July 10, 2025|Franchise Frontlines
July 10, 2025 | California Court of Appeal, Fourth District, Division 3 | Unpublished Opinion
Executive Summary
In an unpublished decision, Acting Presiding Justice Moore of the California Court of Appeal affirmed dismissal of claims brought by Subcontracting Concepts, LLC (“SCI”) against ADR Services, Inc. and its principal, Lucie Barron. SCI alleged ADR misrepresented the neutrality and vetting of its arbitrators, pointing to a neutral who allegedly clapped for opposing counsel, failed to follow procedural rules, and did not disclose a past malpractice judgment. SCI asserted consumer fraud and false advertising claims, but the court held they were barred by arbitral immunity. Citing Thiele v. RML Realty Partners, 14 Cal. App. 4th 1526 (1993), and La Serena Properties, LLC v. Weisbach, 186 Cal. App. 4th 893 (2010), the panel reaffirmed that arbitral immunity “shields all functions which are ‘integrally related to the arbitral process’ ” and applies even when framed as pre-arbitration misrepresentation claims.
Relevant Background
SCI was a defendant in a wage-and-hour arbitration captioned Wyatt v. Orange County Courier & Logistics LLLP. In 2020, ADR Services appointed attorney Robert Friedenberg to serve as one of three neutrals. SCI later alleged that ADR touted Friedenberg as impartial and experienced while failing to disclose the prior existence of a $200 million malpractice judgment against him. According to SCI, Friedenberg’s conduct during the arbitration reinforced these concerns. He allegedly “approvingly clapp[ed]” after opposing counsel’s opening, refused to apply procedural rules correctly, and suggested that SCI’s witness lacked credibility simply because the company’s general counsel was present, even though no party had objected and the testimony matched the deposition record.
The arbitration was divided into two phases. In Phase I, Friedenberg ruled that SCI was a joint employer, initially by e-mail without explanation. When SCI objected, he promised a reasoned decision but delayed issuing one. SCI filed objections, requested continuances, and ultimately moved in superior court to disqualify him and obtain a rehearing. The superior court denied the petition. Phase II never proceeded, as the parties settled the arbitration in 2022.
After settlement, SCI filed a class action against ADR and Barron, asserting fraud, negligent misrepresentation, false advertising under Cal. Bus. & Prof. Code § 17500, and unfair business practices under Cal. Bus. & Prof. Code § 17200. SCI alleged ADR misled consumers by advertising “the highest level of quality, integrity, and efficiency” while failing to screen neutrals adequately. ADR and Barron demurred, arguing that arbitral immunity barred all claims. The trial court agreed, sustaining the demurrer with leave to amend. SCI amended to focus on ADR’s alleged pre-arbitration advertising and vetting practices, scrubbing out specific references to Friedenberg’s conduct. Nonetheless, the trial court again sustained the demurrer, this time without leave to amend, holding the gravamen of the claims remained tied to arbitration. SCI appealed.
Decision
The Court of Appeal affirmed. The panel began by reviewing California’s strong policy favoring arbitration and the longstanding rule that arbitrators, like judges, are protected by absolute immunity for conduct integrally related to the arbitration process. As the court noted, arbitral immunity applies broadly “to organizations that sponsor arbitrations” and does not depend on whether the challenged conduct is labeled administrative or discretionary.
SCI argued its lawsuit targeted ADR’s misleading advertising and failure to vet arbitrators, which it claimed were distinct from the arbitration itself. The court rejected that framing. It explained that SCI’s alleged harm flowed directly from the Wyatt arbitration—specifically, from Friedenberg’s rulings and ADR’s refusal to intervene. Without those adverse outcomes, SCI would have had no damages. “At first blush,” the court acknowledged, “this allegation would appear to relate to actions taken prior to any arbitration proceedings.” But viewed in context, the gravamen of the complaint was the arbitrator’s performance in the Wyatt case, which brought the claims squarely within arbitral immunity.
The court compared the matter to La Serena Properties, LLC v. Weisbach, where parties sued the American Arbitration Association after discovering an arbitrator failed to disclose a relationship with opposing counsel’s family. There, as here, the plaintiffs alleged fraud and false advertising, arguing the provider misrepresented its neutrals as qualified. The appellate court in La Serena rejected those claims, holding that appointment and disclosure are “integral” to arbitration and thus immune. Justice Moore emphasized that SCI’s “creative pleading” could not alter the fact that its allegations arose from the arbitration itself.
The panel also considered whether any exception might apply. The only California case to pierce arbitral immunity, Baar v. Tigerman, 140 Cal. App. 3d 979 (1983), involved an arbitrator who failed to issue any award at all, depriving the parties of the arbitration they had bargained for. In contrast, Friedenberg did issue rulings, however controversial SCI found them. “We have found no California case since Baar allowing any other exception to arbitral immunity,” the court concluded.
Finally, the court declined to grant leave to amend. SCI had already twice amended its complaint, attempting to reframe its claims as pre-arbitration consumer fraud. But the panel found the underlying defect incurable: the claims were inextricably tied to the arbitration process. As the court noted, “[l]eave to amend should be denied where the facts are not in dispute and the nature of the claim is clear, but no liability exists under substantive law.” Because arbitral immunity squarely applied, no further amendment could cure the defect.
Looking Forward
For franchisors and employers, this decision underscores the sweeping scope of arbitral immunity. Allegations of bias, undisclosed conflicts, or misrepresentations about arbitrator qualifications cannot support separate claims against neutrals or arbitration providers. The only remedies are procedural: disqualification motions or petitions to vacate, which are rarely successful.
This raises a broader question for franchisors: should arbitration clauses be included in Franchise Agreements and Franchise Disclosure Documents? While arbitration is often promoted as faster and less costly, cases like this illustrate the tradeoffs. Arbitral immunity ensures finality but sharply limits recourse if the process feels unfair. Once an arbitrator is appointed, both franchisors and franchisees may find themselves locked into rulings with virtually no opportunity for collateral challenge.
In our practice, we have seen arbitration clauses increase costs rather than reduce them, particularly when disputes involve multiple parties or statutory claims. Unlike court, arbitration provides no appellate review, and the limited grounds to vacate do little to safeguard against alleged misconduct. For franchisors committed to system integrity, it may be worth considering whether traditional litigation—though slower—offers greater transparency and protection.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Shareholder at Buchalter APC and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
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