Federal courts have long had power under the Federal Arbitration Act (“FAA”) to vacate an arbitral award because of arbitrator bias. See 9 U.S.C. § 10(a)(2). The FAA does not, however, address the power of a court to remove an arbitrator before or during an arbitration hearing. As a result, courts have historically been all over the map on the question of whether they have power to interfere with an ongoing arbitration because of alleged arbitrator bias or doubts about an arbitrator’s qualifications. See Steven C. Schwartz, Reinsurance Law: An Analytic Approach § 13.04 (rev. 2013) (“[T]he cases are inconsistent as to whether the FAA permits a pre-hearing challenge to an arbitrator who does not meet the requirements of the arbitration agreement.”). Several recent decisions on arbitrator disqualification serve to muddy the water further, potentially obscuring the legal rules applicable to the question and posing practical challenges to parties seeking to police arbitrator bias. For example, in a decision from the Eastern District of Michigan, Star Insurance Co. v. National Union Fire Insurance Co., No. 13-13807, 2013 U.S. Dist. LEXIS 130379 (E.D. Mich. Sept. 12, 2013), the court entertained a pre-hearing challenge based on alleged arbitrator conduct. Two other recent cases, however, appear to have taken a different approach, indicating that alleged arbitrator bias cannot be challenged in court before a final arbitral award is issued. See Allstate Ins. Co. v. OneBeacon Am. Ins. Co., No. 13-12368, 2013 U.S. Dist. LEXIS 146826 (D. Mass. Oct. 8, 2013); IRB-Brasil Resseguros S.A. v. Nat’l Indem. Co., No. 11 Civ. 1965, 2011 U.S. Dist. LEXIS 136640 (S.D.N.Y. Nov. 29, 2011). Another line of cases poses challenges to litigants trying to determine how and when to pursue concerns about alleged arbitrator bias. One case addresses ethical concerns with the use of panel e-mails in an attempt to show bias. Northwestern Nat’l Ins. Co. v. Insco, Ltd., No. 11 Civ. 1124, 2011 U.S. Dist. LEXIS 50789 (S.D.N.Y. Oct. 3, 2011). Another case, by contrast, addresses the extent to which arbitrators must make disclosures themselves of potential conflicts of interest. Scandinavian Reins. Co. Ltd. v. St. Paul Fire & Marine Ins. Co., 668 F.3d 60 (2d Cir. 2012). In light of these recent cases, parties to arbitration proceedings must carefully navigate the fraught issue of whether, when, and how to assert bias. With careful planning and attention to detail, however, parties to an arbitration can heed the lessons of these cases in their efforts to try to answer these questions. I. Star Insurance Co. v. National Union Fire Insurance Co. In Star Insurance v. National Union, the Eastern District of Michigan granted a preliminary injunction enjoining an arbitration proceeding. Star Ins., 2013 U.S. Dist. LEXIS 130379, at *19. After an interim final award had been issued against it on liability, one party alleged unauthorized communication between opposing counsel and the opposing party-appointed arbitrator and alleged
that these communications took place during a time period when ex parte communications were not permitted. Id. at *13-17. The party against whom the interim final award had been issued also alleged that the umpire and opposing party-appointed arbitrator supposedly issued panel orders without the input of the third arbitrator who was copied on the communications, but contended he was on vacation. Id. at *17-18. According to the court, these acts were grounds for enjoining the arbitration proceeding before addressing damages and before issuance of the final arbitral award. According to the court, four factors are considered in determining whether to grant a preliminary injunction: (i) likelihood the moving party will prevail on the merits, (ii) irreparable harm to the moving party if a preliminary injunction is not issued, (iii) possibility of substantial harm to others, and (iv) impact on the public. In its decision, the court stated that each factor favored the moving party (i.e., the party against whom the interim final award on liability had been issued by the arbitrators). The court accepted the moving party’s argument that it would suffer injury to its “reputation, goodwill, and standing in the insurance industry” if the anticipated $25 million arbitral award was issued against it. Id. at *12. The court also determined that an exception to the general rule against courts intervening in pre-final award arbitration proceedings was applicable, and thus the moving party was likely to succeed on the merits because, in the court’s view, the moving party “need only prove the fact of ex parte communications to prevail on the merits of a request to remove a panel member” (and the court said the non-moving party “seems not to dispute the fact of the communications”). Id. at *14, *17. The court found that there could be substantial harm to others because, according to the court, the moving party “persuasively argue[d] that no award, even if issued could be confirmed and reduced to judgment until these issues are resolved.” Id. at *18. The court also found that the “public interest favors the issuance of an injunction of the arbitration proceedings, to probe further and to preserve the status quo.” Id. at *19.1 II. Allstate v. OneBeacon and IRB-Brasil v. National Indemnity Two other cases represent a different approach. One case, Allstate v. OneBeacon, involved an umpire who supposedly inadvertently discovered that one of the parties had nominated him for service, contrary to the customary practice that umpire candidates remain unaware of who nominated them and how they were selected. Allstate Ins. Co., 2013 U.S. Dist. LEXIS 146826, at *3-4. As a result, the other party sought to enjoin the arbitration proceeding on the ground that the arbitrator’s knowledge would bias him in favor of the party who nominated him. The court rejected the moving party’s argument, noting first that pre-hearing challenges to arbitrator bias are generally not allowed, except for narrow exceptions. Id. at *7. The court then rejected the moving party’s contention that the arbitrator’s alleged knowledge fell into those exceptions because it violated the
contract’s requirement that the arbitrators be “disinterested.” Id. at *8. Thus, the court indicated that it would not interpret such a clause as a contractual prohibition on alleged potential arbitrator bias. Id. at *8. Second, the court also applied a heightened standard for showing the irreparable harm necessary for obtaining a preliminary injunction. According to the court, even if the moving party suffers an adverse judgment from a biased arbitrator, a sufficient legal remedy exists “in the form of a post-award challenge to the arbitration proceeding.” Id. at *13. Because post-award challenges are usually available, showing irreparable harm will be difficult under the standard articulated in Allstate v. OneBeacon. The court in IRB-Brasil v. National Indemnity reached a similar result. In that case, a party-appointed arbitrator had supposedly communicated with several candidates for umpire seeking to confirm their “interest, ability, and willingness” to serve. Id. at *15. As a result, the moving party challenged the umpire’s partiality, citing numerous industry authorities it said supported its position that such ex parte communication is improper. The court did not accept the moving party’s argument, stating that “parties are precluded from attacking the partiality of an arbitration panel until after an award has been issued.” Id. at *17. The court, therefore, and unlike in Star Insurance, did not issue a preliminary injunction to enjoin the arbitration proceedings. III. Northwestern National Insurance Co. v. Insco, Ltd. In another recent case, Northwestern Nat’l Ins. Co. v. Insco, the court addressed ethical rules that supposedly limit the extent to which parties may rely on a party-appointed arbitrator to investigate potential arbitrator misconduct by other panel members. In that case, one party-appointed arbitrator allegedly had concerns that the other party-appointed arbitrator had failed to make necessary disclosures. Northwestern Nat’l Ins. Co., 2011 U.S. Dist. LEXIS 50789, at *3-5. The party arbitrator who apparently had those concerns eventually informed counsel of those concerns and apparently revealed panel communications with counsel, who then attached certain communications to a motion to the entire panel. Id. at *5-7. After receiving the motion attaching panel communications, the other party brought a motion in federal court to disqualify the attorney who attached the panel communications to the motion, alleging violation of ethical obligations and arbitral guidelines. The court granted the motion after rejecting the argument that concerns about arbitrator bias justified acquisition of the panel communications. Id. at *27-30. The court stated that “a party is never allowed to probe the decision-making process of an arbitration panel to prove bias, except in the most egregious of cases.” Id. at *27. Alleged concerns about an arbitrator’s “failures to disclose appointments in other arbitrations” and “personal conflicts of interest” did not amount to the necessary “negligence” or “malfeasance.” Id. at *28. Accordingly, the court entered an order disqualifying the attorneys who obtained the panel communications.
IV. Scandinavian Reinsurance Co. v. St. Paul Fire & Marine Insurance Co. Finally, yet another recent case reemphasizes the role of potential judicial review regarding arbitrator disclosures. In Scandinavian Reinsurance Co. v. St. Paul Fire & Marine Ins. Co, 668 F.3d 60, the moving party discovered two months after the final arbitration award was issued that two of the three panel arbitrators had apparently been involved in another arbitration involving similar issues. Id. at 68. Although the panelists had all made a variety of other disclosures, the moving party contended that two conflicted arbitrators had failed to disclose the contemporaneous arbitration. Id. The court stated that the arbitrators’ service in a contemporaneous, similar proceeding was not, “without more, evidence that they were predisposed to favor one party over another in either arbitration.” Id. at 74. The court did not place any weight on the arbitrators’ alleged failure to disclose that service, despite their disclosure of other potential conflicts. Id. at 76-77. The court stated that arbitrators “need not live up to [their] announced standards for disclosure” and do not need to “conform in every instance to the parties’ respective expectations regarding disclosure.” Id. Nonetheless, the court stated that courts will continue to be concerned with alleged nondisclosure of potential conflicts that are “material.” Id. at 77. According to the court, the nondisclosure in Scandinavian Re—service in an unrelated arbitration involving similar issues—was so minor that it will not likely encourage arbitrators to leave more meaningful conflicts undisclosed. The court, therefore, did not disturb the award. V. Potential Significance of These Decisions These decisions demonstrate the broad range of standards courts may apply to questions of alleged arbitrator bias. For example, courts may give the term “disinterested” a unique interpretation depending on the facts and circumstances of the dispute before them. In addition, even while acknowledging that alleged misconduct had not been proven, a court could enjoin arbitration proceedings to allow further investigation. Such cases, however, are few and far between, and convincing a court to intervene in arbitration proceedings prior to a final award will likely still require proof of actual arbitrator misconduct that explicitly violates a provision of the arbitration agreement. Courts have also outlined a regime that requires arbitrators to disclose all potential material conflicts themselves, while not encouraging arbitrators to police the impartiality of others. Decisions in these areas give the parties themselves a relatively minor role to play prior to final judgment. The parties need only remain vigilant to overt signs of bias and follow-up on disclosed conflicts that present potential issues.
Parties should be careful to raise potential indications of bias and to follow up on them through inquiries to the panel. Parties should also document their inquiries to avoid later accusations of waiver. Parties should not involve their party-appointed arbitrator in the investigation of others. VI. Conclusion Judicial treatment of pre-hearing intervention in arbitration hearings because of arbitrator bias continues to evolve. The conflicting messages that courts have sent in this area require careful attention to the factual detail of the case and to the subtleties of the applicable law. Litigants must continue to be sensitive to potential bias claims early in the case and must pursue them vigorously. At the same time, they must proceed with their eyes open to the significant potential ethical and practical challenges that may stand in their way.