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Archive for the ‘Ethics’ Category

Arbitration FAQs: When is an Arbitrator Considered Neutral in a Federal-Arbitration-Act-Governed Arbitration?

April 16th, 2020 Arbitration and Mediation FAQs, Arbitration Law, Arbitration Practice and Procedure, Arbitrator Selection and Qualification Provisions, Businessperson's FAQ Guide to the Federal Arbitration Act, Challenging Arbitration Awards, Ethics, Evident Partiality, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Grounds for Vacatur, Judicial Review of Arbitration Awards, Small and Medium-Sized Business Arbitration Risk, Small Business B-2-B Arbitration, United States Court of Appeals for the Second Circuit, Vacate Award | Evident Partiality, Vacatur Comments Off on Arbitration FAQs: When is an Arbitrator Considered Neutral in a Federal-Arbitration-Act-Governed Arbitration?
neutral neutrality evident partiality

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 or chair) 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 London v. Florida Dep’t of Fin. Serv., 892 F.3d 501, 510-11 (2d Cir. 2018); 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, often provide that all three arbitrators of a tripartite panel are required to be neutral.

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; Trustmark, 631 F.3d at 872-74.

The requirement that an arbitrator be “neutral” can be divided into three, distict  components. The arbitrator must be (a) impartial; (b) disinterested; and (c) independent.

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New York Law Journal Article: “Arbitrator Evident Partiality Standard Under Scrutiny in ‘Scandinavian Re'”

May 20th, 2011 Appellate Practice, Arbitration Practice and Procedure, Ethics, Evident Partiality, Grounds for Vacatur, Practice and Procedure, Reinsurance Arbitration, United States Court of Appeals for the Second Circuit, United States Court of Appeals for the Seventh Circuit, United States District Court for the Southern District of New York, United States Supreme Court Comments Off on New York Law Journal Article: “Arbitrator Evident Partiality Standard Under Scrutiny in ‘Scandinavian Re'”

On May 18, 2011 the New York Law Journal published in its Outside Counsel section an article I wrote, which argues that the United States Court of Appeals for the Second Circuit should reverse the district court’s judgment in Scandinavian Reinsurance Co. v. Saint Paul Fire & Marine Ins. Co.,  No. 09 Civ. 9531(SAS), 2010 WL 653481, at *8 (S.D.N.Y. Feb. 23, 2010), appeal pending No. 10-910-cv (2d Cir.). 

The article is reprinted below with permission, and I would like to thank Elaine Song, a member of the New York Law Journal’s editorial staff, for her assistance and work in getting this published in New York’s leading legal trade publication.   Continue Reading »

The Seventh Circuit Issues a Landmark Reinsurance Arbitration Opinion in Trustmark Ins. Co. v. John Hancock Life Ins. Co. (U.S.A.): Part III.A

March 9th, 2011 Arbitration Practice and Procedure, Awards, Ethics, Evident Partiality, Practice and Procedure, Reinsurance Arbitration, United States Court of Appeals for the Second Circuit, United States Court of Appeals for the Seventh Circuit, United States District Court for the Southern District of New York Comments Off on The Seventh Circuit Issues a Landmark Reinsurance Arbitration Opinion in Trustmark Ins. Co. v. John Hancock Life Ins. Co. (U.S.A.): Part III.A

Should the Second Circuit Reverse the District Court’s Judgment in Scandinavian Reinsurance Co. v. Saint Paul Fire & Marine Ins. Co.?

I.       Introduction

Parts I and II of this three-part post discussed Chief Judge Frank H. Easterbrook’s decision in Trustmark Ins. Co. v. John Hancock Life Ins. Co. (U.S.A.), No. 09-3682, 2011 WL 285156 (7th Cir. Jan. 31, 2011), and said that Trustmark, in conjunction with  Sphere Drake Ins. Co. v. All American Life Ins. Co., 307 F.3d 617, 622 (7th Cir. 2002) (Easterbrook, J.),  demonstrates that the district court should not have vacated on evident partiality grounds the arbitration award in Scandinavian Reinsurance Co. v. Saint Paul Fire & Marine Ins. Co, No. 09 Civ. 9531(SAS), 2010 WL 653481 (S.D.N.Y. Feb. 23, 2010).     This Part III.A explains some of the reasons why that is so.  Continue Reading »

Why Bother with Arbitration Law?

April 13th, 2010 Arbitration Practice and Procedure, Ethics, Nuts & Bolts: Arbitration, Reinsurance Arbitration 4 Comments »

Readers are excruciatingly aware of the amount of time and energy we expend on what seems at first blush to be a relatively arcane area of the law:  practice and procedure under the Federal Arbitration Act.  It is a practice area that arises under a single federal statute that consists of three chapters and a handful of rather skeletal provisions.   Why is this stuff so important?    

If you hold yourself out to be a commercial litigator who handles arbitration proceedings arising under the Federal Arbitration Act, then you need to know arbitration law cold (or co-counsel with someone who does).  If you do not, then you have no business representing clients in arbitration proceedings.

In one sense, arbitration law is to the lawyer handling an arbitration what civil procedure law is to the lawyer handling a litigation.  No lawyer cognizant of his or her ethical obligations and professional responsibility would represent a client in a litigation without a good, working knowledge of the applicable procedural code and cases construing it.  Doing so would be a recipe for professional disaster. 

Yet commercial litigators with no experience or expertise in arbitration law sometimes believe their knowledge of court procedure qualifies them to represent parties in arbitration proceedings.  Arbitration is more informal than litigation, so if you know how to litigate, you can certainly arbitrate, right?  Wrong.

Arbitration law is what ensures that arbitration agreements will be enforced, whether that means confirming or vacating an award, compelling arbitration, staying litigation, or what have you.  Without it, arbitration would be, for the most part, an empty gesture.  Parties would have to commence cumbersome plenary actions to enforce awards and obtain specific performance of arbitration agreements, arbitrators would lack subpoena power and breakdowns in the arbitrator selection process could not be remedied (or would be very difficult to remedy).   In short, arbitration would lose much of its appeal because it would be difficult and expensive to enforce, and some aspects of it might not be enforceable at all. 

Perhaps in a perfect world arbitration law would be spelled out for us in great detail in a user-friendly and comprehensive statute or administrative code, which would contain all or most of the answers to the multitude of enforcement-related questions that arise at various stages of arbitration proceedings.  But our world is far from perfect, and in many domestic cases our sole source of statutory guidance is contained in the first chapter of the Federal Arbitration Act, which contains only 16 provisions, 15 of which have been on the books without material revision since 1925.  In “non-domestic domestic cases” — you have to love that informative moniker — which involve, for example, arbitrations taking place in the United States between domestic and international parties, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and its enabling provisions set forth in Chapter 2 of the Federal Arbitration Act, usually come into play, but the Convention and its enabling legislation does not directly answer that many questions. 

So in our imperfect world, the answers must come from the courts.  That would all be well and good if we lived in a country with a single court system, but we do not.  We have a multi-circuit federal court system (over which the United States Supreme Court presides) and a multi-jurisdiction state court system (over which the Supreme Court has limited jurisdiction to hear certain types of appeals).  And the substantive provisions of the Federal Arbitration Act are applicable in, and construed by, both state and federal courts. 

Cases involving arbitration law are constantly being decided.  There are currently three-arbitration-law-related cases pending before the United States Supreme Court, and the Court usually decides at least one or two each term.   The federal district and circuit courts regularly churn out decisions on arbitration law, as do state trial, intermediate appellate and supreme courts. 

If state and federal court decisions from various jurisdictions and circuits were fairly uniform on Federal Arbitration Act issues, then perhaps things would be simpler.  But courts are split on a number of issues, and even in situations where different courts might reach the same result on a given set of facts, the rationale each court applies may be different, leading to different outcomes if the facts are changed slightly.   

Apparently someone somewhere decided that things were not quite complicated enough.  So it was necessary to interject some other variables:  horizontal (state-versus-state) and vertical (state versus federal) choice of law issues.  Not all arbitration proceedings are governed solely by the Federal Arbitration Act — it applies only to written arbitration agreements “in maritime transaction[s] or.  .  . contract[s] evidencing.  .  .  transaction[s] involving commerce.  .  .  .”  9 U.S.C. § 2.  When the Federal Arbitration Act does not apply, then the arbitration law of some state will generally apply.  Choice-of-law rules will determine which state’s law applies in a multi-jurisdictional case. 

Even when the Federal Arbitration Act applies, the parties may have agreed that state arbitration law applies, or at least there may be a substantial question whether state arbitration law applies.  Federal and state arbitration law may conflict, and it is necessary to determine which applies.  And sometimes there is a question whether the Federal Arbitration Act pre-empts state arbitration, or substantive contract, law.  In other cases there may be a question whether state arbitration law fills a gap in federal arbitration law. 

Arbitration-law-related issues can and do arise at all stages of an arbitration proceeding, and arbitration practitioners must keep in mind that litigation under the Federal Arbitration Act may be necessary to enforce a client’s rights or that such litigation may be brought by the other party.  In the beginning stages of an arbitration, for example, issues may arise as to what the arbitration was intended to cover.  A party may demand arbitration on a few claims, but there may be other actual or potential disputes which, if submitted, would fall within the scope of the arbitration agreement.  Depending on what those claims are, and other considerations, the party against whom arbitration is demanded will want to ensure that the arbitration does or does not encompass those claims.  That requires the party to carefully tailor its own submissions and, if necessary, to object to the other party submitting additional issues once the proceedings are underway. 

The party resisting an arbitration demand may have arguments that some or all of the issues that are the subject of the demand are outside the scope of the arbitration clause.  Those arguments must be carefully preserved, and sometimes it is necessary to seek an order staying the arbitration in whole or in part. 

The party seeking arbitration may need to compel arbitration if the other party is resisting arbitration.  That requires court intervention and both parties must be prepared to brief the applicable law and facts.  Or perhaps the arbitration clause is self-executing, allowing a party to appoint a defaulting party’s arbitrator and proceed ex parte.  In that case, the non-defaulting party may be unable to compel arbitration, but must take special care to ensure that the resulting default award is enforceable. 

Arbitrator selection is another area where arbitration-law issues arise.  It might be necessary to compel a party to participate in arbitration selection or request that a court appoint an arbitrator.  If, at some point in the proceedings, one of the arbitrators dies or resigns, a number of important issues must be addressed.  The process of arbitrator disclosure is yet another area where arbitration law must guide strategy.   

Confirming or vacating awards requires knowledge of arbitration law and careful attention to strategy long before an award is rendered.  There may be grounds for vacating an award, but those grounds generally must be preserved during the proceedings.  There are also important deadlines that must be met and those deadlines may be triggered with respect to certain interim final awards long before the arbitration proceeding itself is concluded.  

Once an award is issued issues may arise as to whether it is ambiguous or whether it may be modified by the arbitrators.  Or arbitrators may purport to retain jurisdiction when they are not entitled to do so.  Dealing with these issues requires careful attention to arbitration law.   

When Federal Arbitration Act litigation is necessary, counsel need to know how to address the various procedural issues that arise, including subject matter jurisdiction, service, personal jurisdiction, the necessity of treating the proceeding as a motion and a host of other matters.   And counsel must know the extent to which procedural rules are supplied by the Federal Arbitration Act itself, state arbitration law, the Federal Rules of Procedure or state procedural rules. 

This is just a broad overview:  There are literally dozens of issues that may arise, including ones implicating state general contract law, the Federal Arbitration Act itself, state arbitration law, choice-of-law rules, and federal preemption doctrine.  Handling arbitration-related litigation demands special expertise, just as handling the underlying arbitration demands such expertise.  Practitioners and clients that fail to pay careful attention to this ever-evolving area of the law do so at their peril.