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Rogers v. Red Boots Investments, L.P.

Court of Appeals of New Mexico

December 24, 2019

KAREN L. ROGERS, Petitioner-Appellee,
RED BOOTS INVESTMENTS, L.P., Respondent-Appellant. And KAREN L. ROGERS, Petitioner-Appellee,
RED BOOTS INVESTMENTS, L.P., Respondent DAVID S. SMOAK, Arbitrator-Appellant.


          Holland & Hart LLP Larry J. Montano Charlie S. Baser Santa Fe, NM for AppelleBrant & Hunt, Attorneys

          John M. Brant Albuquerque, NM for Respondent-Appellant

          Hatch Law Firm, LLC Stanley N. Hatch Jesse C. Hatch Albuquerque, NM for Arbitrator-Appellant



         {¶1} Red Boots Investments, L.P. (Red Boots) and David Smoak (collectively, Appellants) filed separate appeals, appealing the district court's orders vacating an arbitration award[1] issued by Smoak in favor of Red Boots, disqualifying David Smoak as arbitrator, and disqualifying Stanley Hatch as legal counsel to the arbitrator. Because both appeals raise several identical issues, we consolidate the appeals for decision.

         {¶2} On appeal, Appellants' raise the following issues: (1) whether Smoak, as the arbitrator, has the right to appeal the district court's orders; (2) whether the district court erred in vacating Smoak's arbitration award for "evident partiality," under the New Mexico Uniform Arbitration Act (the NMUAA), NMSA 1978, §§ 44-7A-1 to -32 (2001); and, (3) whether the district court erred in prospectively disqualifying Smoak from serving as an arbitrator of future disputes between the parties. We affirm.

         I. BACKGROUND

         {¶3} Bill Rogers (Husband) and Karen Rogers (Wife) dissolved their marriage by stipulated judgment (the Stipulated Judgment) entered by a California court. Pursuant to the Stipulated Judgment, two trusts for the benefit of Husband's and Wife's minor children (collectively, the Trusts) were ordered to pay child support to Wife. To effectuate the Stipulated Judgment, Husband and Wife formed Red Boots to hold Husband's and Wife's marital assets and distribute those assets at a rate proportionate to their respective interests in the partnership. Husband served as the managing member of both Red Boots and Red Boots' general partner, TexWest, LLC.

         {¶4} Following a dispute over the implementation of the Stipulated Judgment and the management of Red Boots, Wife sued Husband in California and Texas. Much of the property involved in the dispute was located in New Mexico and owned by RSF Land and Cattle Company, LLC (RSF), for which Husband served as managing member and Smoak served as president. Husband and Wife agreed to mediate their disputes, with Smoak serving as mediator and Hatch as Smoak's attorney. Husband and Wife reached a preliminary settlement on September 11, 2008, but when a dispute arose regarding the terms of the settlement, arbitration was scheduled. Before the arbitration was commenced, Husband and Wife resolved their disputes and executed a settlement agreement (the Settlement Agreement) between themselves, Red Boots, the Trusts, RSF, and Smoak (collectively, the Parties). Following the execution of the Settlement Agreement, the Parties filed this action in district court, seeking an order confirming the Settlement Agreement, which the Parties presented to the district court as an arbitration award. The district court confirmed the arbitration award on May 8, 2009.

         {¶5} The Settlement Agreement required the Parties to submit all disputes or claims arising from "the operations of Red Boots, the interpretation of the Red Boots' partnership, the interpretation of the Stipulated Judgment, and the activities of the general partner of Red Boots" to an escalating three-step process: (1) informal discussions; (2) mediation; and (3) "final and binding" arbitration. The Settlement Agreement provided that the mediator would also serve as the arbitrator if mediation was unsuccessful, and stated that any necessary arbitration is governed by New Mexico law. Paragraph 24 of the Settlement Agreement provided that none of the Parties "shall make any comment, statement, or representation to the guardian ad litem, [the California court] or any other court of competent jurisdiction contrary to the established terms of this Settlement Agreement[, ]" and that violation of this provision would result in the mediator or arbitrator ordering "payment of reasonable costs, attorney[] fees, and expenses incurred by the other Litigating Parties[.]"

         {¶6} The Settlement Agreement designated the possible mediators and, thus, arbitrators in order of preference as Smoak, Hatch, Ben M. Allen, and George Bravante. The Parties noted in the Settlement Agreement that Smoak disclosed his role as the president and a member of RSF, and that because Husband was the managing member of RSF, Smoak "may have an interest in the resolution of the disputes between the Parties and may be susceptible to influence by [Husband]." The Settlement Agreement also recognized that Hatch served as RSF's legal counsel and "may be susceptible to influence by [Husband]" because of Husband's role as the managing member of RSF. Nevertheless, the Parties "voluntarily appointed" Smoak to act as mediator with Hatch acting as Smoak's legal counsel, and released and discharged Smoak and Hatch from all claims, complaints, liability, loss, or damage resulting from mediation, the Settlement Agreement, or any decisions by Smoak or Hatch relating to the mediation or the Settlement Agreement. Smoak and Hatch nonetheless agreed "that they will in any future mediation or arbitration take all reasonable steps and act in good faith to be neutral and fair to all [P]arties."

         {¶7} The present case arises from separate, but related, arbitration proceedings conducted pursuant to the terms of the Settlement Agreement. As such, we set forth the relevant factual and procedural backgrounds of each arbitration proceeding leading up to the case at bar.[2]

         A. The Trusts Arbitration

         {¶8} After the Trusts failed to make certain child support payments to Wife as required by the Settlement Agreement, Wife sent a letter to Hatch, as counsel for the Trusts, demanding immediate payment. Hatch wrote to Wife, demanding mediation of the disputes she raised in her letter. In response, Wife wrote that she was willing to participate in mediation provided that "[a]n independent and neutral mediator shall be selected by agreement of the parties or if the parties cannot agree, the parties shall ask for such a mediator to be appointed by the [district c]ourt."

         {¶9} Due to the unavailability of the other possible mediators, Bravante was designated in accordance with the Settlement Agreement to resolve their dispute. Wife filed a motion seeking to reopen the district court litigation, remove Bravante as the mediator, and appoint a neutral mediator. The district court denied Wife's motion to remove Bravante and appoint a neutral arbitrator, ordered the parties to mediate the dispute, and appointed Bravante as the mediator. Following unsuccessful mediation, Bravante withdrew for health reasons and the district court appointed Bruce Hall as the arbitrator.

         {¶10} During arbitration, the Trusts raised several counterclaims against Wife and argued Wife violated Paragraph 24 of the Settlement Agreement by filing her motion to remove Bravante in district court and "making comments, statements, and/or representations to the [district c]ourt." Hall entered an arbitration award in Wife's favor (Trusts Award) on February 29, 2012, concluding the Trusts breached the Settlement Agreement, dismissing the Trusts counterclaims, and rejecting the Trusts' argument that Wife's conduct breached "any contractual obligation under the Settlement Agreement." The district court confirmed the Trusts Award.

         B. Red Boots Arbitration I

         {¶11} During the first arbitration between Wife and Red Boots (RB Arbitration I), Smoak was appointed to serve as the arbitrator and began the process of scheduling the arbitration on May 22, 2012. On June 28, 2012, Wife filed (1) an application in the district court to temporarily restrain and preliminarily enjoin Smoak from conducting an arbitration in the RB Arbitration I matter, and (2) a motion to permanently disqualify Smoak from serving as mediator or arbitrator for any disputes under the Settlement Agreement and to appoint a neutral arbitrator for the RB Arbitration I matter. To support her motion to permanently disqualify Smoak, Wife provided an affidavit explaining that she and Smoak spoke shortly after Hall entered the Trusts Award. Wife stated that Smoak told her during that conversation "that he thought . . . Hall was wrong in not penalizing [Wife] for the [motion to remove Bravante as the mediator] and that . . . Hall should have awarded attorney fees against [Wife]." After Red Boots submitted its list of issues for arbitration, which included Wife's "violation of the Settlement Agreement's Alternative Dispute Resolution provisions against going to court which led to . . . large amounts of Red Boots', Tex[W]est's and [Husband's] [sic] time and efforts to defend, and . . . large amounts of the time and efforts of others to defend[, ]" Smoak notified Red Boots and Wife that the issues within the scope of arbitration included "[d]isputes concerning the violation of the provisions of [Paragraph] 24 of the Settlement Agreement as it relates to present court actions initiated by [Wife]."

         {¶12} The district court denied Wife's motion to disqualify Smoak in the RB Arbitration I, and denied her motion to permanently disqualify Smoak "as not being ripe for decision." Addressing the scope of the upcoming RB Arbitration I, the district court limited the arbitrability of the Paragraph 24 issue:

Regarding the scope of the issues for the [RB A]rbitration [I], with respect to any issue relating to reasonable costs, attorney fees, and expenses which might be sought against [Wife] pursuant to [Paragraph] 24 of the . . . Settlement Agreement . . ., the arbitration is limited to considering only costs, attorney fees and expenses related to disputes between [Wife] and Red Boots . . . beginning with the [application to temporarily restrain and preliminarily enjoin Smoak] filed in [the district court on] June 28, 2012[, ] and the [motion to disqualify Smoak and appoint a neutral arbitrator] also filed June 28, 2012. Nothing contained herein suggests whether or not any costs, attorney fees or expenses should be awarded. (Emphasis added.)

         Neither Red Boots nor Smoak filed a motion to reconsider the district court's order and neither appealed the order.

         {¶13} Following the RB Arbitration I, Smoak issued the RB Award I which addressed Red Boots' claim for damages against Wife under Paragraph 24. After acknowledging the district court's limitation concerning the costs, fees and expenses that could be sought against Wife, Smoak concluded that Paragraph 24 was and would "continue to be a major issue for the parties[, ]" that it "beg[ged] to be addressed in detail and directly[, ]" and that "[i]t was not raised or responded to in the [district] court pleadings." Notwithstanding the district court's order, Smoak then awarded litigation costs dating back to September 12, 2008, against Wife in conflict with that order, concluding:

[Wife's] court actions with respect to the present arbitration constitute a single violation of [Paragraph] 24 harming Red Boots, [TexWest], and the member of [TexWest]. Thus, [t]he damages to be awarded in favor of Red Boots as a result of [Wife's] violation of [Paragraph] 24 in this matter are the payment of reasonable litigation costs incurred by Red Boots in disputes with [Wife] since the closing of the original mediation on September 12, 2008. . ...

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