The Second Circuit ruled in Zeiler v. Deitsch, 2007 U.S. App. LEXIS 20065 (2d Cir. Aug. 23, 2007), that the resignation of a party-appointed arbitrator did not affect the power of the remaining two arbitrators to issue a decision. The arbitration panel in Zeiler was a Jewish religious tribunal known as a Beth Din and composed of three rabbis. Little, however, seemed to turn on that fact. The Second Circuit's ruling is predicated in part on its holding that the arbitration was governed by the New York Convention — and not the Federal Arbitration Act — because some of the assets that were the subject of the arbitration were located abroad (Israel); the governing law was foreign (Jewish); and the commercial transactions at issue ‛have a clear international character.“ Under 9 U.S.C. § 207, there is little judicial latitude afforded when considering whether to confirm an award: ‛The court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.“

In vacating the award, the district judge relied on Article V(1)(d) of the New York Convention, which provides: ‛The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place.“

The Second Circuit reasoned that: ‛The authority of the two remaining arbitrators after the resignation of the third one is essentially an issue of contract interpretation, grounded in the language of the agreements between the parties.“ One significant factor leading the Second Circuit to reverse the district court’s vacatur of the award was that the arbitration agreement designated the arbitrators by name. Consequently, ‛the more natural reading of the 2003 Agreement is that the three members were named only to reflect the choices previously made by the parties and their designated members, not to state a limitation on the authority of the panel to continue in the unexpected event that one of the members might resign.“

The second rationale of the decision recognized the pressing need to avoid manipulation the arbitration process:

To read the agreement to require the proceeding to be halted upon the resignation of one member at that late stage of the proceedings would enable bad faith manipulation of the arbitration process: in an ongoing and complex arbitration, a party receiving unfavorable interim rulings would have an incentive to invite the member he designated to resign to forestall an anticipated ultimate defeat, or even, as in the pending case, after securing favorable rulings that are confirmable, to precipitate an arbitrator's resignation in the hope of avoiding confirmation of a later unfavorable award.

This latter point theoretically applies in all cases. Serious thought should be given to drafting arbitration clauses to address this issue.