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Evident Partiality | Vacating, Modifying, and Correcting Awards | Businessperson’s Federal Arbitration Act FAQ Guide | Part II

February 3rd, 2022 Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitration Providers, Arbitrator Selection and Qualification Provisions, Awards, Businessperson's FAQ Guide to the Federal Arbitration Act, Challenging Arbitration Awards, Evident Partiality, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Party-Appointed Arbitrators, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Section 10, Small Business B-2-B Arbitration, United States Court of Appeals for the Second Circuit, Vacate Award | 10(a)(2), Vacate Award | Evident Partiality, Vacatur Comments Off on Evident Partiality | Vacating, Modifying, and Correcting Awards | Businessperson’s Federal Arbitration Act FAQ Guide | Part II

Evident Partiality

Thurgood Marshall U.S. Courthouse, 40 Centre Street, New York, NY 10007

Evident partiality standards are designed to enforce the parties’ expectations  of neutrality without significantly undermining the finality of arbitration awards. This part II of our Businesspersons’ FAQ guide on evident partiality explains why that is so.  

Evident Partiality Standards and their Source

The subject of what constitutes neutrality for judicial decision makers has long been the subject case law and statutes. Unlike the standards for disqualifying judges, which are set forth for federal judges in 28 U.S.C. § 455, arbitrator neutrality standards in Federal Arbitration Act cases are not expressly set forth by statute—FAA Section 10(a)(2) merely authorizes a court to vacate an award if an arbitrator is “guilty” of “evident partiality.” 9 U.S.C. § 10(a)(2).

While the FAA Section 10(a)(2) deems “evident partiality” a ground for vacating an award, the FAA does not define the term or establish a baseline impartiality standard that must be met by every arbitrator.  This contrasts starkly with the English Arbitration Act 1996, which imposes on all arbitrators effectively the same standards of impartiality applicable to English judges. See, generally, Arbitration Act 1996 § 33(1).

What constitutes “evident partiality” under the FAA is a question that the federal courts have answered in various ways over the past several decades. In general, evident partiality is assessed according to a sliding scale of sorts, depending on the parties’ agreement and the surrounding circumstances. That should come as no surprise since the whole point of the FAA is to enforce the parties’ agreement to arbitrate according to its terms. See, e.g., Stolt-Nielsen S.A. v. Animalfeeds Int’l, 559 U.S. 662 (2010) (“[W]e have said on numerous occasions that the central or primary purpose of the FAA is to ensure that private agreements to arbitrate are enforced according to their terms.”) (citations and quotations omitted).

What is the Standard in the Second Circuit?

The U.S. Circuit Courts of Appeals have adopted various evident partiality standards, which are based principally on differing interpretations of the U.S. Supreme Court’s 1968 decision in Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S. 145 (1968), a case that we will discuss in detail in an upcoming segment dealing with arbitrator disclosure. Rather than engage in a broad survey and parsing of the various evident partiality standards adopted by various federal courts, let’s focus on the so-called “reasonable person” evident partiality standard that has been adopted by the Second Circuit and a number of other courts.

Under Second Circuit authority an award may be vacated “if a reasonable person would have to conclude” that an arbitrator was biased against one party or partial in favor of another. See Morelite v. N.Y.C. Dist. Council Carpenters, 748 F.2d 79, 83-84 (2d Cir. 1984); National Football League Mgmt. Council v. National Football League Players Ass’n, 820 F.3d 527, 549 (2d Cir. 2016) (“NFL Council”); Scandinavian Reinsurance Co. v. Saint Paul Fire and Marine Ins. Co., 668 F.3d at 64; Applied Indus. Materials Corp. v. Ovalar, 492 F.3d 132, 137 (2d Cir. 2007).

The Second Circuit’s “reasonable person” standard has been construed and applied by many courts since the Second Circuit’s 1984 decision in Morelite, and has been adopted by the First, Third, Fourth, and Sixth Circuits.  See, e.g., UBS Fin. Servs. v. Asociación de Empleados del Estado Libre Asociado de P.R., 997 F.3d 15, 17-20 (1st Cir. 2021) (citing cases); Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 253-54 (3d Cir. 2013) (citing cases); ANR Coal Co. v. Cogentrix of North Carolina, Inc., 173 F.3d 493, 500-01 (4th Cir. 1999); Apperson v. Fleet Carrier Corp., 879 F.2d 1344, 1358 (6th Cir. 1989).

The standard does not require a showing that an arbitrator was actually biased against one party or partial toward another, only that a reasonable person would have to conclude that was so. A determination that a reasonable person would have to conclude that an arbitrator was financially or personally interested in the outcome, or not independent, would likewise satisfy the standard.

Absent disclosure and a waiver, an arbitrator should be free from any relationships with the parties that a reasonable person would have to conclude would materially compromise his or her ability to decide the case in an impartial manner. See Morelite, 748 F.2d at 84-85 (father-son relationship); Scandinavian Re, 668 F.3d at 72 (“Among the circumstances under which the evident-partiality standard is likely to be met are those in which an arbitrator fails to disclose a relationship or interest that is strongly suggestive of bias in favor of one of the parties”).

Evident Partiality Standards versus Judicial Impartiality Standards 

In the Second Circuit and elsewhere, the standard for disqualifying a judge for partiality or bias is less demanding than that required to vacate an award for evident partiality. Morelite, 748 F.2d at 83; Scandinavian Re, 668 F.3d at 72; see, e.g, Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673, 681 (7th Cir. 1983). While in the Second Circuit one must demonstrate that a “reasonable person would have to conclude” that an arbitrator is biased against or partial to a party, Morelite, 748 F.2d at 83; Scandinavian Re, 668 F.3d at 72, federal judges are disqualified for bias or partiality “in any proceeding in which [their] impartiality might reasonably be questioned.” See 28 U.S.C. § 455(a).

Though neither the judicial nor the arbitral standard requires a challenger to establish “actual bias,” see Morelite, 748 F.2d at 84, and even though demonstrating judicial partiality or bias is difficult to do, showing that a person “might reasonably” “question” a decisionmaker’s impartiality is a considerably less daunting task than showing that the same “reasonable” person “would have to conclude” that an arbitrator was partial or biased.

The Second Circuit also imposes a heightened evidentiary standard on evident partiality claims. Like fraud claims, they must be established by “clear and convincing evidence.” See NFL Council, 820 F.3d at 548; Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Tr., 729 F.3d 99, 106 (2d Cir. 2013).

The particularly demanding standard for establishing evident partiality of a neutral arbitrator certainly serves to make arbitration awards less susceptible to challenge, thereby increasing the odds that an arbitration award and its confirmation  will be the last step in the dispute resolution process, not a starting point for intensive post-award litigation and further arbitration.

It is at least ostensibly designed to reflect realistically what reasonable expectations of neutrality a party who agrees to arbitrate may have. “Parties agree to arbitrate precisely because they prefer a tribunal with expertise regarding the particular subject matter of their dispute,” said the late Circuit Judge Irving R. Kaufman, speaking for the Court in Morelite, and “[f]amiliarity with a discipline often comes at the expense of complete impartiality.” Morelite, 748 F.2d at 83:

Some commercial fields are quite narrow, and a given expert may be expected to have formed strong views on certain topics, published articles in the field and so forth. Moreover, specific areas tend to breed tightly knit professional communities. Key members are known to one another, and in fact may work with, or for, one another, from time to time. As this Court has noted, ‘[e]xpertise in an industry is accompanied by exposure, in ways large and small, to those engaged in it….’ .  .  .  .  [T]o disqualify any arbitrator who had professional dealings with one of the parties (to say nothing of a social acquaintanceship) would make it impossible, in some circumstances, to find a qualified arbitrator at all. Morelite, 748 F.2d at 83 (quoting Andros Compania Maritima, S.A. v. Marc Rich & Co., 579 F.2d 691, 701 (2d Cir.1978); other citations omitted).

By not requiring neutrals to comply with judicial standards of partiality courts balance the parties’ expectations with the realities of the marketplace.  Particularly in industry arbitration, sought-after arbitrators often have many years of industry experience, which may inform their perspectives on issues important to the industry. Intra-industry issues can pit one segment of the industry against another, and a qualified neutral may have experience in one or both segments.  Some degree of institutional predisposition comes with the territory and does not necessarily disqualify the neutral.  And as industry insiders, arbitrators may know the lawyers and the parties socially and professionally, but those relationships generally do not disqualify the arbitrator from service. 

These practical realities demand what Judge Posner aptly termed a “tradeoff between impartiality and expertise” – the parties bargained for dispute resolution by an industry expert and the benefit of that expertise carries with it the burdens of greater entanglement with the parties, the industry and the issues.  Indeed, if courts required the industry arbitrators — or even commercial arbitrators without an industry-specific focus — to shed or be free from this proverbial baggage, then qualified umpire candidates would be hard to come by.  See Leatherby, 714 F.2d at 679 (“people who arbitrate do so because they prefer a tribunal knowledgeable about the subject matter of their dispute to a generalist court with its austere impartiality but limited knowledge of the subject matter.”)

Another reason the law does not hold neutral arbitrators to the same standards as judges is because arbitration is voluntarySee Leatherby, 714 F.2d at 679. “Courts are coercive, not voluntary, agencies,” and “fear of government oppression” has, over time, prompted the creation of “a judicial system in which impartiality is prized above expertise.” Leatherby, 714 F.2d at 679. Persons elect to submit their disputes to arbitration “because they prefer a tribunal knowledgeable about the subject matter of their dispute to a generalist court with its austere impartiality but limited knowledge of subject matter.” Leatherby, 714 F.2d at 679.

Evident Partiality Standards in Tripartite Arbitration 

An arbitration agreement providing for a single arbitrator is ordinarily presumed to provide for arbitration by a neutral arbitrator, whose neutrality is assessed under the prevailing evident partiality standard. But arbitration agreements often call not for single arbitrators, who are presumed to be neutral, but three-person (a/k/a “tripartite”) panels. 

In reinsurance, and certain other industry arbitrations, for example, the agreement typically requires each party to appoint an arbitrator and for the party-appointed arbitrators to attempt to agree on an umpire or select one by lot drawing, coin toss, Dow Jones pick or like tie-breaking procedure. Unless the arbitration agreement provides otherwise, courts generally presume that the parties intended their appointed arbitrators to act as advocates of a sort:

[I]n the main party-appointed arbitrators are supposed to be advocates. In labor arbitration a union may name as its arbitrator the business manager of the local union, and the employer its vice-president for labor relations.  Yet no one believes that the predictable loyalty of these designees spoils the award. (Emphasis in original; citations omitted). Sphere Drake Ins. Co. v. All American Life Ins. Co., 307 F.3d 617, 620 (7th Cir. 2002); Certain Underwriting Members of Lloyd’s of London v. Florida Dep’t of Fin. Servs., 892 F.3d 501, 508 (2d Cir. 2018): The principles and circumstances that counsel tolerance of certain undisclosed relationships between arbitrator and litigant are even more indulgent of party-appointed arbitrators, who are expected to serve as de facto advocates . . . The ethos of neutrality that informs the selection of a neutral arbitrator to a tripartite panel does not animate the selection and qualification of arbitrators appointed by the parties. Id. (citations and quotations omitted).

The tripartite panel structure is supposed to provide the best of two worlds: (a) two experienced and knowledgeable industry professionals, each acting as an advocate of sorts on behalf of his or her appointing party; and (b) an equally experienced and knowledgeable umpire, who either casts the tie-breaking vote or brokers a consensus. 

An industry’s general acceptance of an advocacy role for party-appointed arbitrators is sometimes evidenced by a practice of the parties authorizing ex parte contact between party-appointed arbitrators and their appointing parties (which may be subject to an agreed cut-off point, such as the submission of pre-hearing briefs).

In the Second Circuit and a number of other jurisdictions, evident partiality standards are generally designed to apply to neutral arbitrators, but not to party-appointed arbitrators, which the parties did not intend to be neutral. Certain Underwriting Members, 892 F.3d at 509-10. According to the Second Circuit, absent arbitrator qualification language to the contrary, “[e]xpecting of party-appointed arbitrators the same level of institutional impartiality applicable to neutrals would impair the process of self-governing dispute resolution.” 892 F.3d at 510.

The Second Circuit, however, does not hold that there are no relationships or other facts  that may establish evident partiality of a non-neutral party-appointed arbitrator. An appointed arbitrator’s violation of a contractual requirement concerning partiality or bias, such as a requirement of “disinterestedness,” may establish evident partiality. Certain Underwriting Members, 892 F.3d at 510. Thus, if an arbitration agreement requires a arbitrator to be “disinterested,” the qualification “would be breached[,]” and evident partiality established, “if the party-appointed arbitrator had a personal or financial stake in the outcome of the arbitration.” 892 F.3d at 510.

In addition, the Second Circuit may vacate an award for a party-appointed arbitrator’s evident partiality “if the party opposing the award can show that the party-appointed arbitrator’s partiality had a prejudicial effect on the award.” Certain Underwriting Members, 892 F.3d at 510-11 (citations and quotations omitted). In theory at least, such prejudice might, in an appropriate case, be established where the record shows that the neutral wanted and attempted to obtain information from a party-appointed arbitration concerning what to make of the party-appointed arbitrator’s arguments and the party-appointed arbitrator provided misleading or false information in response. Cf. Sphere Drake, 307 F.3d at 623 (“[W]e have not been given any reason to think that umpire Huggins wanted more information from Jacks in order to know what to make of Jacks’ arguments during the panel’s deliberations.”)

Other courts say that evident partiality is ordinarily not a ground for disqualifying a partisan arbitrator, evident partiality is available only if it prejudices the challenging party, or the parties’ diminished expectations of party-appointed arbitrator impartiality should be considered as part of the evident partiality calculus. See, generally, Sphere Drake, 307 F.3d at 620;  617, 620 (7th Cir. 2002) (“evident partiality” ground can be waived by consent); Winfrey v. Simmons Foods, Inc., 495 F.3d 549, 552 (8th Cir. 2007) (requiring a showing of prejudice); Nationwide Ins. Co. v. Home Ins. Co., 429 F.3d 640, 645-46 & 648-49 (6th Cir. 2005) (figuring into the mix the parties’ diminished expectations of impartiality and suggesting that undisclosed social or business relationship may establish evident partiality if it is related “to the subject matter of the” arbitration.)

Although courts will (absent contract language to the contrary) ordinarily assume that the parties intended party-appointed arbitrators to play an advocacy role, there may be disagreement within the industry or among particular parties concerning the degree of partiality permissible.  For example, there are some who believe that robust advocacy is appropriate, while others believe the party-appointed arbitrator should strive to give the appointing party the benefit of the doubt, but ultimately decide the matter according to the evidence and applicable law, custom and practice.  Others may have different views.

The upshot is that the line between the acceptable and unacceptable is both difficult to draw and blurry.  To at least some extent checks on rampant partisanship are imposed by economic considerations:  Party-appointed arbitrators that overstep what other panel members perceive to be proper ethical boundaries risk diminished credibility, influence, and effectiveness, which in turn, may result in fewer appointments. The use of partisan arbitrators, which continues in certain types of industry arbitration, has fallen out of favor in commercial arbitration in general. Rule 18 of the American Arbitration Association’s Commercial Arbitration Rules and Mediation Procedures (amended and effective October 1, 2013) (“AAA Commercial Rules”) reverses the presumption that party-appointed arbitrators should be non-neutral. Rule 18(a) says “Any arbitrator shall be impartial and independent and shall perform his or her duties with diligence and in good faith, and shall be subject to disqualification for:”

(i) partiality or lack of independence, (ii) inability or refusal to perform his or her duties with diligence and in good faith, and (iii) any grounds for disqualification provided by applicable law. AAA Commercial Rules R. 18(a).

Rule 18(b) further provides that “The parties may agree in writing.  .  .  that arbitrators directly appointed by a party pursuant to Section R-13 shall be nonneutral, in which case such arbitrators need not be impartial or independent and shall not be subject to disqualification for partiality or lack of independence.”  AAA Commercial Rules R. 18(b).

The AAA rules vest in the AAA the power to “determine whether the arbitrator should be disqualified under the grounds set out above, and shall inform the parties of its decision, which decision shall be conclusive.” AAA Commercial Rules R. 18(c).

Rule 7(c) of the JAMS Comprehensive Arbitration Rules and Procedures likewise reverses the presumption of non-neutrality: “Where the Parties have agreed that each Party is to name one Arbitrator, the Arbitrators so named shall be neutral and independent of the appointing Party, unless the Parties have agreed that they shall be non-neutral.” JAMS Comprehensive Arbitration Rules and Procedures Effective June 1, 2021 (the “JAMS Rules”) Rule 7(c).

Reversal of the presumption of party-appointed arbitrator non-neutrality are common in arbitration rules (including in international arbitration rules), and where parties incorporate by reference arbitration rules into their contract, those rules will ordinarily be deemed a part of the contract, requiring party-appointed arbitrators to be neutral. See Idea Nuova, Inc. v. GM Licensing Group, Inc., 617 F.3d 177, 180-82 (2d Cir. 2010) (“An agreement to submit commercial disputes to ‘AAA arbitration for resolution’ is properly construed to agree to arbitration pursuant to the AAA Commercial Arbitration Rules and to incorporate those rules into the Agreement.”)

Tripartite Arbitration: Umpires or Neutral Arbitrators 

Umpires and neutrals are held to higher standards of impartiality than partisan party-appointed arbitrators, and it is to them that ordinary standards of evident partiality apply, such as the Second Circuit’s “reasonable person” standard. Parties expect them to be fair, objective, open-minded in deliberations and not predisposed to rule in favor of either party before hearing the evidence.  They are supposed to be impartial, but, as previously discussed, they are nevertheless not held to the same rigorous, statutory standards of impartiality applicable to United States federal judges.  See Sphere Drake, 307 F.3d at 621; Morelite, 748 F.2d at 83; see, generally, 28 U.S.C. § 455 (disqualification standards for federal judges). The next instalment will discuss arbitrator disclosure procedures and requirements, which are designed to implement and enforce evident partiality standards; and examples of what does and does not constitute evident partiality.

Contacting the Author

What constitutes evident partiality and under what circumstances is a controversial and sometimes elusive topic. The author has written about it extensively over the years, including hereherehere, and here, as well as in other publications. The author has briefed, argued, or both, a number of U.S. Courts of Appeals and federal district court cases on the subject over the years, including, among others, Certain Underwriting Members of Lloyds of London v. State of Florida, Dep’t of Fin. Serv., 892 F.3d 501 (2018); and Nationwide Mutual Ins. Co. v. Home Ins. Co., 429 F.3d 640 (2005). Both of these important cases are cited in this article.  

If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, or the services that the Loree Law Firm offers, then please contact the author, Philip Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. has more than 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation. He is licensed to practice law in New York and before certain federal district and federal appellate courts.

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CPR Interviews Downes, Faulkner & Loree About Recent SCOTUS Developments

December 8th, 2021 Amount in Controversy, Appellate Practice, Application to Compel Arbitration, Application to Stay Litigation, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Contract Defenses, CPR Speaks Blog of the CPR Institute, Diversity Jurisdiction, Equal Footing Principle, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Courts, Federal Question, International Arbitration, International Institute for Conflict Prevention and Resolution (CPR), International Judicial Assistance, Laches, Loree and Faulkner Interviews, Moses Cone Principle, Nuts & Bolts, Nuts & Bolts: Arbitration, Petition to Compel Arbitration, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 3 Stay of Litigation, Small Business B-2-B Arbitration, Stay of Litigation, Stay of Litigation Pending Arbitration, Subject Matter Jurisdiction, United States Supreme Court, Waiver of Arbitration Comments Off on CPR Interviews Downes, Faulkner & Loree About Recent SCOTUS Developments

CPR | SCOTUS | Sundance | Morgan | Interview | Downes | Faulkner | Loree

Steps and columns on the portico of the United States Supreme Court in Washington, DC.

Arbitration is an important topic this year at the U.S. Supreme Court (“SCOTUS”). On Monday, November 23, 2021 the International Institute of Conflict Protection and Resolution (“CPR”) conducted a video interview of Professor Angela Downes,  Assistant Director of Experiential Education and Professor of Practice Law at the University of North Texas-Dallas College of Law; Dallas-based arbitrator, attorney, and former judge Richard D. Faulkner, Esq.;  and Loree Law Firm principal Philip J. Loree Jr. about three recent SCOTUS arbitration-law developments. To watch and listen to the video-conference interview, CLICK HERE or HERE.

As reported in CPR’s blog, CPR Speaks, the three SCOTUS arbitration-law developments are:

  1. SCOTUS’s recent decision to Grant Certiorari in Morgan v. Sundance Inc.No. 21-328, which will address the question: “Does the arbitration specific requirement that the proponent of a contractual waiver defense prove prejudice violate this Court’s instruction that lower courts must ‘place arbitration agreements on an equal footing with other contracts?’” Morgan v. Sundance, Inc., No. 21-328, Petition for a Writ of Certiorari (the “Petition”), Question Presented (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)). (See SCOTUS Docket here for more information and copies of papers.) Prior to SCOTUS granting certiorari, we discussed the Morgan petition in detail here.
  2. Two SCOTUS petitions for certiorari that address the issue whether, for purposes of 28 U.S.C. 1782’s judicial-assistance provisions, an arbitration panel sited abroad is a “foreign or international tribunal” for purposes of the statute, which permits “any interested person” to seek U.S. judicial assistance to obtain evidence in the U.S. for use abroad. These petitions are AlixPartners LLP v. The Fund for Protection of Investors’ Rights in Foreign StatesNo. 21-518, and ZF Automotive US Inc. v. Luxshare Ltd.No. 21-401. Information about these cases is available at Bryanna Rainwater, “The Law on Evidence for Foreign Arbitrations Returns to the Supreme Court,” CPR Speaks(Oct. 22, 2021) (available here) and “CPR Asks Supreme Court to Consider Another Foreign Tribunal Evidence Case,” CPR Speaks (Nov. 12, 2021) (available here).
  3. Badgerow v. WaltersNo. 20-1143, a recently-argued SCOTUS case that presents the question “[w]hether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the FAA where the only basis for jurisdiction is that the underlying dispute involved a federal question.” See id., Question Presented Report, here. The case was argued before SCOTUS on November 2, 2021, and you can listen to the oral argument here. The oral argument is discussed in Russ Bleemer, “Supreme Court Hears Badgerow, and Leans to Allowing Federal Courts to Broadly Decide on Arbitration Awards and Challenges,” CPR Speaks (November 2, 2021) (available here).

Our good friend Russ Bleemer, Editor of CPR’s newsletter, Alternatives to the High Cost of Litigation, did a fantastic job conducting the interview.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

Evident Partiality | Vacating, Modifying, and Correcting Awards | Businessperson’s Federal Arbitration Act FAQ Guide | Part I

November 23rd, 2021 Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Businessperson's FAQ Guide to the Federal Arbitration Act, Challenging Arbitration Awards, Evident Partiality, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Grounds for Vacatur, Nuts & Bolts, Nuts & Bolts: Arbitration, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Section 10, Vacate Award | 10(a)(2), Vacate Award | Evident Partiality, Vacatur Comments Off on Evident Partiality | Vacating, Modifying, and Correcting Awards | Businessperson’s Federal Arbitration Act FAQ Guide | Part I

INTRODUCTION

Evident Partiality Section 10(a)(2) of the Federal Arbitration Act authorizes courts to vacate awards “where there was evident partiality or corruption in the arbitrators, or either of them. . . .” 9 U.S.C. 10(a)(2). The next few instalments will focus on evident partiality, a later one on corruption.

What constitutes evident partiality and under what circumstances is a controversial and sometimes elusive topic. We’ve written about it extensively over the years, including hereherehere, and here, as well as in other publications. The author has briefed, argued, or both, a number of U.S. Courts of Appeals and federal district court cases on the subject over the years, including, among others, Certain Underwriting Members of Lloyds of London v. State of Florida, Dep’t of Fin. Serv., 892 F.3d 501 (2018); and Nationwide Mutual Ins. Co. v. Home Ins. Co., 429 F.3d 640 (2005).

Evident partiality has been the subject of numerous judicial decisions setting forth various standards and applying them to a wide range of fact patterns.  The decisions are not easy to reconcile (some may be irreconcilable) and the standards are often of limited utility. Matters are complicated by judicially created rules concerning disclosure of potential conflicts of interest and the consequences that may or may not flow from those rules.

But “evident partiality” may be easier to grasp if we focus not on abstract standards or ethical constructs, but on the parties’ reasonable expectations of neutrality. Surprisingly, many courts address the subject of “evident partiality” without expressly discussing this important consideration, even when it appears to have been a significant but unstated part of the decision-making calculus. Others have expressly used the parties’ agreement and attendant expectations of neutrality as a guidepost.

Understanding the parties’ reasonable expectations of partiality is only half the battle. One must also understand how those expectations are enforced through judicially created rules governing disclosure and waiver of conflicts of interest, and the relevance of those rules to a motion to vacate an award under Federal Arbitration Act Section 10(a)(2).

In this instalment our focus is on the parties’ reasonable expectations of arbitrator neutrality. Later instalments will address evident partiality standards and how they are supposed to enforce reasonable expectations of neutrality without undermining arbitral finality; differences between evident partiality standards and judicial impartiality standards; the differing expectations of arbitral neutrality that may attend tripartite arbitration; and how evident partiality standards may implement and enforce those differing expectations; arbitrator disclosure procedures and requirements, which are designed to implement and enforce evident partiality standards; and examples of what does and does not constitute evident partiality.

EVIDENT PARTIALITY: PARTIES’ REASONABLE EXPECTATIONS OF NEUTRALITY

The principal purpose of the Federal Arbitration Act is to enforce arbitration agreements as written.  See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947 (1995).  Parties are largely free to structure their arbitration agreements as they see fit, and that freedom extends to selecting the decision makers, establishing their qualifications, and agreeing on how impartial they should be.  See National Football League Mgmt. Council v. National Football League Players Ass’n, 820 F.3d 527, 548 (2d Cir. 2016) (“[A]rbitration is a matter of contract, and consequently, the parties to an arbitration can ask for no more impartiality than inheres in the method they have chosen.”) (citing cases); Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673, 679 (7th Cir.), cert. denied, 464 U.S. 1009 (1983) (Posner, J.) (“parties … choose their method of dispute resolution, and can ask no more impartiality than inherent in the method they have chosen.”) (citation omitted).

Inherent in the arbitral bargain is decision making, or at least decision tie breaking, by a neutral decision maker. Single arbitrators are required under the Federal Arbitration Act to be neutral unless the parties otherwise agree. See, e.g., Morelite v. N.Y.C. Dist. Council Carpenters, 748 F.2d 79, 81-85 (2d Cir. 1984). In tripartite arbitration, one arbitrator (usually designated the umpire, chair, or third arbitrator) is ordinarily required to be neutral, while party-appointed arbitrators are presumed to be non-neutral, except to the extent otherwise required by the parties’ arbitration agreement. See Certain Underwriting Members, 892 F.3d at 510-11; Sphere Drake Ins. v. All American Life Ins., 307 F.3d 617, 622 (7th Cir. 2002); Trustmark Ins. Co. v. John Hancock Life Ins. Co. (U.S.A.), 631 F.3d 869, 872-74 (7th Cir. 2011).

Arbitration provider rules, which may govern arbitrator qualifications in appropriate cases, may provide different rules. For example, the JAMS and American Arbitration Association rules presume all arbitrators on a tripartite panel to be neutral, unless the parties agree otherwise. JAMS Comprehensive Arbitration Rules & Procedures R. 7 (July 1, 2014); see also American Arbitration Association Commercial Arbitration Rules R-18(a) & (b) (October 1, 2013).

Section 10(a)(2) of the Federal Arbitration Act—which authorizes federal district courts to vacate arbitration awards “where there was evident partiality…in the arbitrators…”—imposes in part and enforces these neutrality requirements. Section 10(a)(2) establishes that parties who agree to arbitrate can legitimately expect that neutral arbitrators will meet a certain minimal standard of arbitral impartiality, and that arbitrators not appointed as neutrals can, in appropriate circumstances, be held to a substantial, material breach of a stipulated arbitrator qualification requirement related-to, but not necessarily coextensive with, neutrality. See Certain Underwriting Members, 892 F.3d at 510-11; Sphere Drake, 307 F.3d at 622; Trustmark631 F.3d at 872-74.

Many consider the requirement that an arbitrator be “neutral” to include two main components: the arbitrator must be (a) impartial and (b) independent. They also consider the requirement of impartiality to include a requirement that the arbitrator be “disinterested.”

While a case can be made for considering disinterestedness to be a component of impartiality, analyzing the two as separate components of neutrality promotes clarity and a more precise understanding of what comprises arbitrator neutrality. That, in turn, makes it easier for us to spot the presence or absence of neutrality in each case.

Evident Partiality: Independence

An arbitrator is independent when he or she is not directly or indirectly subject to the control of a party, potential witnesses, or the other arbitrators, is not affiliated with a party, does not act directly or indirectly in the interest of a party, and is otherwise not subject to undue influence or outside pressure. See, generally, Trout v. Organización Mundial De Boxeo, Inc., 965 F.3d 71, 80-81 (1st Cir. 2020); Demarco v. City of New York, 08-CV-3055 (RRM) (LB), slip op. at 8-9 (E.D.N.Y. Mar. 23, 2011); American Arbitration Association, The Code of Ethics for Arbitrators in Commercial Disputes Canon 1B(2) (arbitrator should not accept appointment unless “fully satisfied. . . that he or she can serve independently from the parties, potential witnesses, and the other arbitrators. . . .”) (March 1, 2004).

For example, an arbitrator would not be independent were she an agent or employee of one of the parties.

Evident Partiality: Disinterestedness

“Disinterested” means “lacking a financial or other personal stake in the outcome.” Trustmark,  631 F.3d at 872-73 (citing Caperton v. A.T. Massey Coal Co., 556 U.S. 868 (2009)); Certain Underwriting Members, 892 F.3d at 510; see Caperton, 556 U.S. at 876-81 (discussing cases). The requirement of “disinterest” was reflected in James Madison’s famous observation that “[n]o man is allowed to be a judge in his own cause; because his interest would certainly bias his judgment, and, not improbably, corrupt his integrity.” The Federalist No. 10, p. 59 (J. Cooke ed. 1961) (J. Madison)); see Caperton, 556 U.S. at 876.

The rule that financial or personal interest spoils neutrality does not require proof that the decision-maker would be or was actually biased against or partial to one party or the other. It does not address whether the arbitrator actually has predispositions concerning any of the parties, witnesses, or issues.

It is prophylactic rule, based on human nature, that a person having a financial or personal interest in the outcome of a dispute cannot be considered neutral, even if the decision maker honestly believes that his or her interest in the dispute would or did affect his or her judgment, and even if it could be shown objectively that the decision maker could or did judge the dispute impartially and independently.

The rule serves two functions. First, all else equal, by disqualifying interested decision makers, it eliminates the risk that personal or financial interest will affect decision-maker neutrality. Without the rule the difficulty of proving actual bias would mean that decisions made by interested decision-makers could in many cases not be overturned because it would be difficult or impossible to prove that the interested decision maker was actually biased or partial.

Second, the rule helps encourage public confidence in decision-maker neutrality by disqualifying interested decision-makers.

Impartiality

To be neutral an arbitrator must not only be disinterested, but also impartial. See, e.g., Trustmark, 631 F.3d at 872-73; U.S.Care, Inc. v. Pioneer Life Ins. Co. of Ill., 244 F.Supp.2d 1057, 1062 (C.D. Cal., 2002). To be “impartial” means to be free from “bias or prejudice” in favor of one of the parties. See Liteky v. United States, 510 U.S. 540, 550, 552 (1994).

In Liteky the U.S. Supreme Court explained, in a case concerning judicial partiality standards, that the terms “bias,” “prejudice” and “partiality” all connote a favorable or unfavorable disposition or opinion that is somehow wrongful or inappropriate, either because it is undeserved, or because it rests upon knowledge that the subject ought not to possess…or because it is excessive in degree….” 510 U.S. at 550, 552.

Arbitral or judicial predispositions may be formed as a result of any number things, and can be appropriate or inappropriate, reasonable or unreasonable. But such predispositions do not constitute “partiality,” bias or prejudice unless they are wrongful or inappropriate.

The Supreme Court’s interpretation of what “bias,” “prejudice” and “partiality” mean in the judicial context in Liteky is right in line with Section 10(a)(2) itself, which authorizes vacatur where the arbitrator is “guilty” of “evident partiality.” 9 U.S.C. § 10(a)(2) (emphasis added).

Neutral versus Impartial: Terminology Glitches

Unfortunately, the terminology used by Section 10(a)(2) (and by courts interpreting it) is not always consistent with that used by arbitration providers and other arbitration professionals.

Section 10(a)(2) refers only to “evident partiality,” not neutrality. Under the terminology commonly employed by arbitrator providers, “evident partiality” would not encompass an arbitrator’s lack of independence from a party.

But courts generally, and we think correctly, consider evident partiality to include an evident personal or financial interest in the outcome of the dispute, an evident inappropriate predisposition in favor of or against a party, or an evident lack of independence.

The next instalment will begin with a discussion of how evident partiality standards are designed to enforce party expectations of neutrality without undermining arbitral finality.

Contacting the Author

If you have any questions about arbitration, arbitration-law, arbitration-related litigation, or this article, or if you wish to discuss whether the Loree Law Firm might be able to provide assistance with or representation in a particular legal matter, please contact the author, Philip Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. has more than 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation. He is licensed to practice law in New York and before certain federal district and federal appellate courts.  

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

Neutrality | Evident Partiality | Vacating, Modifying, and Correcting Arbitration Awards | Businessperson’s Federal Arbitration Act FAQ Guide | Part I

September 20th, 2021 Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitrator Selection and Qualification Provisions, Businessperson's FAQ Guide to the Federal Arbitration Act, Challenging Arbitration Awards, Enforcing Arbitration Agreements, Ethics, Evident Partiality, FAA Chapter 1, Federal Arbitration Act Section 10, Grounds for Vacatur, Nuts & Bolts: Arbitration, Party-Appointed Arbitrators, Practice and Procedure, Section 10, United States Court of Appeals for the Second Circuit, United States Supreme Court, Vacate Award | 10(a)(2), Vacate Award | Corruption, Vacate Award | Evident Partiality, Vacatur Comments Off on Neutrality | Evident Partiality | Vacating, Modifying, and Correcting Arbitration Awards | Businessperson’s Federal Arbitration Act FAQ Guide | Part I

neutral neutrality evident partialitySection 10(a)(2) of the Federal Arbitration Act (the “FAA”) authorizes courts to vacate awards “where there was evident partiality or corruption in the arbitrators, or either of them. . . .” 9 U.S.C. 10(a)(2). The next few instalments will focus on arbitrator neutrality and evident partiality, a later one on corruption. What constitutes evident partiality and under what circumstances is a controversial and sometimes elusive topic. We’ve written about it extensively over the years, including hereherehere, and here, as well as in other publications. The author has briefed, argued, or both, a number of U.S. Courts of Appeals and federal district court cases on the subject over the years, including, among others, Certain Underwriting Members of Lloyds of London v. State of Florida, Dep’t of Fin. Serv., 892 F.3d 501 (2018); and Nationwide Mutual Ins. Co. v. Home Ins. Co., 429 F.3d 640 (2005).

Evident partiality has been the subject of numerous judicial decisions setting forth various standards and applying them to a wide range of fact patterns.  The decisions are not easy to reconcile (some may be irreconcilable) and the standards are often of limited utility. Matters are complicated by judicially created rules concerning disclosure of potential conflicts of interest and the consequences that may or may not flow from those rules.

But “evident partiality” may be easier to grasp if we focus not on abstract standards or ethical constructs, but on the parties’ reasonable expectations of neutrality. Surprisingly, many courts address the subject of “evident partiality” without expressly discussing this important consideration, even when it appears to have been a significant but unstated part of the decision-making calculus. Others have expressly used the parties’ agreement and attendant expectations of neutrality as a guidepost.

Understanding the parties’ reasonable expectations of partiality is only half the battle. One must also understand how those expectations are enforced through judicially created rules governing disclosure and waiver of conflicts of interest, and the relevance of those rules to a motion to vacate an award under FAA Act Section 10(a)(2).

In this instalment of the FAQ Guide our focus is on the parties’ reasonable expectations of arbitrator neutrality; evident partiality standards and how they are supposed to enforce reasonable expectations of neutrality without undermining arbitral finality; differences between evident partiality standards and judicial impartiality standards; and the differing expectations of arbitral neutrality that may attend tripartite arbitration. One or more subsequent instalments will discuss arbitrator disclosure procedures and requirements, which are designed to implement and enforce evident partiality standards; examples of what does and does not constitute evident partiality; and procedural issues pertinent to evident partiality challenges. Continue Reading »

Monster Energy Case: CPR Interviews Loree and Faulkner on U.S. Supreme Court’s Denial of Certiorari

June 30th, 2020 Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Providers, Awards, Challenging Arbitration Awards, CPR Speaks Blog of the CPR Institute, Evident Partiality, FAA Chapter 1, Federal Arbitration Act Section 10, Grounds for Vacatur, International Institute for Conflict Prevention and Resolution (CPR), Loree & Loree, Loree and Faulkner Interviews, Small Business B-2-B Arbitration, United States Court of Appeals for the Ninth Circuit, United States Supreme Court, Vacate Award | Evident Partiality, Vacatur Comments Off on Monster Energy Case: CPR Interviews Loree and Faulkner on U.S. Supreme Court’s Denial of Certiorari
Monster Energy | Loree | Faulkner | Bleemer | CPR

On Monday, June 29, 2020 the International Institute of Conflict Protection and Resolution (“CPR”) interviewed Richard D. Faulkner, Esq. and Loree & Loree partner Philip J. Loree Jr. about the U.S. Supreme Court’s denial of certiorari in Monster Energy Co. v. City Beverages, LLC, 940 F.3d 1130 (9th Cir. 2019). To watch and listen to the video-conference interview, CLICK HERE.

On November 18, 2019 we reported on Monster Energy here. The Ninth Circuit addressed the question whether an award should be vacated for evident partiality if: (a) an arbitrator fails to disclose an ownership interest in an arbitration provider; and (b) the arbitration provider has a nontrivial, repeat-player relationship with a party.

The Court, in a 2-1 decision, held that an arbitrator who failed to disclose his ownership interest in an arbitration provider was guilty of evident partiality because the arbitration provider had a nontrivial business relationship with the repeat player party. The business relationship between the provider and the award proponent was nontrivial because the proponent’s form contracts designated the provider as the arbitration administrator, and over a five-year period, the provider had administered 97 arbitrations for the proponent.

Our good friend Russ Bleemer, Editor of CPR’s newsletter, Alternatives to the High Cost of Litigation, did a fantastic job conducting the interview. Heather Cameron, a second-year student at Fordham Law School, and a CPR Institute 2020 Summer Intern, wrote for CPR Speaks an excellent post about Monster Energy and the Supreme Court’s denial of certiorari, which you can read here. The video of the interview is embedded into that post.

A shout-out also to CPR’s Tania Zamorsky, who, among other things, is the blog master of CPR Speaks, and who coordinated the effort to share copies of the video on CPR’s social media outlets.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

Henry Schein Case: CPR Interviews Loree and Faulkner on Supreme Court’s Grant of Certiorari

June 24th, 2020 Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitration Providers, Authority of Arbitrators, FAA Chapter 1, Federal Arbitration Act Section 2, International Institute for Conflict Prevention and Resolution (CPR), United States Court of Appeals for the Fifth Circuit, United States Supreme Court Comments Off on Henry Schein Case: CPR Interviews Loree and Faulkner on Supreme Court’s Grant of Certiorari
Henry Schein | Supreme Court | Cert. Granted
Steps and columns on the portico of the United States Supreme Court in Washington, DC.

On Monday, June 15, 2020 the International Institute of Conflict Protection and Resolution (“CPR”) interviewed our good friend and colleague Richard D. Faulkner and Loree & Loree partner Philip J. Loree Jr. about the U.S. Supreme Court’s grant of certiorari in Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963. To watch and listen to the video-conference interview, CLICK HERE.

The petition for and grant of certiorari arose out of the Fifth Circuit’s remand decision from the United States Supreme Court’s decision in Henry Schein Inc. v. Archer & White Sales Inc., 139 S. Ct. 524 (2019) (available at https://bit.ly/2CXAgPw) (“Schein I”).

If you’ve been following our posts about the Schein I and the remand decision, Archer and White Sales Inc. v. Henry Schein Inc., 935 F.3d 274 (5th Cir. 2019) (available at http://bit.ly/2P9FGMU) (“Schein II”), then you know that the arbitration proponent, Henry Schein, Inc. (“Schein”), petitioned for rehearing en banc of Schein II in fall 2019. (See here, herehere, and here.) In October 2019, while the petition for rehearing en banc was pending, Philip J. Loree Jr. published in Alternatives an article entitled “Back to Scotus’s Schein: A Separability Analysis that Resolves the Problem with the Fifth Circuit Remand,” 37 Alternatives 131 (October 2019).

The Fifth Circuit denied the petition for rehearing en banc on December 6, 2019. But Schein, a Melville, N.Y.-based dental equipment distributor, filed on January 30, 2020 a petition for certiorari, which asked the U.S. Supreme Court to review the Fifth Circuit’s Schein II ruling.

The Petition asks the U.S. Supreme Court to determine “[w]hether a provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator.” (Petition at I)

We wrote about the Petition in a post CPR Speaks, CPR’s blog, published on February 19, 2020, which was entitled “Schein Returns: Scotus’s Arbitration Remand Is Now Back at the Court.” And we also published in the April 2020 issue of CPR Alternatives an article about the Petition, which was entitled “Schein’s Remand Decision Goes Back to the Supreme Court. What’s Next?,” 38 Alternatives 54 (April 2020) (the “April 2020 Alternatives Article”). 

As noted in the April 2020 Alternatives Article, Schein’s filing of the petition for certiorari prompted Archer & White Sales Inc. (“Respondent” or “Archer & White”), a Plano, Texas, distributor, seller, and servicer of dental equipment, to file a conditional cross-petition (the “Cross Petition”), which in the event the Court granted the Petition asked the Court to determine “[w]hether the parties clearly and unmistakably agreed to arbitrate arbitrability by incorporating the AAA Rules into their contract.”

The Cross-Petition ultimately prompted Rick Faulkner and Phil Loree Jr. to co-author a two-part article for Alternatives entitled “Schein’s Remand Decision: Should Scotus Review the Provider Rule Incorporation-by-Reference Issue?” Part I was published in the May 2020 issue of Alternatives. Part II was published in the June 2020 issue.

The two-part article argued that, if the Court granted the Petition, it should also grant the Cross-Petition, and address the issue whether the parties, by agreeing to arbitrate “in accordance with” the American Arbitration Assocation’s Commercial Arbitration Rules, clearly and unmistakably agreed to arbitrate arbitrability issues.

But as it turned out, the Court granted the Petition, but denied the Cross-Petition, one of the issues addressed in the interview.

Our good friend Russ Bleemer, Editor of Alternatives, conducted the interview, and did a great job editing the articles Rick and I wrote about Schein for Alternatives. He also wrote for the CPR Speaks Blog an excellent summary of where things stand in light of the Court’s grant of the Petition. The video of the interview is embedded into that blog post. You can request copies of the articles Rick and Phil wrote about Schein by emailing CPR at alternatives@cpradr.org.  

We also shout-out CPR’s Tania Zamorsky, who, among other things, is the blog master of CPR Speaks, and who coordinated the effort to share copies of the video on CPR’s social media outlets.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

Confirming Awards Part II | Post-Award Federal Arbitration Act Enforcement Litigation | Section 9 of the Federal Arbitration Act | Businessperson’s Federal Arbitration Act FAQ Guide

June 19th, 2020 Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Awards, Businessperson's FAQ Guide to the Federal Arbitration Act, Confirmation of Awards, Consent to Confirmation, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 9, Nuts & Bolts, Nuts & Bolts: Arbitration, Personal Jurisdiction, Petition or Application to Confirm Award, Section 9, Small Business B-2-B Arbitration, Statute of Limitations 4 Comments »
Confirming Awards Procedure

In the last segment of this Businessperson’s Federal Arbitration Act FAQ Guide, we discussed the substantive requirements for confirming a Chapter One Domestic Award. Now we turn to the procedural requirements.

What are the Procedural Requirements for Confirming a Chapter One Domestic Award?  

The key procedural requirements for confirming arbitration awards are:

  1. The party seeking confirmation may apply for it “within one year after the award is made.  .  .”;
  2. Notice of application must be properly served;
  3. Venue must be proper; and
  4. The “court must grant” confirmation “unless the award is vacated, modified or corrected” under Section 10 or 11 of the FAA.

9 U.S.C. § 9.

Continue Reading »

Confirming Awards Part I | Post-Award Federal Arbitration Act Enforcement Litigation | Section 9 of the Federal Arbitration Act | Businessperson’s Federal Arbitration Act FAQ Guide

June 12th, 2020 Arbitrability, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Awards, Confirmation of Awards, Consent to Confirmation, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, FAA Chapter 1, FAA Chapter 2, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 1, Federal Arbitration Act Section 2, Federal Arbitration Act Section 9, Judicial Review of Arbitration Awards, Nuts & Bolts, Nuts & Bolts: Arbitration, Petition or Application to Confirm Award, Small Business B-2-B Arbitration 5 Comments »
confirm awards

Favorable arbitration awards are wonderful things, but they do not enforce themselves. Sometimes the other side voluntarily complies, but if not, there is little the arbitrator can do to help.

Arbitrators are not judges and do not have the authority to garnish wages, seize property, foreclose on encumbered property, freeze bank accounts, impose contempt sanctions, and so forth. Parties can delegate to arbitrators broad adjudicatory and remedial authority, but that is relevant only to the nature and scope of their awards and does not confer power on the arbitrators to enforce their awards coercively.

Apart from its potential preclusive effect in subsequent litigation or arbitration, an arbitration award stands on the same footing as any other privately prepared legal document, and for all intents and purposes it is a contract made for the parties by their joint agent of sorts—the arbitrator or arbitration panel. It may be intended by the arbitrator or panel, and at least one of the parties, to have legal effect, but it is up to a court to say what legal effect it has, and, if necessary, to implement that legal effect through coercive enforcement.

A judgment, by contrast, is an official decree by a governmental body (the court) that not only can be coercively enforced through subsequent summary proceedings in the same or other courts (including courts in other states and federal judicial districts), but is, to some extent, self-enforcing. A judgment, for example, can ordinarily be filed as a statutory lien on real property, and applicable state or federal law may, for example, authorize attorneys to avail their clients of certain judgment-enforcement-related remedies without prior judicial authorization.

The Federal Arbitration Act, and most or all state arbitration statutes, provide for enforcement of arbitration awards through a procedure by which a party may request a court to enter judgment on the award, that is to “confirm” it. Once an award has been reduced to judgment, it can be enforced to the same extent as any other judgment. See, e.g., 9 U.S.C. § 13 (Under Federal Arbitration Act, judgment on award “shall have the same force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in which it is entered”); Fla. Stat. § 682.15(1)( “The judgment may be recorded, docketed, and enforced as any other judgment in a civil action.”); N.Y. Civ. Prac. L. & R. § 7514(a) (“A judgment shall be entered upon the confirmation of an award.”).

Chapter One of The Federal Arbitration Act (the “FAA”), and most or all state arbitration statutes, authorize courts to confirm domestic awards in summary proceedings. State arbitration-law rules, procedures, limitation periods, and the like vary from state to state and frequently from the FAA, and state courts may apply them to FAA-governed awards (provided doing so does not frustrate the purposes and objectives of the FAA).

Chapter 2 of the FAA provides some different rules that apply to the confirmation of domestic arbitration awards that fall under the Convention on the Recognition of Foreign Arbitral Awards (the “Convention”), and the enforcement of foreign arbitration awards falling under the Convention (i.e., awards made in territory of a country that is a signatory to the Convention).

Our focus here is on the Federal Arbitration Act’s requirements for confirming arbitration awards made in the U.S., including awards that fall under Chapter 2 of the Federal Arbitration Act. These awards fall into two categories: (a) awards that fall under Chapter One of the Federal Arbitration Act only (“Chapter One Domestic Awards”); and (b) awards made in the U.S. that fall under the Convention, and thus under both Chapter One and Chapter Two of the Federal Arbitration Act (“Chapter Two Domestic Awards”).

This segment addresses FAQs concerning the confirmation of Chapter One Domestic Awards and focuses on the substantive requirements for confirming Chapter One Domestic Awards under the Federal Arbitration Act. The next segment will discuss the procedural requirements for confirming such Awards. Future posts will answer some additional FAQs concerning the confirmation of such Awards, and another future segment will review special requirements applicable to the confirmation of Chapter Two Domestic Awards.

Continue Reading »

OTO LLC v. Kho: U.S. Supreme Court Denies Certiorari | International Institute for Conflict Prevention and Resolution Interviews Philip J. Loree Jr. and Richard D. Faulkner About the Denial

June 10th, 2020 Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, California Supreme Court, Challenging Arbitration Agreements, Enforcing Arbitration Agreements, FAA Chapter 1, Federal Arbitration Act Section 2, Gateway Disputes, Gateway Questions, International Institute for Conflict Prevention and Resolution (CPR), Substantive Arbitrability, Unconscionability, United States Supreme Court Comments Off on OTO LLC v. Kho: U.S. Supreme Court Denies Certiorari | International Institute for Conflict Prevention and Resolution Interviews Philip J. Loree Jr. and Richard D. Faulkner About the Denial
OTO LLC v. Kho

On June 8, 2020 the United States Supreme Court declined to review OTO LLC v. Kho, a controversial decision of the California Supreme Court, which held that an arbitration agreement was, in the circumstances, unconscionable to the extent that it purported to require an employee to arbitrate wage claims.

The California Supreme Court held that the agreement in OTO was both procedurally and substantively unconscionable under California law, and its decision that the agreement was substantively unconscionable turned on how the agreement’s procedures were less streamlined, and more akin to litigation procedures, than those available under California’s so-called Berman administrative hearing scheme, which California uses to resolve wage claims.

Also on June 8, 2020, CPR Speaks, the blog of the International Institute for Conflict Prevention and Resolution (“CPR”) published an excellent post on OTO, written by Harvard Law School student and CPR Intern Seorae Ko. The post explains the background of the case in more detail and discusses the arguments advanced in favor of and in opposition to the petition for certiorari.

On June 9, 2020, our friend and colleague Russ Bleemer, Editor of Alternatives to the High Cost of Litigation, CPR’s newsletter, interviewed our friend and colleague Richard D. Faulkner, an arbitrator, arbitration-law practitioner, and former trial judge, and the author, Philip J. Loree Jr., about the OTO denial of certiorari and what it means for practitioners. As always, Russ did a great job conducting the interview.

Today, June 10, 2020, CPR posted that video conference interview on CPR Speaks, and you can watch it HERE.

Contacting the Author

If you have any questions about this article, the interview, arbitration, arbitration-law, or arbitration-related litigation, then please contact Phil Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is a partner and founding member of Loree & Loree. He has 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation.

Loree & Loree represents private and government-owned-or-controlled business organizations, and persons acting in their individual or representative capacities, and often serves as co-counsel, local counsel or legal adviser to other domestic and international law firms requiring assistance or support.

Loree & Loree was recently selected by Expertise.com out of a group of 1,763 persons or firms reviewed as one of Expertise.com’s top 18 “Arbitrators & Mediators” in New York City for 2019, and now for 2020. (See here and here.)

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC | International Institute for Conflict Prevention and Resolution Interviews by Video Conference Philip J. Loree Jr. and Richard D. Faulkner

June 2nd, 2020 ADR Social Media, Arbitrability, Arbitrability - Equitable Estoppel, Arbitrability - Nonsignatories, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, CPR Speaks Blog of the CPR Institute, Enforcing Arbitration Agreements, Federal Arbitration Act Section 2, First Principle - Consent not Coercion, Gateway Disputes, Gateway Questions, International Arbitration, International Institute for Conflict Prevention and Resolution (CPR), Loree & Loree, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Questions of Arbitrability, Rights and Obligations of Nonsignatories, United States Supreme Court Comments Off on GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC | International Institute for Conflict Prevention and Resolution Interviews by Video Conference Philip J. Loree Jr. and Richard D. Faulkner
GE Energy Power

On June 1, 2020 the United States Supreme Court issued its 9-0 decision in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC. In an opinion authored by Associate Justice Clarence Thomas the Court held that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards did not conflict with domestic equitable estoppel doctrines that permit the enforcement of arbitration agreements by nonsignatories. Associate Justice Sonia M. Sotomayor wrote a concurring opinion.

On the same day the Court decided GE Power, our friend and colleague Russ Bleemer, Editor of Alternatives to the High Cost of Litigation, Newsletter of the International Institute for Conflict Prevention and Resolution (“CPR”), interviewed our friend and colleague Richard D. Faulkner and Philip J. Loree Jr. about the case and what it means for practitioners.

You can watch the video-conference interview HERE.

Also on June 1, 2020 Russ also wrote an excellent post about GE Energy for CPR’s blog, CPR Speaks, which explains in detail the background of the case and the rationale for the Court’s opinion, as well as Justice Sotomayor’s concurring opinion. You can read that post HERE.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, then please contact Phil Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is a partner and founding member of Loree & Loree. He has 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation.

Loree & Loree represents private and government-owned-or-controlled business organizations, and persons acting in their individual or representative capacities, and often serves as co-counsel, local counsel or legal adviser to other domestic, and international, law firms requiring assistance or support.

Loree & Loree was recently selected by Expertise.com out of a group of 1,763 persons or firms reviewed as one of Expertise.com’s top 18 “Arbitrators & Mediators” in New York City for 2019, and now for 2020. (See here and here.)

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.