In an unpublished opinion Star Insurance Company vs. National Union Fire Insurance Company of Pittsburgh, PA, the Sixth Circuit vacated a judgment of the district court confirming an arbitration award for roughly $20 million. To say that is an unusual outcome is an understatement, as courts generally confirm arbitration awards against all manner of challenges.
What made this case unique was the potential taint on the three arbitrator panel caused by ex parte communications between counsel and an arbitrator. In this case, each party selected an arbitrator and those two arbitrators appointed the third neutral. However, they entered into a scheduling order that specified that all ex parte communications should cease by a specific date certain. After the panel issued an interim award, one of the party arbitrators began communicating ex parte with one of the parties. Working in conjunction with the neutral, this party arbitrator effectively disenfranchised, in the words of the Sixth Circuit, the other party’s arbitrator. The two arbitrators agreed on a number of orders without input from the third.
Assessing this under Michigan law, the Court declined to draw a bright line rule that simple ex parte communication would irrevocably taint an arbitration award. Instead, relying on cases from Michigan explaining that ex parte communications in contravention of an arbitration agreement could taint the award, the Court held that the communications violated the scheduling order that barred ex parte communications, and thus represented a ground for vacatur of the award. The Court rebuffed a variety of challenges by the prevailing party, concluding that this was an arbitration in which “the coincidences all broke one way.”
Ex parte communications in arbitration can be a very sensitive topic, and this case illustrates the need to police such activities, and the benefits that may flow memorializing either in an arbitration agreement or in a scheduling order a prohibition on ex parte communications.