Arbitration — Second Circuit Sets High Threshold to Overturn Award on Grounds of “Evident Partiality” — Adopts Fourth Circuit Standards — Non-Disclosure Rarely Sufficient

Scandinavian Reins. Co. v. St. Paul F&M Ins. Co., 2012 U.S. App. LEXIS 2082 (2d Cir. Feb. 3, 2012):

The primary question presented on this appeal is whether the failure of two arbitrators to disclose their concurrent service as arbitrators in another, arguably similar, arbitration constitutes "evident partiality" within the meaning of the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 10(a)(2). Respondents Saint Paul Fire and Marine Insurance Company; St. Paul Reinsurance Company, Limited; and St. Paul Re Limited (collectively, "St. Paul") appeal from a decision of the United States District Court for the Southern District of New York (Shira A. Scheindlin, Judge) granting a petition by Scandinavian Reinsurance Company Limited ("Scandinavian") to vacate an arbitral award rendered in St. Paul's favor and denying a cross-petition by St. Paul to confirm the same award. St. Paul had initiated the arbitration (the "St. Paul Arbitration") to resolve a dispute concerning the interpretation of the parties' reinsurance contract.

In deciding that vacatur was warranted on "evident partiality" grounds, the district court relied principally on the fact that two of the three members of the arbitral panel in the St. Paul Arbitration — Paul Dassenko and Peter Gentile — had failed to disclose that they were simultaneously serving as panel members in another arbitration proceeding: the "Platinum Arbitration." The court observed that the Platinum Arbitration "overlapped in time, shared similar issues, involved related parties, [and] included . . . a common witness." Scandinavian Reins. Co. v. St. Paul Fire & Marine Ins. Co., 732 F. Supp. 2d 293, 307-08 (S.D.N.Y. 2010) ("Scandinavian") (footnotes omitted). The district court determined that "these factors indicate that Dassenko and Gentile's simultaneous service as arbitrators in [both proceedings] constituted a material conflict of interest." Id. at 308. The court then concluded that the arbitrators' failure to disclose this conflict of interest required vacatur of the arbitral award.

We disagree. Evident partiality may be found only "'where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.'" Applied Indus. Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., 492 F.3d 132, 137 (2d Cir. 2007) (internal quotation mark omitted) (quoting Morelite Constr. Corp. v. N.Y.C. Dist. Council Carpenters Benefits Funds, 748 F.2d 79, 84 (2d Cir. 1984)). We conclude that, under the circumstances of this case, the fact of Dassenko's and Gentile's overlapping service as arbitrators in both the Platinum Arbitration and the St. Paul Arbitration does not, in itself, suggest that they were predisposed to rule in any particular way in the St. Paul Arbitration. As a result, their failure to disclose that concurrent service is not indicative of evident partiality. We therefore reverse and remand with instructions to the district court to confirm the award. ***

Although the Agreement did not require the arbitrators to be affiliated with any particular arbitral association, all three arbitrators were certified by the AIDA Reinsurance and Insurance Arbitration Society ("ARIAS"). ARIAS has promulgated ethical guidelines for certified arbitrators, including Canon IV, which instructs arbitrators to "disclose any interest or relationship likely to affect their judgment" and to resolve any doubt about whether to disclose "in favor of disclosure." ARIAS U.S., Code of Conduct - Canon IV, http://www.arias-us.org/index.cfm?a=30 (last visited Dec. 20, 2011). In accordance with those guidelines, each of the arbitrators made initial disclosures to the parties. The form of those disclosures differed. ***

After [all arbitrators] made their respective disclosures, Dassenko — speaking on behalf of the panel — "urge[d] [the parties] to . . . determine whether there's anything else that deserves more attention in terms of disclosures on behalf of this [p]anel." Tr. at 15 (Feb. 25, 2008). Dassenko also acknowledged, on behalf of the panel, the arbitrators' "ongoing responsibility" to make disclosure if and when they "become aware of relationships or situations that require additional disclosure." Id. The parties agreed to accept the panel as constituted. They did not ask any other questions relating to the arbitrators' disclosures at that time. ***

A. Applicability of the New York Convention

***In this case, the district court had subject-matter jurisdiction under 9 U.S.C. § 203, which provides federal jurisdiction over actions to confirm or vacate an arbitral award that is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"). The New York Convention applies in this case because Scandinavian is a foreign corporation. See 9 U.S.C. § 202.

Because the Award in the St. Paul Arbitration was entered in the United States, however, the domestic provisions of the FAA also apply, as is permitted by Articles V(1)(e) and V(2) of the New York Convention. See Zeiler v. Deitsch, 500 F.3d 157, 164 (2d Cir. 2007) (describing overlap of New York Convention and the FAA); Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys "R" Us, Inc., 126 F.3d 15, 19-23 (2d Cir. 1997), cert. denied, 522 U.S. 1111 (1998). "[T]he FAA and the New York Convention work in tandem, and they have overlapping coverage to the extent that they do not conflict." Sole Resort, S.A. de C.V. v. Allure Resorts Mgmt., LLC, 450 F.3d 100, 102 n.1 (2d Cir. 2006) (internal quotation marks omitted). Neither party disputes that section 10 of the FAA governs the issues before us on this appeal. See 9 U.S.C. § 10. ***

II. Evident Partiality

A. Governing Law

The FAA provides that district courts may vacate an arbitral award "where there was evident partiality or corruption in the arbitrators, or either of them." 9 U.S.C. § 10(a)(2). In this Circuit, "evident partiality within the meaning of 9 U.S.C. § 10 will be found where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration." Morelite, 748 F.2d at 84 (internal quotation marks omitted). "Unlike a judge, who can be disqualified in any proceeding in which his impartiality might reasonably be questioned," Applied Industrial, 492 F.3d at 137 (emphasis and internal quotation marks omitted), "an arbitrator is disqualified only when a reasonable person, considering all the circumstances, would have to conclude that an arbitrator was partial to one side," id. (emphasis in original; internal quotation marks omitted). Proof of actual bias is not required, however. See United States v. Int'l Bhd. of Teamsters, 170 F.3d 136, 147 (2d Cir. 1999). A conclusion of partiality can be inferred "from objective facts inconsistent with impartiality." Pitta v. Hotel Ass'n of N.Y.C., Inc., 806 F.2d 419, 423 n.2 (2d Cir. 1986). Of course, a showing of evident partiality "may not be based simply on speculation." Int'l Bhd. of Teamsters, 170 F.3d at 147; see also Three S Del., Inc. v. DataQuick Info. Sys., Inc., 492 F.3d 520, 530 (4th Cir. 2007) (noting that the "asserted bias" may not be "remote, uncertain or speculative" (internal quotation marks omitted)).

The burden of proving evident partiality "rests upon the party asserting bias." Andros Compania Maritima, S.A. v. Marc Rich & Co., A.G., 579 F.2d 691, 700 (2d Cir. 1978) (internal quotation mark omitted). In inquiring whether that burden has been satisfied, the court "'employ[s] a case-by-case approach in preference to dogmatic rigidity.'" Lucent Techs. Inc. v. Tatung Co., 379 F.3d 24, 28 (2d Cir. 2004) (quoting Andros Compania Maritima, 579 F.2d at 700); accord Applied Industrial, 492 F.3d at 137 (analysis takes into account "consider[ation of] all the circumstances").

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. See, e.g., Applied Industrial, 492 F.3d at 136-39. But we have repeatedly cautioned that we are not "quick to set aside the results of an arbitration because of an arbitrator's alleged failure to disclose information." Lucent Techs. Inc., 379 F.3d at 28 (internal quotation mark omitted). We have concluded in various factual settings that the evident-partiality standard was not satisfied because the undisclosed relationship at issue was "too insubstantial to warrant vacating the award." Id. at 30 (internal quotation mark omitted); see also, e.g., id. at 28-29 (no evident partiality where arbitrator failed to disclose either his past work as an expert witness for one of the parties or his past co-ownership of an airplane with another arbitrator); Andros Compania Maritima, 579 F.2d at 696, 701-02 (no evident partiality where umpire failed to disclose his past joint service on nineteen arbitral panels with the president of a firm that acted as one party's agent). Most recently, in Applied Industrial, we considered the standard for obtaining vacatur based upon nondisclosure. There, we reaffirmed the principle that where "[a]n arbitrator . . . knows of a material relationship with a party" but fails to disclose it, "[a] reasonable person would have to conclude that [the] arbitrator who failed to disclose under such circumstances was partial to one side." Applied Industrial, 492 F.3d at 137; see also, e.g., Lucent Techs. Inc., 379 F.3d at 28 (recognizing same principle). ***

Several courts have identified a variety of factors for use in guiding a district court in the application of the evident-partiality test in cases where a party seeks vacatur of an arbitration award because of an arbitrator's nondisclosure. We find those adopted by the Fourth Circuit helpful:

To determine if a party has established [evident] partiality, a court should assess four factors: "(1) the extent and character of the personal interest, pecuniary or otherwise, of the arbitrator in the proceedings; (2) the directness of the relationship between the arbitrator and the party he is alleged to favor; (3) the connection of that relationship to the arbitrator; and (4) the proximity in time between the relationship and the arbitration proceeding."

Three S Del., Inc., 492 F.3d at 530 (quoting ANR Coal Co. v. Cogentrix of N.C., Inc., 173 F.3d 493, 500 (4th Cir. 1999), cert. denied, 528 U.S. 877 (1999)). While those factors are useful, we do not view them as mandatory, exclusive or dispositive. ***

[A]s a general matter, we do not think that the fact that two arbitrators served together in one arbitration at the same time that they served together in another is, without more, evidence that they were predisposed to favor one party over another in either arbitration. ***

Nor do we consider any of the identified similarities between the St. Paul Arbitration and the Platinum Arbitration to suggest bias. ***

We understand, of course, that Gentile was a party-appointed arbitrator in each arbitration, and that he represented the respective claimants (St. Paul and Platinum) in each. We also acknowledge the district court's factual findings that Platinum and its affiliates and St. Paul and its affiliates had various past and ongoing business relationships. See Scandinavian, 732 F. Supp. 2d at 301-02. But there is no indication in the record that Gentile was appointed by Platinum at the recommendation of St. Paul, or that Gentile or Dassenko had any special financial or professional interest in ruling in St. Paul's favor as a result of their participation in the Platinum Arbitration.***

Scandinavian asserts that vacatur is nonetheless warranted because it was misled by Dassenko's and Gentile's repeated assurances to the parties that they understood themselves obligated to make thorough and ongoing disclosures.***

We conclude that vacatur was not called for. In the first place, we do not think it appropriate to vacate an award solely because an arbitrator fails to consistently live up to his or her announced standards for disclosure, or to conform in every instance to the parties' respective expectations regarding disclosure. The nondisclosure does not by itself constitute evident partiality. The question is whether the facts that were not disclosed suggest a material conflict of interest. An approach that examined why an arbitrator failed to disclose a relationship would interject added uncertainty and subjectivity into our evident-partiality analysis. See Int'l Bhd. of Teamsters, 170 F.3d at 146 (describing the test for evident partiality as being "whether an objective, disinterested observer" would conclude that the arbitrator was biased (emphasis added)). Such an approach might, moreover, have perverse effects because if it were the rule that vacatur would be warranted for an arbitrator's failure to live up to his or her own particularly punctilious standards of disclosure, arbitrators would have less of an incentive to set a high standard for their disclosures in the first place.

Footnote 22. Even where an arbitrator fails to abide by arbitral or ethical rules concerning disclosure, such a failure does not, in itself, entitle a losing party to vacatur. See, e.g., Positive Software Solutions, Inc. v. New Century Mortg. Corp., 476 F.3d 278, 285 n.5 (5th Cir. 2007); Montez v. Prudential Sec., Inc., 260 F.3d 980, 984 (8th Cir. 2001); ANR Coal Co., 173 F.3d at 499; Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673, 680-81 (7th Cir. 1983), cert. denied, 464 U.S. 1009 (1983). But see Commonwealth Coatings, 393 U.S. at 149 (Black, J.) (plurality opinion) (describing the AAA disclosure guidelines as "highly significant" to the evident partiality analysis); New Regency Prods., Inc. v. Nippon Herald Films, Inc., 501 F.3d 1101, 1109-10 (9th Cir. 2007) (relying on ethical and arbitral rules as persuasive authority). This is not a case in which the parties have specified a standard for arbitrator impartiality. Accordingly, we need not decide whether noncompliance with such an agreed-upon standard would require a finding of "evident partiality."

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