration loss and seek to shift blame to one of the arbitrators. In so moving, they charge no manifest disregard of the law, no illicit ex parte communication and no arbitral misconduct or bias at the hearing. Instead, the [Movantsl Arbitration Claimants] apparently commissioned their attorneys, employees

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PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO VACATE ARBITRATION A WARD

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PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO VACATE ARBITRATION AWARD

and/or investigators to dig up anything and everything they could on the arbitrators who heard their case, in the hope of undermining the result. The [Movants/Arbitration Claimants] now focus their fire on arbitrator [name]." Id. at 1. (emphasis added). (PA.Decl.~40, Ex.30).

Respondent's words in its opposition in Sturm, et al., v. Citigroup, et al., explain its post award behavior in this case. Respondent's Petition to vacate the arbitration award based on Chairperson Steinbroner's non-disclosure of publicly available, unrelated prior litigation is nothing more than an attempt to shift the blame of Respondent's wrongdoing to one of the arbitrators - an argument Respondent found repugnant in Sturm, et al., v. Citigroup.

During the arbitrator appointment process, Respondent had twenty (20) days from September 15, 2009 to conduct its own due diligence to discover the publicly available litigation prior to submitting its arbitrator ranking lists to FINRA. Additionally, Respondent had eleven (11) months and one (1) day from the date it received the arbitrator ranking lists (September 15, 2009) to the first date of the arbitration hearing (August 20, 2010) to discover the publicly available litigation.' Instead, Respondent awaited the outcome of the arbitration to search for publicly available prior litigation in a weak attempt to have this court vacate the outcome of the arbitration. Respondent recognized how easily accessible publicly disclosed information is in Sturm, et al., v. Citigroup, et al. wherein it stated: "In today's world, information about prospective arbitrators is just keystrokes away, and litigants must be charged with at least constructive (if not actual) knowledge of that information." Id.at 4. (emphasis added) (PA.Decl.~40, Ex.30). Petitioners' agree Chairperson Steinbroner's publicly available, unrelated prior litigation was keystrokes away in the PACER database and on the Superior Court of the State of Cali fomi a for the County of Los Angeles' database. (PA.Decl.~42, Ex.32).

B. FINRA Rules Do Not Mandate Arbitrators Disclose Publicly Available Unrelated Prior Litigation

Respondent argues that Chairperson Steinbroner failed to check the "YES" box to the following question on the arbitrator disclosure checklist:

2 Notwithstanding the fact that Respondent could have made a timely challenge for cause against Chairperson Steinbroner under FINRA Rules, Respondent's challenge would have been denied as set forth in Section IV(B), infra.

7

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8

"Have you, any member of your immediate family, close social or business associates, been involved in the last five years in a dispute involving the same subject matter as contained in the case to which you are assigned?" (emphasis added). (Petition, pg. 5)

Contrary to Respondent's arguments, the question in issue on the Arbitrator Disclosure Checklist specifies "a dispute involving the same subject matter as contained in the case to which you were assigned" and does not refer to the same legal theories as contained in the case to which you were assigned. As mentioned in Section IV(C) infra, Chairperson Steinbroner's prior litigation did not involve asset allocation, did not involve the suitability of security related investments, did not involve a broker-dealer and did not involve a registered representative. Therefore, Respondent's argument is without merit.' Moreover, FINRA Rule 12408 sets forth the disclosures required by arbitrators in relevant part as follows:

"(a) Before appointing arbitrators to a panel, the Director will notify the arbitrators of the nature of the dispute and the identity of the parties. Each potential arbitrator must make a reasonable effort to learn of, and must disclose to the Director, any circumstances which might preclude the arbitrator from rendering an objective and impartial determination in the proceeding, including:

(1) Any direct or indirect financial or personal interest in the outcome of the arbitration; (2) Any existing or past financial, business, professional, family, social, or other relationships or circumstances with any party, any party's representative, or anyone who the arbitrator is told may be a witness in the proceeding, that are likely to affect impartiality or might reasonably create an appearance of partiality or bias;

(3) Any such relationship or circumstances involving members of the arbitrator's family or the arbitrator's current employers, partners, or business associates; and

(4) Any existing or past service as a mediator for any of the parties in the case for which the arbitrator has been selected." (Emphasis added)(P A.Decl.~45, Ex.35).

Furthermore, FINRA's Arbitrator's Manual, August 2007, sets forth in more detail examples of circumstances where a challenge for cause would be granted to an arbitrator's appointment as follows:

A. "Opinion and Bias: 1) Arbitrator has a firm opinion or belief as to the subject of an action for which shelhe is an arbitrator; 2) Arbitrator has a personal bias toward a party.

B. Business or Personal Relationships: 1) Arbitrator is or was related by blood or marriage to any party, its attorneys, or witnesses; 2) Arbitrator is or was guardian or ward, conservator or conservatee, employer or employee, principal or agent, or debtor or creditor of either a party or an officer of a corporation which is a party. Arbitrator is the parent,

3 Even if Chairperson Steinbroner's prior litigation involved the "same subject matter", which it does not, the 2003 case does not fall within the five (5) year time frame specified in the arbitration disclosure checklist question.

PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO VACATE ARBITRATION A WARD

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spouse, or child of one who is related as above described; and 3) Arbitrator is or was a member of any party's family, a business partner, vendor, customer, or client of any party, a surety or guarantor of the obligations of any party, is currently a creditor or shareholder of any corporate party, or has any business relationship with any party.

C. Previous or Current Involvement: 1) Arbitrator is adverse to a party, its attorneys, or witnesses, or has complained against or been accused by any of them in another action, instituted or resolved during the past five (5) years; 2) Arbitrator or any member, shareholder, or associate of, or of counsel to his or her law firm has been in the relation of attorney and client with, or adverse to, any party within three (3) years of the filing of the arbitration claim; and 3) The arbitrator is currently a party to or the subject of a complaint, arbitration, or litigation involving a securities investment.

D. Financial Interest: Arbitrator knows that shelhe has, individually or as a fiduciary, or herlhis spouse or minor child residing in herlhis household has a financial interest in the subject matter in controversy or in a party to the arbitration proceeding, or any other interest that could be substantially affected by the outcome of the arbitration proceedings." (PA.Decl.'tI46, Ex.36).

As set forth above and in Section IV (C) infra, Respondent has failed to set forth any facts that prove that Chairperson Steinbroner had opinion or bias, a business or personal relationship, a financial interest in the outcome of the arbitration, or previous and/or current involvement that would be basis to grant a challenge for cause under FINRA Rules. Moreover, Chairperson Steinbroner's undisclosed litigation does not relate to the same "subject matter" as this case.

C. California Law Does Not Support Vacatur Where an Arbitrator Did Not Disclose Publicly Available Unrelated Prior Litigation

California arbitrator disclosure requires: "[i]n any arbitration pursuant to an arbitration agreement, when a person is to serve as a neutral arbitrator, 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." Cal. Civ. Pro. Code §

1281.9(a).

The statute enumerates a non-exhaustive list where a reasonable doubt of

impartiality would exist. These revolve around whether the arbitrator has sought/is seeking employment from one of the parties, has had an attorney-client relationship with one of the parties, has had a substantial business relationship with one of the parties, or has a close personal relationship with one of the parties. Id. Contrariwise, Respondent has not offered any proof of prior relationships of Chairperson Steinbroner where a reasonable doubt of impartiality

PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RESPONDENT'S PETITION TO VACATE ARBITRATION AWARD

7 "bias" and stated: "an impression of possible bias in the arbitration context means that one 8 could reasonably form a belief that an arbitrator was biased for or against a party for a particular 9 reason." Id. at 1511. (emphasis added). This test is fact specific. "There is no bright line

10 demarcation for the existence of an impression of possible bias, and each case must be 11 considered in light of its particular circumstances." Id. at 1508.5 It is neither credible to infer 12 bias on the part of Chairperson Steinbroner based on his publicly available unrelated prior 13 litigation, nor does Respondent offer a scintilla of proof to demonstrate bias.

14 The Supreme Court of California in Haworth v. Superior Court, 50 Cal. 4th 372, 394- 15 395 (2010) has limited the breadth of the "impression of partiality" test.6 In Haworth the court 16

1 would exist." Instead, Respondent has merely grasped for facts to support its meritless attempt 2 to reverse engineer a reason to vacate the award.

3 Here, when the arbitrator's activity is not clearly defined by a statute, the trial court is to 4 make the inquiry as to "whether an arbitrator's dealings gave rise to an impression of possible 5 bias and, thus, required disclosure." Local No. 16 v. Laughon, 118 Cal.App.4th 1380, 1393- 6 1394 (2004). The court in Betz v. Pankow, 31 Cal.App.4th 1503 (1995) reviewed the issue of

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4 Respondent cites to Benjamin, Weill & Mazer v. Kors 189 Cal. App.4th 126 (2010), Kaiser Found. Hospitals, Inc. v. Superior Court 19 Cal. App. 4th 513 (1993), Wheeler v. St. Joseph Hospital 63 Cal. App. 3d 345 (1976) and Ovitz v. Schulmani 133 Cal. App. 4th 513 (2004), to support the argument that "an arbitrator's failure to disclose facts as required mandates vacatur of the arbitration award." (Petition, pg. 9). However, these cases are easily distinguished from this case. Respondent omits that the arbitrators' non-disclosures in Benjamin, Kaiser, Wheeler and Ovitz related to prior, current or potential business relationships with a party in the matter. Here, Respondent failed to offer any proof of prior, current or potential relationships of Chairperson Steinbroner which would support vacatur under Benjamin, Kaiser, Wheeler and Ovitz. (Emphasis added).

5 Additionally, the court in Betz further described situations where such an impression of bias may exist. For example, "[a] frequent cause for an impression of possible bias is the existence of a present or past business relationship between the arbitrator and a party, its counselor a witness" because of the pecuniary interest suggested by the relationship and it "giving the arbitrator reasons to favor the party for reasons wholly unrelated to the merits of the arbitration." [internal citations omitted] Id. at 1509. As previously set forth, Respondent has failed to prove bias in the form of any related relationship between Chairperson Steinbroner and an individual. Conversely, Respondent has only made a futile attempt to draw a broad and generalized parallel between Chairperson Steinbroner's past litigation and the instant case.

Respondent cites to Haworth, supra for the proposition that '''any matter that reasonably could create the appearance of partiality" must be disclosed"'. (Petition, pg. 9). However, Respondent 10

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1 compared a similar statute requiring the recusal of judges to the California one at issue. Despite 2 the differences between judges and arbitrators, the California Supreme Court finds this 3 applicable because "[it] [found] no reason to interpret the appearance-of-partiality rule more 4 broadly in the context of arbitrator disclosure than in the context of judicial recusal. The 5 language of both applicable statutes is virtually identical and the judicial standard is explicitly 6 made applicable to arbitrators." Id. at 393. When comparing the two, the court explained that 7 "federal courts have stated that the appearance-of-partiality 'standard 'must not be so broadly 8 construed that it becomes, in effect, presumptive, so that recusal is mandated upon the merest 9 unsubstantiated suggestion of personal bias or prejudice."" [internal citations omitted]. Id. at

10 389 (quoting United States v. Holland, 519 F.3d 909, 913 (9th Cir. 2008), quoting United States 11 v. Cooley, 1 F.3d 985, 993 (10th Cir. 1993)). Moreover, "[t]he disclosure requirements, 12 however, are intended only to ensure the impartiality of the neutral arbitraton .... They are not 13 intended to mandate disclosure of all matters that a party might wish to consider in deciding 14 whether to oppose or accept the selection of an arbitrator." Id. at 393. (emphasis added). In fact, 15 "[t]he arbitrator cannot reasonably be expected to identify and disclose all events in the 16 arbitrator's past, including those not connected to the parties, the facts, or the issues in 17 controversy that conceivably might cause a party to prefer another arbitrator. Such broad 18 interpretation of the appearance-of-partiality rule could subject arbitration awards to after-the- 19 fact attacks by losing parties searching for potential disqualifYing information only after an 20 adverse decision has been made." Id. at 394-395. (emphasis added).

21 The court's concern in Haworth in applying a broad interpretation to the appearance-of- 22 partiality rule is evidenced in this case. Respondent is making an after-the-fact attack as the 23 losing party and searched for potential disqualifying publicly available information after 24 an adverse decision was made. Moreover, Respondent attempts to correlate the legal theories 25 between Chairperson Steinbroner's undisclosed litigation and this case. Specifically,

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ignores the fact that Haworth specifically limited the breadth of the impression of partiality test as noted on pg 10, supra. Moreover, Respondent's reliance on Guseinov v. Burns 145 Cal. App. 4th 944 (2006) is misplaced (Petition, pg. 9). Guseinov was called into doubt by Haworth and Guseinov denied the petition to vacate for lack of disclosure. Id. at 950, 962.

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Respondent argues that in 2007 Chairperson Steinbroner and his wife pursued litigation in Texas against his former real estate investment partner wherein he "asserted claims for breach of fiduciary duty and fraud, just as the Hagmans did in the arbitration against Citigroup." However, Respondent fails to explain: it was a bankruptcy proceeding wherein he and his wife asserted claims as creditors; the case did not involve the same subject matter of this case; the case did not involve the same parties as this case; the case did not involve the same facts of this case; the case did not have a related interest to this case; the case did not involve a brokerdealer; the case did not involve a registered representative; and the case did not involve a securities investment. (PA.Decl.~43, Ex.33).

Likewise, Respondent also argues that Chairperson Steinbroner failed to disclose a 2003 suit in Los Angeles County Superior Court against his sister wherein he asserted a claim of elder abuse, as the Hagmans did in their case. Again Respondent fails to explain: the 2003 case did not involve the same subject matter of this case; the case did not involve the same parties as this case; the case did not involve the same facts of this case; the case did not have a related interest to this case; the case did not involve a broker-dealer; the case did not involve a registered representative; and did not involve the suitability of security related investments (P A.Decl.~44, Ex.34). It is nonsensical that an arbitrator would have to disclose all past litigation involving the similar broad legal theories but did not involve or was connected to the same subject matter, the same parties, the same facts or a related interest in the current litigation. Respondent's Petition should be seen for what it is- a final attempt to shift the blame of its wrongdoing to Chairperson Steinbroner. The finality of the award should be respected and Respondent's Petition should be denied.

V. RESPONDENT'S ARGUMENT THAT THIS COURT SHOULD VACATE THE ARBITRATION AWARD FOR NOT GRANTING A POSTPONEMENT IS WITHOUT MERIT

A. Non-Party Detanna Was Ordered to Testify Before Her Surgery, Later Given the Opportunity to Testify and Did Testify

As noted previously in Section II (B) and (C), supra, non-party Detanna was subpoenaed and ordered to testify on Monday, August 16, 2010, the day before her non-life

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threatening knee surgery on Tuesday, August 17,2010. Instead, Detanna chose to ignore the subpoena without providing any reason why she could not appear on Monday, August 16,2010. Despite the subpoena ordering Detanna to appear, on August 16,2010 Mr. Hohauser, on behalf of Respondent, moved the Panel to allow Detanna the opportunity to testify as follows:

a) "if Ms. Detanna's testimony is necessary that this panel will allow us to call her at some later date after she has had the opportunity to review the record."

b) "we are prepared to do this, to try this case and have Ms. Detanna testify at the later date."

c) "We are simply asking that Lisa Detanna have an opportunity at some point when she is medically ready to testify."

d) "all we want to ensure is that Lisa Detanna will have the opportunity to testify at some point. That's all."

e) "All we are asking is that at some point if this panel agrees we would like to have Ms.

Detanna have the possibility of testifying." (P A.Decl.~25, Ex.22).

Thereafter, in accordance with Mr. Hohauser's requests to the Panel as set forth in Section II (C) supra, on September 17, 2010, Detanna testified. It is noteworthy that she testified after having the opportunity to read the entire record, which was a strategic advantage to Respondent. Moreover, the Panel allowed Detanna's attorney, Scott Rahn, to sit and observe the arbitration hearing on Detanna's behalf, with access to daily transcripts and Detanna's former partner, White, testified on August 16- August 17,2010. Having received the order allowing Detanna to testify which Respondent sought, Respondent now argues that the Panel abused its discretion and that it somehow suffered some prejudice. Respondent's argument is without merit.

B. California Law Does Not Support Vacatur For Failure to Grant a Continuance Where the Witness Was Given the Opportunity to Testify

California Code of Civil Procedure section 1286.2 sets forth the grounds available for vacating an arbitration award. Section (a)(5) states that an award can be vacated if" [t]he rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefore 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." Cal. Code. Civ. Pro § 1286.2(a)(5). California case law clarifies that "[0 ]nly if the arbitrators abused their discretion and there was resulting prejudice could the trial court properly vacate the arbitration award." SWAB Financial, LLC v. E*Trade Securities, LLC,

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150 Cal. App. 4th 1181, 1197 (2007).7 The court emphasizes the independence of arbitral

proceedings from the interference of the courts and states:

"[t]he trial court may not step into a case submitted to arbitration and tell the arbitrator what to do and when to do it; it may not resolve procedural questions, order discovery, determine the status of claims before the arbitrator or set the case for trial because of a party's alleged dilatory conduct. It is for the arbitrator, not the court, to resolve such questions." Id. at 1201.

Further, the United States Supreme Court in Stolt-Nielsen S. A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010) has explained: "procedural questions which grow out of the dispute and bear on its final disposition' are presumptively not for the judge, but for an arbitrator, to decide." Id. at 1775. (emphasis added)." In the instant case, the arbitrators granted Respondent's request and decided the procedural order of when Detanna should testify. Therefore, the arbitrators were within their authority to decide procedural questions during the arbitration.

Notwithstanding the fact that Detanna did testify, and assuming arguendo she was precluded from testifying due to the failure to continue the hearing, California law does not support the conclusion that the award should be vacated. In Roitz v. Coldwell Banker Residential Brokerage Company, 62 Cal.App.4th 716 (1998), the court denied a petition to vacate an arbitral award for failure to grant a continuance and stated that '" [a] motion to postpone a trial on the ground of the absence of evidence can only be made upon affidavit showing the materiality of the evidence expected to be obtained, and that due diligence has been used to procure it.' (§ 595, Code Civ. Proc.)" Id. at 724. (quoting Moore v. Griffith, 51 Cal.App.2d 386 (1942)). Respondent Citigroup failed to offer an affidavit showing the

materiality of non-party Detanna's testimony or that due diligence had been conducted to

7 Respondent cites to SWAB, supra, and the importance of the delay in not granting vacatur. (Petition pg.15). However, Respondent ignores that this was one facet of the court's decision to deny the petition to vacate and that the decision rested on the principal of arbitral independence in procedural matters. Id. at 1200-1201

8 See also Lagstein v. Certain Underwriters at Lloyd's, 607 F.3d 634 (9th Cir. 2010) stating: "In the absence of an express agreement to the contrary, procedural questions are submitted to the arbitrator, either explicitly or implicitly, along with the merits of the dispute." Id. at 643. (emphasis added).Further, Lagstein quotes Stolt-Nielsen S. A, supra. at 644.

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procure it.9 Moreover, "[i]t is common practice at arbitrations that medical records, declarations and deposition transcripts are often used as evidence in lieu of live testimony." Id. Despite this, Detanna's attorney was asked and answered:

"MR. DELANEY: I have a question, yes. Mr. Rahn, why did you not offer a deposition fo her, at any time before this hearing today, if you knew there was going to be trouble, wh didn't you depose her.

MR. RAHN: I was only recently brought in, so it was not an issue that I had been apprised 0 going back months and months where additional discovery could have been taken. It wa never brought up by my understanding it was never brought up between the parties to hav her deposed. Even if it was, again, I don't think that substantial justice would be done if sh was only allowed to testify via deposition, because one of the prejudices I think that an party feels in this sort of instance where you have two primary actors here Mr. Hagman 0 the claimant's side and Ms. Detanna on the respondent's side. The fact that Ms. Detanna i only allowed to testify via deposition would not be able to sit here during the proceeding listen to the testimony, work with her corporate counsel to respond to the statements that Mr. Hagman is sure to make, means that the defense is not going to be adequately prepared or a least not as prepared as it might otherwise be able to be. More importantly, reading deposition transcript or perhaps even a video generally is much less effective than having live witness. I doubt there is attorney in the country who thinks otherwise, and sure there i none in this room.

MR. DELANEY: So there is really no reason why you didn't depose her or videotape her.

MR. RAHN: No, I don't - as I indicated, no, sir." (Emphasis added) (PA.Decl.~47, Ex.22).

Finally, in Roitz, supra, the court noted the importance of the fact that the arbitrators did not refuse to hear the testimony at issue and that it would hear it at a later date. Id. at 90. The testimony was not heard at a later date and the award was still upheld. Id. at 91.

Dated: November 19,2010

L & BAKHTIARI

Philip M. Aidikoff, Esq.

9 Respondent relies on Tempo v. Bertek, 120 F.3d 16 (2d. Cir. 1997)for the proposition that "[fJailure to postpone a hearing to allow a key witness to testify, where there is sufficient cause and no delay tactics, can be an abuse of the arbitrator's discretion." (Petition, pg. 12) In Tempo, Bertek's key witness was unavailable to both testify in person and give a deposition because his wife was diagnosed with a recurrence of cancer, the timing of which could not be controlled, unlike the present case. Bertek simply "urged the panel to keep the record open until [his key witness] could testify either in person or by deposition." Id. at 18. Contrariwise, Detanna had the opportunity to give a deposition (but failed to do so) and did testify.

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