The Third Circuit reversed an order vacating an arbitration award after concluding that the plaintiff had waived its right of waiver. In the decision, the Third Circuit joined the First, Second, Eighth, and Ninth Circuits in adopting a “constructive knowledge” standard for finding waiver in the context of arbitration.
Defendant-appellants, Goldman, Sachs & Co. and others contested an order vacating an arbitration decision in favor of plaintiff-appellee, Athena Venture Partners, L.P. During arbitration, one of the three arbitrators disclosed that he had been charged with the unauthorized practice of law in an unrelated case. Neither Athena, Goldman, nor the other members contested his continued participation in the arbitration. Only after an unfavorable result, did Athena conduct a background check on the arbitrator and found that he significantly misrepresented the scope of his legal problems. Athena’s successful motion to vacate the arbitration award in District Court was premised on violation of the parties’ agreement to arbitrate due to the arbitrator’s failure to disclose. The Third Circuit reversed, adopting the “constructive knowledge” approach to waivers. Constructive knowledge requires that parties use reasonable care and diligence to investigate potential conflicts. The court noted that this standard “prevents the losing party from receiving a second bite at the apple” (citations omitted). The Ninth Circuit held that Athena failed to apply timely diligence in conducting an investigation only until after it had lost the arbitration. Athena knew or should have known of the conflict and failed to act in a timely manner, thus waiving its rights to challenge the award. Goldman, Sachs & Co. v. Athena Venture Partners, L.P., Case No. 13-3461, (3rd Cir. Sept. 29, 2015).