March 31, 2013

Can “Actual Bias” Approach to “Evident Partiality” Discourage Post-Award Litigation?

It has been nearly 45 years since the Supreme Court of the United States decided the Commonwealth Coatings case (Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968)) and addressed for the only time in its history the meaning of the term “evident partiality,” which appears in Chapter One of the FAA as a ground for setting aside an Award. No single opinion or rationale commanded a majority of the Justices in that case, and the legacy of the case has been generally associated with the concurring opinion of Justice White, who was able to support the affirmance of the judgment on the basis that the record supported a finding of actual bias while he rejected the notion, articulated in the plurality opinion authored by Justice Hugo Black, that arbitrators should be held to the same ethical standards as judges and therefore their awards should be exposed to vacatur if the record supports merely an appearance of possible bias.

Earlier this month the US Court of Appeals for the Third Circuit had occasion to visit the Commonwealth Coatings opinions in an appeal involving allegations of bias baed on the sole arbitrator’s failure to have disclosed election campaign contributions received from the parent company of the victorious Respondent. But in this case there had also been campaign contributions to the arbitrator (who ran for election to the Supreme Court of Pennsylvania) in a much larger amount from the law firm that represented the disappointed claimant-appellant. And the contributions were all reported publicly on a Website maintained by the State.  The Third Circuit, adhering to the “actual bias” view of “evident partiality,” found no merit in the position that the award should be vacated. (Freeman v. Pittsburgh Glass Works LLC, 2013 WL 811884 (3d Cir. Mar. 6, 2013)).

The Third Circuit also took this occasion to warn its readers that judges should not hesitate to award sanctions for frivolous vacatur motions and frivolous appeals, as a measure to protect the efficacy of arbitration (although no sanctions were imposed in this case).

It is useful to take note of the utility of the “actual bias” approach to “evident partiality” in discouraging frivolous appeals from arbitral awards. While arbitrators are justifiably criticized for failing to err on the side of caution by disclosing relevant but non-disqualifying information (like the receipt of judicial election campaign funds, publicly-disclosed, from persons connected to both sides), it is another matter to invoke “evident partiality” in service of a retroactive review of pre-award arbitrator disclosure where the proceedings have been fundamentally fair and bear no trace of partisanship in either the outcome or the procedure. Actual bias being both more difficult to prove and more dependent than appearance of bias on the objective elements of the arbitral record (the Award, the procedural orders, the transcript of the hearing), there should in principle be an inhibition of speculative appeals and on efforts to support such speculation with post-award “detective work” to unearth some conceivable basis to impugn an arbitrator’s neutrality. But in practice such litigation remains an epidemic, linked one would suppose to the reluctance of judges to impose sanctions and the unwillingness of Congress to adopt statutory fee-shifting for FAA cases.

Perhaps the Third Circuit’s admonition will gain traction in the district courts, and post-award litigation will gradually become a risky strategy that counsel for losing parties will be more reluctant to recommend.

Leave a Reply