Marc J. Goldstein Arbitrator & Mediator NYC
October 08, 2016

Do Tell

Your commentator can get cranky about arbitrator disclosure. Okay, okay, I can get cranky about many subjects, but still. Party-appointed arbitrators are not going away any time soon, and courts (at least US courts) are not adopting a strong law-and-order stand on “evident partiality.” So, as you think about the disconnect between the disclosure/independence standards of big providers like the AAA, and the test for vacating awards for “evident partiality” in big reviewing courts like the US Second Circuit Court of Appeals, read Merck & Co. v. Pericor Therapeutics, Inc., 2016 WL 4491441 (SDNY Aug. 24, 2016) and maybe weep just a little bit.

This was a Big Pharma license arbitration and the Big Pharma Respondent selected as its party-appointed arbitrator one of “its own” — a recently retired Big Pharma chief of global litigation who prior to a 13 year stint in that position had been 14 years as a partner in a big Manhattan law firm that did plenty of Big Pharma work including work for joint ventures between members of that club including Respondent.

Nothing against Big Pharma from this commentator, or against companies selecting One of Their Own Kind as a party-nominated arbitrator. But let’s take a look at the candidate’s AAA initial disclosures as reported in the cited case:

 1) “[I] had infrequent professional dealings over the years” with Respondent’s General Counsel. Oh really? But what kind of dealings might such disclosure hypothetically mask? Do you (appointee) mean that maybe over 25 years you only did eight $30 billion deals for Respondent, one every three years, but those particulars aren’t important enough to deserve mention? And in between the deals maybe you had two lunches per year together at Le Bernardin, not very “frequent” but consistent, sumptuous, and memorable? But why mention such trifling details that would not justifiably create any doubts about your impeccable impartiality?

 2)  “[I] had occasional professional dealings with other members of the [Respondent’s] law department[].” What kind of dealings might is disclosure hypothetically mask? Do you (appointee) mean maybe that on each of those eight $30 billion deals you worked hand in hand with the Deputy GC for M&A and the Deputy GC for Regulatory? And maybe that one or both of them attended roughly half of those Le Bernardin lunches?

Now dear readers obviously I am being a provocateur here. But it is a serious question why such vague and prophylactic disclosures are not systematically rejected by provider organizations as patently inadequate. Assessment of impartiality under the standards stated in arbitration rules and arbitrator codes of ethics would seem to demand particulars that enable an adverse party to judge the texture of a relationship and its probable impact on the candidate’s mindset. The candidate in the cited case made supplemental disclosures but still they do not seem to reveal any contextual details of the relevant relationships. A challenge to his appointment was rejected by the AAA.

This kind of disclosure is perhaps more frequent among candidates who are “friends and family” appointees, in contrast to the disclosures typically made by those who arbitrate for a living or aspire to do so. For the latter group, the parties’ full satisfaction with their independence and impartiality generally evokes very fulsome disclosure, because the candidate is making an investment not only in the pending appointment but in her long-term credibility and stature.

The disclosure standards observed by nominees and imposed by the provider organizations are critical in the US because federal law treads very lightly lest the law interfere with the efficient functioning of the arbitral system. Judicial challenges to an arbitrator during the course of an arbitration are not accepted; the recourse available is against the award, on the basis that it should be vacated because of “evident partiality.” So an impure process may be nullified but not purified. Moreover, as readers of the Merck case will be reminded, for partiality to be “evident” the applicant for award vacatur must show that it is nearly inevitable that the decision was the product of bias. This is an exceedingly difficult showing to make, and will very rarely be made successfully when the only basis for the motion is that some disclosure details were omitted that probably should have been provided. (Thus Award-losers that hire investigators to dig dirt on arbitrators who they perceive to have been biased, in service of a judicial attack on the award, rarely get their money’s worth for the effort).

Some of this post-award dirt-digging however is not just sour grapes by sore losers. It is a derivative of a system that at the provider level allows arbitrators to pass muster without making robust disclosures. The providers are not well suited to conduct a discovery process if an adverse party believes more questions should be answered more pointedly. Challenges often fail because the challengers cannot effectively conduct pre-appointment discovery and the information challengers are able to obtain, largely from their own sources, in a narrow time window, will often be inconclusive.

Are we asking too much to call upon the providers to act more aggressively, especially with “friends and family” party nominees, so that extensive professional relationships especially in a business setting are described extensively and not with generic phrases like “infrequent professional dealings” that do little more than put the non-appointing party on inquiry notice for an inquiry it is not then in an effective position to undertake?


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