Scandinavian Reinsurance Company petitioned a federal district court to vacate a final award in an arbitration between it and St. Paul Fire and Marine. Scandinavian argued that two of the arbitrators exhibited evident partiality by failing to disclose their simultaneous involvement in another arbitration that involved a common witness, similar disputed issues and contract terms, and a company that succeeded to the business of St. Paul.
During the selection process, the arbitrators were asked about their current and previous service as arbitrators and experience with affiliates and subsidiaries of the parties, but neither disclosed that they were involved in an arbitration that involved a common key witness and issues. Scandinavian claimed that had it known about the arbitrators’ involvement in the other case, it would have objected to their service.
Under the Second Circuit’s test of evident partiality, “an arbitrator who knows of a material relationship with a party and fails to disclose it meets Morelite’s ‘evident partiality’ standard: A reasonable person would have to conclude that an arbitrator who failed to disclose under such circumstances was partial to one side.” Applying this test, the district court concluded that the undisclosed relationship to the other arbitration constituted a “material conflict of interest,” since the arbitrators could receive ex parte information on key issues relevant to this arbitration. As such, the court found the arbitrators exhibited evident partiality, and vacated the award. Scandinavian Reinsurance Co. Ltd. v. St. Paul Fire & Marine Insurance Co., 09-9531 (U.S.D.C. S.D.N.Y. Feb. 23, 2010).