Commercial Litigation and Arbitration

Arbitration — Evident Partiality and Undue Means as Grounds to Vacate Arbitration Award

NGC Network Asia, LLC v. Pac Pacific Group Int’l, Inc., 2013 U.S. App. LEXIS 2802 (2d Cir. Feb. 11, 2013):

a. Evident Partiality

PPGI insists that the District Court should have vacated the arbitration award because the arbitrator exhibited "evident partiality." An arbitrator is disqualified under that standard "only when a reasonable person, considering all of the circumstances, 'would have to conclude' that an arbitrator was partial to one side." Applied Indus. Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., 492 F.3d 132, 137 (2d Cir. 2007) (emphasis added) (quoting Morelite Constr. Corp. v. N.Y.C. Dist. Council Carpenters Benefit Funds, 748 F.2d 79, 84 (2d Cir. 1984)). We use a pragmatic case-by-case approach to determine whether that standard is met, "remain[ing] cognizant of peculiar commercial practices and factual variances." Morelite, 748 F.2d at 84.

Here, the alleged conflict, which was disclosed by the arbitrator at the time of his selection, involves a business relationship between Arent Fox LLP, where the arbitrator was a managing partner, and National Geographic Society ("National Geographic"), which had an indirect, non-controlling ownership interest in Petitioner-Appellee NGC Network Asia, LLC ("NGC"). Because the arbitrator properly complied with his disclosure obligations, "[t]he concern . . . that nondisclosure might create an appearance of bias or even be evidence of bias is simply not present in this case". Lucent Techs. Inc. v. Tatung Co., 379 F.3d 24, 29 (2d Cir. 2004). In addition, the District Court found that none of the parties to the arbitration were clients of Arent Fox, National Geographic was not a party to the contract at issue or a witness in the arbitration proceedings, no discovery was sought from National Geographic, and National Geographic had no management rights or control over NGC. None of these findings is clearly erroneous, and we cannot say that the relationship is one that would compel a reasonable person to conclude that the arbitrator was partial. See id. at 31-32 (no evident partiality where arbitrator disclosed that he had previously been retained as an expert by one of the parties).

b. Undue Means

Nor is there record evidence that the award was procured by undue means as a result of the denial by the American Arbitration Association ("AAA") of PPGI's challenges to the arbitrator. Billion bbbbThe AAA's Commercial Arbitration Rules required that an arbitrator "be impartial and independent" and that, upon objection by a party, "the AAA shall determine whether the arbitrator should be disqualified" in a "decision [that] shall be conclusive." The denial of PPGI's challenges complied with the AAA's rules, which indisputably governed the arbitration proceedings. Under these circumstances, the District Court correctly ruled that the award was not procured by undue means within the meaning of the FAA. Cf. Drayer v. Krasner, 572 F.2d 348, 352 (2d Cir. 1978) (Friendly, J.) (undue means provision applied where the party openly offered evidence for the purpose of causing prejudice where arbitrators declined to receive the evidence).

c. Manifest Disregard of the Law

PPGI also argues that the award must be vacated because the arbitrator disregarded the law regarding implied covenants of good faith and fair dealing and declined to rule on its "pivotal" claim that NGC breached those covenants. We have required vacatur of an arbitral award for manifest disregard of the law only where "the governing law alleged to have been ignored by the arbitrator[] was well defined, explicit, and clearly applicable," and "the arbitrator knew about the existence of a clearly governing legal principle but decided to ignore it." Jock v. Sterling Jewelers Inc., 646 F.3d 113, 121 n.1 (2d Cir. 2011) (quotation marks omitted). Here, the arbitrator explicitly addressed and rejected PPGI's claim for breach of the implied covenants. Moreover, his conclusion that there was no implied duty to make commercially reasonable efforts to sell the advertising time, based on evidence that the parties explicitly chose not to include such an obligation in the contract, accords with applicable law. See City of Yonkers v. Otis Elevator Co., 844 F.2d 42, 48 (2d Cir. 1988); Perma Research & Dev. v. Singer Co., 542 F.2d 111, 118-19 & n.4 (2d Cir. 1976).

2. Denial of Discovery

Post-award discovery regarding an arbitrator's alleged bias is appropriate in limited situations where "clear evidence of impropriety" has been presented. Lucent, 379 F.3d at 32 (quotation marks omitted). For the reasons discussed above, PPGI has failed to make the necessary showing of impropriety on the part of the arbitrator. Therefore, even assuming PPGI adequately raised the need for discovery below, the District Court did not err in refusing to permit discovery.

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