Superior Court Judge Allows Fraud Case Against American Arbitration Association to Proceed

A Los Angeles Superior Court judge allowed a lawsuit brought by partners in a former Los Angeles law firm to proceed against the arbitrator who presided over their law firm break up and the American Arbitration Association (AAA), which provided the arbitrator for the dispute (Lisa Cross, et al vs. Edward J. Costello, Jr.; American Arbitration Association, BC313366).

LOS ANGELES, CA (PRWEB) October 6, 2004 -- A Los Angeles Superior Court judge allowed a lawsuit brought by partners in a former Los Angeles law firm to proceed against the arbitrator who presided over their law firm break up and the American Arbitration Association (AAA), which provided the arbitrator for the dispute (Lisa Cross, et al vs. Edward J. Costello, Jr.; American Arbitration Association, BC313366).

In an October 5, 2004 hearing, Los Angeles Superior Court Judge Judith Chirlin denied a motion to dismiss and allowed the former law partners to bring causes of action including fraud, fraudulent concealment, breach of contract, negligence and violation of Business Code Section 17200 against arbitrator Edward J. Costello, Jr. and the AAA.

This is the first time a court has allowed a case of fraudulent concealment to be brought involving the selection of an arbitrator," says Michael R. Brown, one of the attorneys for the plaintiffs and partner in Los Angeles-based Kabateck Brown Kellner LLP.

In their lawsuit, partners in the now defunct OFlaherty and Belgum are claiming that arbitrator Costello and the AAA concealed background information about Costello that would have cast doubt on Costellos ability to be a fair and impartial arbitrator in law firm breakup cases. The OFlaherty dispute centered on whether the majority of partners had the right to remove another partner from the firm. Costello ruled that the majority partners actions were unfair and awarded the ousted partner $6 million in compensatory damages and more than $1.2 million in punitive damages.

We later learned that Costello had been a plaintiff in a partnership dispute in which his partners voted to remove him from the partnership. It was almost the exact same scenario as OFlaherty, yet neither Costello nor the AAA bothered to inform the parties of this possible conflict," says Richard L. Kellner, co-counsel for the plaintiffs and partner at Kabateck Brown Kellner. The judge was particularly troubled because Costello intentionally removed from his resume reference to the law firm with which he had a contentious relationship."

A business that defrauds the public should be held accountable," says Brown. Costello and the AAA are claiming arbitrator immunity, but the intentional concealment occurred during the arbitrator selection process, not during the actual arbitration. At that point, their business practices should be held under the same legal scrutiny as any other type of business."

A case management conference will be held January 12, 2005 at which time a trial date will be selected.

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