Marc J. Goldstein Arbitrator & Mediator NYC
January 29, 2024

Arbitrator Disclosure: A Plea for Help to the US Supreme Court

There are many good reasons for the Supreme Court of the United States to grant the petitions for writ of certiorari now before the Court in two cases involving the question of whether international arbitrators’ undisclosed professional relationships justify vacatur on the basis of evident partiality.  The main theme of each of those cert. petitions – that there is a “split” among the federal judicial circuits concerning the relevant test derived from the Court’s 1968 decision in the Commonwealth Coatings case – is sensibly crafted to attract the enthusiasm of the Court. But for those of us who, perhaps more acutely than the Justices of the Supreme Court, have an anxious preoccupation with the subject of arbitrator disclosure, a compelling reason for the Court to take the cases is because the US arbitration community would benefit from authoritative guidance on how the “evident partiality” standard of the Federal Arbitration Act (“FAA”) Section 10(a)(2) applies to the active arbitrator’s multi-layered web of professional and personal relationships in a highly­-networked global community. That type of community did not exist in 1968 – two years before the US acceded to the New York Convention – and its eventual existence was neither considered nor anticipated in the quaint domestic setting of Commonwealth Coatings.

What the Supreme Court actually held in Commonwealth Coatings has been debated now for 55 years in US federal courts and in the arbitration community. That debate has swirled because the Supreme Court has declined to shed light on how the “evident partiality” test for vacatur applies in different contexts. The consequence has been that advocates and courts have on various occasions taken out of context phrases from the opinion of the Court authored by Justice Black (often said to have been only a “plurality opinion” although it was not denominated as such), and the concurring opinion authored by Justice White, and have struggled to extend them to a variety of situations that scarcely resemble Commonwealth Coatings.

Commonwealth Coatings involved a local construction arbitration in Puerto Rico, over sums unpaid to a paint-job subcontractor. The tribunal was composed of two party appointees who were non-neutral by agreement and a presiding arbitrator whom the parties expected to be a neutral. The presiding arbitrator’s “day job”  was as an engineering consultant, and he had provided such services, off-and-on over a five-year period before the arbitration, to the Respondent in the arbitration. This was not disclosed by the presiding arbitrator or by the Respondent, and Claimant only learned of it after losing the case. The Court described this undisclosed business relationship in the following terms: “[T]he [Respondent’s] patronage was repeated and significant, involving fees of about $12,000 over a period of four of five years, and the relationship even went so far as to include the rendering of services on the very projects involved in this lawsuit.

These facts were essential to the Court’s holding. The Court’s objection to the non-disclosure, in FAA “evident partiality” terms — and here I quote from Justice Black’s “opinion of the Court”  — was that “neither this arbitrator nor the [Respondent] gave to petitioner [Claimant in the arbitration] even an intimation of the close financial relations that had existed between them for a period of years.” Justice Black then entered upon a discussion of a 1927 Supreme Court case in which it had been decided that a criminal defendant was denied the constitutional right to a fair trial because, under the Ohio local criminal court’s rules and practices, the judge derived income from court fees taxed against convicted defendants.  The Opinion of the Court in Commonwealth Coatings  then interpolated this principle into FAA Section 10: “Since in the case of courts this is a constitutional principle, we can see no basis for refusing to find the same concept in the broad statutory language that governs arbitration proceedings and provides that an award can be set aside on the basis of ‘evident partiality’ or the use of ‘undue means’.

The paragraph containing this quotation concludes with the sentence hosting the catch-phrase that has made Justice Black’s Opinion famous. The catch-phrase is “might create an impression of possible bias.” The full sentence reads: We can perceive no way in which the effectiveness of the arbitration process will be hampered by the simple requirement that arbitrators disclose to the parties any dealings that might create an impression of possible bias” (emphasis supplied, purposefully). In this 2024 retrospective, taking into account five decades of concern with potential overreach of the phrase “might create an impression of possible bias,” perhaps it is useful to ask, by way of limitation: what did the Supreme Court mean by “dealings”? It seems to be a question worth considering. One can only imagine how many briefs in how many courts over the span of 55 years have argued that Commonwealth Coatings requires all arbitrators in FAA cases, on pain of potential award vacatur, to disclose “any matter”  or “any information” or “any relationship” or “any facts” that “might create an impression of possible bias.”  But it seems entirely possible that Justice Black and his colleagues — including the concurring Justices White and Marshall — used “dealings” more narrowly, in alignment with the facts of the case to refer to the business activities that are regularly engaged in by the arbitrator for profit, and the potential influence of the profit motive on the arbitrator’s objectivity. Such an interpretation seems to harmonize Justice Black’s opinion with Justice White’s concurrence, cutting against a tendency in some of the lower federal court case law to view those opinions as pronouncing different standards.

There is evidence of this in Justice White’s concurrence. Clearly Justice White was focused on  arbitrators’ “business relationship with the parties before them” and “any financial transactions which he has had or is negotiating with either of the parties.” He then described the holding of the Court to be that “where the arbitrator has a substantial interest in a firm which has done more than trivial business with a party, that fact must be disclosed.”  And it is worthwhile to observe that there is no hint in Justice Black’s Opinion that Justice White misstated the holding of the Court.

I see quite a bit of unity in the White and Black opinions in Commonwealth Coatings, and it may well be that the divergence that has been ascribed to those opinions by some lower federal courts has resulted from efforts to apply Commonwealth Coatings to disclosure scenarios at a considerable remove from the one that case presented.

These remarks surely apply to the non-disclosure facts presented by the certiorari petitions in the Andes and Grupo Unido cases. Each involves non-disclosures by arbitrators who, at the times of their appointments, were lawyers in private practice, serving both as arbitration advocates and as arbitrators. Neither case has to do with a business relationship between the arbitrators (or their law firms) and any of the parties. Andes concerns nondisclosure of an arbitrator’s concurrent service on a different tribunal with a party’s counsel. Grupo Unido concerns (inter alia) nondisclosure of a presiding arbitrator’s concurrent service on a second tribunal with one of the co-arbitrators. (Related to this, but not dealing with Grupo Unido itself, is the Post on this Site entitled “On Overlapping Appointments” dated November 2, 2022. It is easily located using the Search by Keyword feature in the right-hand margin).  These are arbitrators in an arbitration world that bears no resemblance to the local construction industry of San Juan, Puerto Rico in the 1960s.  A compelling reason for the Supreme Court to grant certiorari, from the perspective of our community, has much to do with giving guidance to participants in the contemporary world of complex high-value arbitrations, international and domestic, where busy arbitrators constantly encounter other busy arbitrators in contexts, well known to all of you, ranging from other tribunals to workshop faculties to Bar Association task forces.

The cert. petitions in Grupo Unido and Andes cast a spotlight on the unstable relationship between arbitrator disclosure and arbitrator bias.  That relationship is unstable, in the US market, because rules about arbitrator disclosure mainly come from the rules and standards of arbitration-sponsoring institutions (with the overlay of soft law, notably the IBA Conflict of Interest Rules), while rules about arbitrator bias mainly come from jurisprudence under the FAA in cases where a losing party seeks to have an award vacated, or refused confirmation, because an arbitrator was “evident[ly] partial[]” or “corrupt.” Which set of rules should guide an arbitrator in deciding what disclosures to make?  Does the answer vary from case to case? From one federal judicial circuit to another? From one institution to another?

The Grupo Unido and Andes decisions in the federal courts of appeals reflect a view that the FAA is only concerned with undisclosed professional relationships that are prima facie indicative of bias. That Prominent Arbitrator A in Case 1 promotes the candidacy of Prominent Arbitrator B in Case 1 to chair the Tribunal in Case 2 in which Prominent Arbitrator A serves as a party appointee – one of the nondisclosure scenarios in Grupo Unido —  doesn’t meet the prima facie test according to the Eleventh Circuit in Grupo Unido.  To be sure, chair appointments in big cases are lucrative, and in some sense marketable to get more of them. But the concern of a losing party that Prominent Arbitrator A had purchased Arbitrator B’s adoption of the position of the party that appointed Prominent Arbitrator A, or at least purchased a more sympathetic audience for the position of that party, is speculative not reasonable unless other unfavorable and undisclosed relationship facts indicate that Arbitrator B withheld disclosure to conceal the fact that her or his vote and/or sympathy was in some sense for sale.  This seems to be a sensible view, and the problem that justifies the granting of cert. in both cases is that it is not consistently shared across all federal courts actively and regularly concerned with international arbitrations.

Consider, for example, a case that is to be argued in the US Ninth Circuit Court of Appeals in April 2024, called Equicare Health Inc. v. Varian Medical Systems, Inc. (No. 23-15698 in the 9th Circuit, for those of you with PACER accounts who may wish to track down the briefs).  This is an appeal from a US District Court judgment in the Northern District of California that vacated an ICDR arbitration award on grounds of evident partiality due (mainly) to a wing-arbitrator’s non-disclosure. What did the wing arbitrator fail to disclose – evidently unwittingly?: That years earlier, in a long-since-settled legal malpractice case, he and his law firm as local counsel for an out-of-California law firm, had been represented by a legal team that included (in the final stages before settlement) a lawyer now appearing before the Tribunal as a partner of a different law firm. And (assuming the accuracy of the appellant’s version of the facts) that lawyer had taken only a back-office brief-writing role in the malpractice case; and her presence on the malpractice defense team had been entirely unknown to the arbitrator/former client, such that her appearance in the arbitration triggered no connection that would have caused him to make a disclosure.

Those of you who are intrepid enough to read the District Court’s opinion granting the motion to vacate in the Equicare case (2023 WL 3089093 (N.D. Cal. April 19, 2023)) may share my consternation that the Court appears to hold that FAA Section 10 “evident partiality” is present when an arbitrator, innocently or through inadvertence, fails to discover his or her own transitory and attenuated prior status as a client of a law firm whose legal team on the matter included an attorney now appearing before him. Even more disconcerting,  the District Court supports this conclusion with the observation that the non-disclosure violated the terms of the ICDR’s arbitrator questionnaire that requires that all such relationships be disclosed, and the consequence was to deprive the losing party (the vacatur movant) of the ability, in the initial striking and ranking of the ICDR’s candidate list, to strike from the list the arbitrator that it instead ranked without taking into account the undisclosed facts.

This is troublesome for at least a few reasons. First, a party may strike an arbitrator from an institution-provided candidate list for any reason, and so at the selection stage party autonomy includes the right to speculate about a candidate’s predisposition. A party striking and ranking an institution’s list, when the list is composed after pre-screening candidates by asking them to make conflicts disclosures, is perfectly entitled to prefer candidates whose disclosures do not invite speculative suspicion of bias. But it does not follow that a candidate’s innocent nondisclosure at that stage of information that entails at most a speculative concern about bias, rises to the status of award-vacating evident partiality when the same information surfaces after the case has concluded.  To do so wrongly conflates party autonomy in arbitrator selection with the impression of arbitrator bias that compromises an award. Further, disclosure standards such as the broad disclosure instructions given by the AAA/ICDR in its disclosure questionnaire are not sensibly understood as a guide to the meaning and application of “evident partiality” in FAA Section 10. Those instructions would seem to have a two-fold purpose: (1) to better ensure full disclosure of material information by calling on arbitrators to disclose all information about relationships without making threshold judgments about materiality, and (2) fostering a perception among arbitration users, who make choices among institutions, that the AAA/ICDR’s broad disclosure philosophy provides a certain level of assurance that its Tribunals will observe high ethical standards of independence and impartiality. The FAA’s “evident partiality” standard is applied, however, when the arbitration has ended (or partially ended in a Partial Final Award or an Interim Measures Award), and so it is concerned with the striking of an appropriate balance between overturning conflict-clouded results and defeating the very purpose of arbitration by requiring completed cases to be repeated before new tribunals.

One of the most useful contributions the Supreme Court of the United States could make, by accepting certiorari in the Grupo Unido and Andes cases, would be to deliver guidance clarifying when an undisclosed professional relationship of an arbitrator is insufficient to justify setting aside an award, even though the non-disclosure may well have violated the reasonable disclosure expectations of the losing party derived from institutional rules and practices, state procedural law and soft law like the IBA Conflicts Rules.  A logical consequence of such a ruling from the Supreme Court might well be that arbitral institutions and state arbitration laws would more explicitly adopt disciplinary remedies for disclosure omissions by their arbitrators  — and/or more transparency about the criteria guiding their challenge decisions on nondisclosure issues — so that jeopardy to the arbitrator’s standing and eligibility to serve, rather than jeopardy to the award, would more often govern the disclosure decisions of arbitrators in situations akin to Grupo Unido and Andes.

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