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June 11, 2010

“Evident Partiality or Corruption” — The Connection Requirement

“Evident partiality or corruption in the arbitrators” is one of the statutory grounds for vacatur of an arbitration award made in the United States, as provided on Section 10(a)(2) of the Federal Arbitration Act. I take brief note here of a decision this week in the Ninth Circuit US Court of Appeals that usefully reiterates aspects of the meaning of those terms. (Lagstein v. Certain Underwriters at Lloyd’s, 2010 U.S. App. LEXIS 11836 (9th Cir. June 10, 2010)).

 

In this case, the Lloyd’s underwriters, after receiving a large award against them from a tribunal composed of retired Nevada state court judges, hired investigators to comb through archives in quest of embarrassing facts that the arbitrators had not disclosed. The detectives managed to find that one of the ex-judge arbitrators had been mired on an ethics controversy as a trial judge a decade earlier, and that a second arbitrator, then a judge of the Nevada Supreme Court, had sided with his colleague in appeals relating to the ethics matter.

 

Of course these matters had nothing at all to do with the parties to the arbitration. To show evident partiality, the Court held, a party challengin an award “must establish specific facts indicating actual bias toward or against a party,” or show that the arbitrator failed to disclose information that “creates a reasonable impression of bias.” The Court also rejected the notion that there was “evident corruption.” Having not previously decided the meaning of this term, the Court held the allegations of corruption mustat least relate to the case or the parties, and not merely some prior instance of improper conduct.