Appeals court tosses out $3.6 million arbitration award

Michael Ovitz found no relief from the California Court of Appeal in his long-running lawsuit with former APG president Cathy Schulman.

The appeals court affirmed a lower court decision tossing out a $3.6 million arbitration award to Ovitz on conflict of interest grounds. Wednesday’s opinion, based on arcane issues of arbitration and disclosure law, concluded that the arbitrator was bound by California, not federal disclosure standards, and that the arbitration award was properly vacated for failure to disclose a conflict of interest.

The arbitrator, retired judge Campbell Lucas, did not disclose that he had agreed to act as an arbitrator on an unrelated case involving Ovitz’s attorneys while still handling the Ovitz-Schulman matter.

Whether the parties will settle, appeal or rearbitrate the matter is not yet known.

Ovitz inhouse counsel James Ellis said, “If we end up having to arbitrate all over again, I guess we’ll do it all over again. We’re confident that any neutral arbitrator will reach the same result that Justice Lucas reached.”

Schulman’s attorney, Walter Johnson of Nixon Peabody in San Francisco, said, “We are very pleased that the court reached what we consider the correct result.”

Schulman sued Ovitz in 2002, claiming she was fired after revealing to StudioCanal that funds earmarked for a joint venture had been diverted to other projects. Ovitz took the matter to arbitration. Seeking $3 million, he claimed that Schulman violated a settlement agreement, continued to interfere on APG projects and was the source of a spate of negative articles claiming StudioCanal pulled out of its joint venture with APG because of accounting irregularities.

In a scathing opinion, Lucas sided with Ovitz and awarded him $1.5 million in compensatory damages plus $1.9 million in attorneys’ fees and another $200,000 in costs. Schulman moved to vacate the award for conflict of interest in August 2004. In October 2004, L.A. Superior Court Judge Ralph Dau tossed the award and Ovitz appealed.

Setting aside an arbitration award is unusual, and failure to disclose a conflict is one of the few grounds for doing so.

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