Things are not always what they seem: the first appearance deceives many.
— Phaedrus (c. 15 BC – c. 50 AD)
A recent case from the U.S. Court of Appeals for the Third Circuit (Freeman v. Pittsburgh Glass Works) addresses an issue sometimes raised in challenges to arbitration awards: was there "evident partiality" by the arbitrator under federal and state arbitration statutes?
The case serves a virtual primer on the topic of required arbitrator disclosure.
The facts are intriguing: Both disputants identified a retired Pennsylvania Superior Court judge as their top pick for arbitrator. At the first meeting with the parties, the arbitrator reportedly disclosed that she knew some people at the respondent corporation and further that she taught a seminar on labor law with the respondent’s senior employment lawyer.
The claimant’s discrimination claim was rejected in the arbitration. The claimant then sought to vacate the award alleging that the arbitrator had failed to disclose some $4,500 in campaign contributions from the respondent and its employees for her unsuccessful bid for the state Supreme Court, as well as having failed to disclose the above teaching relationship.
Incredibly, in his challenge the claimant failed to mention that the law firm which represented him during the arbitration and the appeal gave some $26,000 of the $1.7 million raised in the state Supreme Court campaign, considerably more than the respondent.
The District Court ruled that the nondisclosures were immaterial and insubstantial.
The Third Circuit spent a substantial amount of time dealing with jurisdictional and waiver issues before getting to the heart of the challenge, which it defined as the meaning of "evident partiality" by an arbitrator. The court considered whether the standard should be the same one as the disqualification standard for federal judges, i.e., " what matters is not the reality of bias or prejudice but its appearance."
Looking to an oft-cited 1968 U.S. Supreme Court case, Commonwealth Coatings Corp. v. Continental Casualty, which raised as many questions about partiality as it answered, and a number of other circuit court cases, the Third Circuit concluded that to meet the test for demonstrating an arbitrator’s evident partiality, the challenger must establish that a reasonable person would have to conclude that the arbitrator was partial to the other side. The court rejected the rules of the American Arbitration Association (AAA) as well as the Code of Ethics for Arbitrators, concluding that they do not have the force of law.
The court disposed of the campaign contribution issue by pointing out that the contributions were a matter of public record, that they were relatively small, that the other side’s law firm gave even more to the same campaign and that such contributions are a "way of life" in many states’ judicial systems.
So, too, did the Third Circuit dispatch the claims of partiality based upon a teaching relationship with the respondent’s senior attorney: "The Federal Arbitration Act requires more than suppositions based upon mutual familiarity."
The court did, however, state that it would have been far better had the relationships been disclosed at the onset when the parties were free to reject the arbitrator.
A careful reading of the Third Circuit opinion and several of the cited precedents provides some useful compass settings for an arbitrator considering whether to make a disclosure.
First and foremost, any disclosure should be made in writing. One of the key claims in Freeman stemmed from a disagreement by the parties as to whether a certain disclosure had been made at all. This could have been entirely avoided by a written disclosure.
Second, don’t assume that because a relationship with a party or counsel is a matter of public record, it need not be disclosed. Most people do not regularly peruse public records.
Third, recognize that the early duty to disclose is ongoing and needs to be updated based upon relevant developments.
Fourth, recognize that there is no bright line test for determining what will be considered evident partiality. In the judgment of the U.S. Court of Appeals for the Second Circuit, it is somewhere between the "appearance of bias" test and the "proof of actual bias" test. While the test for evident partiality is less rigorous in arbitrations than in judicial proceedings, because by necessity the arbitrator and parties are often from the same industry, the relationship will be tested nonetheless. Don’t be reluctant to assume the more onerous judicial standard in making a disclosure.
Finally, the arbitrator should not presume to determinate what the elusive "reasonable man" may conclude about the significance of the relationship. The AAA Disclosure Guidelines present the best practice to follow: any doubt as to whether or not a disclosure needs to be made should be resolved in favor of disclosure. The parties or the administering organization can evaluate the content of the disclosure. It’s far better to over disclose than to under disclose.
While the question of an arbitrator’s evident partiality may not be decided based upon appearances alone, it should be recognized that appearances are important…….even though they can be deceiving.•