After doing the reading, especially
the section on Commonwealth Coatings
Corp. v. Casualty Co. and Positive
Software Solutions v. New Century Mortgage Corp., I wondered what it would
take for the 5th Circuit to find “evident partiality” in an
arbitrator’s relationship with a party. I don’t necessarily agree with the
logic behind Justice Black’s opinion in Commonwealth,
because I think that proof of actual bias or partiality, or proof that the
connection between the arbitrator and the party affected the deliberations is a
vital part of any claim that the decision should be vacated. I guess that means
that I agree more with Justice White’s “narrowing” opinion. I also agree with
the decision in Positive Solutions that
a minimal working relationship more than 10 years before the arbitration is too
tenuous to warrant vacating the award.
So, given
that, I decided to try and find other “partiality” cases to see what the 5th
Circuit did and didn’t consider grounds for vacating an award. Here’s a short
list of some cases I found:
- · Ameser v. Nordstrom, Inc. (442 Fed.Appx 967): An arbitrator failing to disclose that they had previously participated in an arbitration involving Nordstrom is not sufficient evidence of “evident partiality” to warrant vacating the decision
- · United Forming, Inc. v. FaulknerUSA, LP (350 Fed.Appx 967): Arbitrators allegedly suggesting defenses and causes of action to United Forming during the hearing does not show actual bias or evident partiality.
- · Weber v. Merrill Lynch Pierce Fenner & Smith, Inc. (455 F.Supp.2d 545): Plaintiffs did not meet “onerous burden” to show evident partiality. They alleged that the arbitration award should be vacated because the arbitrator and his wife belonged to several of the same society organizations as the Merrill Lynch employees named in the complaint.
- · Bulko v. Morgan Stanley DW, Inc. (450 F.3d 622): The 5th Circuit overturned a District Court’s decision vacating an arbitration award. The District Court had determined that one of the arbitrators actually wasn’t qualified according to the standards set out by parties in their arbitration agreement. The Court decided that any error made in selecting said arbitrator was “trivial”, and that the award shouldn’t have been vacated.
Basically, it seems that the 5th Circuit does not
often vacate arbitration awards on the basis of evident partiality. That seems
to fit in with our justice system’s pro-arbitration stance, but again begs the
question: are we giving arbitrators too much leeway and too little oversight?
After reading your blog, I think that the issue of evident partiality is only going to get worse as arbitration continues to become more popular. Ultimately, it appears that there is no standard that works well in every standard. The Commonwealth Coatings court may have set to easy of a standard for finding evident partiality while Positive Software made the finding too difficult. It may simply be that this becomes a case-by-case determination.
ReplyDeleteEvident partiality seems like something that desperately needs to be defined in a way that draws a bright line rule for all courts to follow. Even if SCOTUS already attempted to do this there is still a wide discrepancy between how certain courts view the decision as binding case law. While I understand the need to make arbitel decisions as secure as possible I am surprised that Ameser v. Nordstrom, Inc. did not meet the burden of evident impartiality. This was not a case of the arbiter having briefly worked with one of the parties in passing. Rather, this is an instance where he worked directly in a proceeding involving one of the parties. There is no way that the arbiter could have overlooked this fact and made an innocent mistake when he listed possible conflicts of interest. If I was Amester I would be very skeptical and angry about any parts of the decision that went against me, and I would deeply question whether the decision was in any way fair.
ReplyDeleteI agree with Jonathan about the Nordstrom case. The arbitrator has the most information about which cases he has previously arbitrated and thus should be required to disclose that information. Professor Bayer discussed an arbitration with a repeat party from a previous multi-party arbitration where he didn't even interact with the repeat party very much. But he still remembered and disclosed that information so the parties could make an informed decision. It seems obvious to me that this prior arbitration should be disclosed. However, whether failure to disclose that information should be grounds for vacatur is another question. I think we should keep in mind that what an arbitrator should do and what is evidence of the kind of impartiality necessary to vacate an arbitration award are two separate issues.
ReplyDeleteReading these cases, while hitting home the pro-arbitration bias of the circuit courts, one cannot also help but be somewhat frustrated. While such limited review of evident impartiality has obvious policy motivations, such as discouraging parties, post-arbitration from uncovering trivial relationships (especially when parties necessarily want an arbitrator involved in a specific industry), it also puts parties at great risk with no oversight. By choosing arbitration, parties truly are at the complete mercy of the arbitrator, and a bad selection decision will likely leave one of the parties purely out of luck.
ReplyDeleteDefinitely a lot of deference to the contract going on in these cases. But it also seems like the court may be rubbing the losing party's nose in the mess. Aside from things like contracts of adhesion, the parties generally enter into the agreement on equal footing/equal bargaining power. So when they choose an arbitrator with expertise, who has past "trivial" relationships, they need to accept a certain inevitability that those relationships will exist. And if the relationships are beyond trivial, then the parties should've done their homework better. The courts also seem to be protecting the expert arbitrators, by not generally deferring to their assertions or judgments that no conflicts existed or influenced the awards.
ReplyDeleteMeera, I was definitely thinking about doing exactly what you did--research specifically the 5th circuit decisions, but I think that in the process of reading the Positive Software case, I got distracted by all the "negative treatment" cases and that led me to all the other cases I encountered while researching the same topic. I really agree with Jonathan in that I think there should be some explicit bright line designated for what is "evident partiality." I guess that means you would also have to define "trivial," "reasonable," etc., too.
ReplyDeleteI think it is a fine line between discouraging the losing party to do an extensive background check of the arbitrator after they lost and finding the cases where the arbitrator purposely witheld relationships that caused them to make a biased decision. I think that's why disclosure and objecting to a relationship up front is the best way to catch these potential biases. Obviously that's not possible all the time, so the court needs to come up with a workable standard (instead of the confusing plurality opinion the SC wrote in Commonwealth Coatings.
ReplyDeleteI addressed this as well, but found myself wondering if the evident partiality standard would be better if it DID place a higher standard on arbitrators. I think the relevant case law proves that the courts oftentimes diverge on questions that affect public policy and the legal process, which raises the federal vs. state issue again and again. This divergence lends the legal standard a certain arbitrariness, and I understand why one of my classmates found it "vague."
ReplyDeleteI blogged on almost the same issue and although I agree with you that the narrowing opinion by Justice White seems the best I really think it would be helpful if there were some example out there of what is 'evident.' For example, in the California Civil Practice Code Section assigned in the reading family relationships, significant personal relationships, past arbitration service, and professional relationships (especially between the arbitrator and the parties counsel) are described as things the arbitrator must disclose. I think it might be helpful for the Supreme Court or some other Court to come up with a list of examples in order to narrow the playing field so we don’t see any more 10-14 year old business interactions asserted as justification for vacating an arbitration award.
ReplyDelete