Judge Hits Defunct Arbitration Panel

A Los Angeles Superior Court judge has entered a $5.1-million fraud and racketeering judgment stemming from an elaborate scheme to extract damages from unwary parties who were hauled before a fly-by-night arbitration service.

The default judgment issued by Judge Anthony J. Mohr concludes the unusual case of the defunct Southern California Arbitration Assn. of Palm Desert--described in court papers as having been secretly controlled by a network of businessmen who brought financial disputes before it.

The former president of SCAA, Loren Huweiler of Indian Wells, could not be reached for comment.

The lawsuit was filed by three Los Angeles-area commercial landlords, all of whom had been dragged before the SCAA as a result of tenant disputes they believed were deliberately contrived. The landlords--Topanga & Victory Partners, Vivorx Inc. and Sebastiano Sterpa--filed the case in June 1997, after a lengthy report in The Times on the SCAA prompted them to begin comparing notes.

Gregg A. Martin, a lawyer for the landlords, acknowledged they have little hope of collecting the damages from the SCAA or four other defunct business entities that Mohr also found guilty of fraud, conspiracy and racketeering.

But Martin said he and his clients had decided to pursue the case to get a judgment on the record--and expose what he called a “pernicious and . . . fundamental attack on our judicial system.”

During a court hearing in May, Mohr described evidence about manipulation of arbitration awards as “explosive” and “extremely damning. . . . If it’s true, the Superior Court is a victim of a crime,” he said.

Asked this week if he planned to seek a criminal probe, Mohr referred the question to a spokeswoman for the court, who said “no determination [has] been made at this point.”

According to the lawsuit, the scheme was carried out by businessmen closely linked to SCAA, who inserted clauses in leases and other routine business contracts requiring that any disputes be resolved through binding arbitration with the firm. According to the suit, the participants would then manufacture conflicts and demand they be taken to SCAA arbitrators, with whom they had business or social ties.

Established in 1995, the SCAA listed among its directors a deceased businessman and a fitness center operator who said she had no idea what the arbitration firm did.

The case highlighted the lack of regulation of arbitration services and arbitrators. Despite the explosive growth of private dispute resolution, no requirements exist for arbitration firms or arbitrators to have legal training or be licensed, as even court reporters must.

Without admitting liability, Huweiler and several other individual defendants in the lawsuit paid a $50,000 settlement in February. Among the settling defendants were Cyril Chern, a Los Angeles-area lawyer and arbitrator, and Stephen R. Holgate, a Riverside County businessman. Neither could be reached for comment.

Both had been accused in the suit of being organizers of the SCAA and of being involved in business ventures that received large awards from SCAA arbitrators.

The episode cited by Mohr as potential evidence of a crime involved a $36,000 dispute over tenant improvements that resulted in a $582,000 arbitration award in 1996 to Omni Medical Centers Inc., an alcoholism treatment firm of which Chern was a vice president. Omni, which is defunct, was one of the firms found guilty of fraud and racketeering.

The arbitrator who heard the Omni case, Wayne Schultz, had virtually no arbitration experience and was a longtime business associate of Holgate.

This February, however, Schultz stated in a sworn declaration filed in court that his award to Omni had been $50,000 or less, and that he discovered later that parties unknown had changed the award against a Long Beach building operator to $582,000.

Moreover, Schultz said, a prior declaration filed in court under his name that confirmed the $582,000 award had been prepared and signed by someone else--with a signature that “appears to be a very good forgery or copy.”

Mohr had sought to question Schultz under oath, but he died in May of an illness before appearing in court.