The Sixth and Second Circuits addressed whether to vacate an arbitrator’s award recently. The Sixth Circuit vacated the award of an arbitrator who “exceeded his powers,” while the Second Circuit refused to vacate for “evident partiality.”
Based on the parties’ agreement, the Sixth Circuit considered vacatur under the Michigan Arbitration Act. In particular, the appellant argued that the arbitrator “exceeded his powers.” Muskegon Central Dispatch 911 v. Tiburon, Inc., 2012 WL 340319 (6th Cir. Feb. 2, 2012). The Sixth Circuit agreed, finding that the arbitrator exceeded his power by ignoring “the plain language of the contract” and improperly concluding that a contract section provided an exclusive remedy. In other words, the arbitrator exceeded his powers by interpreting the contract in a way that the Sixth Circuit thought was incorrect.
Not only did the Sixth Circuit vacate the award, but it refused to remand to the original arbitrator. Invoking “functus officio” like Hogwarts heroes, the court declared “a new arbitrator should review” the claims. Id.
The next day* the Second Circuit came out with an opinion that reversed the S.D.N.Y’s decision to vacate an arbitrator’s award. Scandinavian Reinsurance Co. Ltd. v. St. Paul Fire & Marine Ins. Co., __ F.3d __, 2012 WL 335772 (2d Cir. Feb. 3, 2012). The district court judge had concluded that the award of three arbitrators should be vacated for “evident partiality” because two of the three arbitrators did not disclose that they were also serving together on a different arbitration panel, with similar issues, related parties, and a common witness. The judge’s concern was that the two panelists could “receive ex parte information about” relevant issues and make credibility determinations based on their service in the second panel, and that because the conflict was not disclosed, it constituted “evident partiality.”
The Second Circuit reversed, finding that the appellant did not meet its burden of showing that the undisclosed matter (service on the second panel) was indicative of bias. While the court reaffirmed the principle that non-disclosure of a relationship or interest can be suggestive of bias, it also noted that not all undisclosed matters indicate bias. After adopting four factors for courts to use in determining whether a failure to disclose amounted to evident partiality, the court rested on its analysis that “the fact that one arbitration resembles another in some respects does not suggest to us that an arbitrator presiding in both is somehow therefore likely to be biased in favor of or against any party.”
Wary of encouraging non-disclosure, however, the Second Circuit clarified that it does “not in any way wish to demean the importance of timely and full disclosure by arbitrators. . . but the better course is not necessarily the only permissible one.” Id. The Scandinavian Reinsurance decision should give comfort to the many arbitrators who are concerned that by not disclosing their every Facebook friend or LinkedIn link, they may subject themselves to a claim of “evident partiality.”
Of the two decisions, the Sixth Circuit’s is more surprising as it feels like a de novo review of a lower court’s legal conclusions rather than the exceedingly deferential standard usually applied to arbitrator awards. Its national impact is limited, however, given that it was interpreting the Michigan state statute.
*Curiously, the Ninth Circuit also issued a decision on vacatur on February 3: Biller v. Toyota Motor Corp., __ F.3d__, 2012 WL 336135 (9th Cir. Feb. 3, 2012). It was one of the more run of the mill vacatur decisions, however, where the courts show the appellant the many, many ways in which it does not meet the standards for vacatur under the FAA.