Commercial Litigation and Arbitration

Attacking Arbitration Award on Grounds Known but Silently Acquiesced in until Award Rendered — “Evident Partiality” — Failure to Postpone Hearing

From Rai v. Barclays Capital Inc., 2010 U.S. Dist. LEXIS 59739 (S.D.N.Y. June 14, 2010):

1. Evident Partiality of the Arbitrators

Section 10(a)(2) of the FAA allows a court to vacate an arbitration award "where there was evident partiality or corruption in the arbitrators, or either of them." In Morelite Construction Corp. v. New York City District Carpenters Benefit Funds, [748 F.2d 79, 84 (2d Cir. 1984),] the Second Circuit held "that 'evident partiality' . . . will be found where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration." Although proof of actual bias is not required under the Morelite standard, the party moving to vacate an arbitration award must show mote than the mere appearance of bias.

The Second Circuit "precludes attacks on the qualifications of arbitrators on grounds previously known but not raised until after an award has been rendered." At the outset of the proceeding, the parties have the opportunity to assess the impartiality of an arbitrator, and accept or reject him accordingly. "'Where a party has knowledge of facts possibly indicating bias or partiality on the part of the arbitrator he cannot remain silent and later object to the award of the arbitrators on that ground. His silence constitutes a waiver of the objection.'"

2. Failure to Postpone Hearing and Refusal to Hear Evidence Section 10(a)(3) of the FAA provides in part that a federal court may vacate an arbitration award "where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown." When determining whether to vacate an arbitral award on these grounds, the court "examine[s] the facts and circumstances surrounding the arbitrator's refusal to grant an adjournment." Judicial review of arbitration decisions is limited, however. Arbitrators are given broad latitude to grant or deny parties' adjournment requests at their discretion. "The court will not interfere with an award on these grounds as long as there exists a reasonable basis for the arbitrators' refusal to grant a postponement."

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