Arbitration

Appropriations Bill to Prohibit Fed Contractors from Mandatory Arbitration of Employee or Independent Contractor Claims under Title VII or Torts Related to or Arising Out of Sexual Assault or Harassment

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By Mark Kantor

Kantor Photo (8-2012)On March 21, Congressional negotiators reached last-minute agreement on a 2232-page “Consolidated Appropriations Act, 2018” to implement the bipartisan budget agreement from earlier this year (available at http://docs.house.gov/billsthisweek/20180319/BILLS-115SAHR1625-RCP115-66.pdf). Such “must pass” legislation is always a popular vehicle for “policy riders.” This year, one such rider that appears to have successfully made its way into the final legislation prohibits Federal contractors or subcontractors, under Federal contracts exceeding $1 million, from entering into or enforcing pre-dispute arbitration provisions under which an employee or independent contractor agrees in advance to resolve through arbitration “any claim under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention.” Title VII, of course, covers all employment discrimination, not just sexual assault or harassment (https://www.eeoc.gov/laws/statutes/titlevii.cfm). There is an exclusion in the provision for agreements that may not be enforced in US courts. In addition, the Secretary of Defense can waive the prohibition if “the Secretary or the Deputy Secretary personally determines that the waiver is necessary to avoid harm to national security interests of the United States, and that the term of the contract or subcontract is not longer than necessary to avoid such harm.”

The agreed text reads as follows:

24 SEC. 8095. (a) None of the funds appropriated or
25 otherwise made available by this Act may be expended for
1 any Federal contract for an amount in excess of
2 $1,000,000, unless the contractor agrees not to—
3 (1) enter into any agreement with any of its
4 employees or independent contractors that requires,
5 as a condition of employment, that the employee or
6 independent contractor agree to resolve through ar-
7 bitration any claim under title VII of the Civil
8 Rights Act of 1964 or any tort related to or arising
9 out of sexual assault or harassment, including as-
10 sault and battery, intentional infliction of emotional
11 distress, false imprisonment, or negligent hiring, su-
12 pervision, or retention; or
13 (2) take any action to enforce any provision of
14 an existing agreement with an employee or inde-
15 pendent contractor that mandates that the employee
16 or independent contractor resolve through arbitra-
17 tion any claim under title VII of the Civil Rights Act
18 of 1964 or any tort related to or arising out of sex-
19 ual assault or harassment, including assault and
20 battery, intentional infliction of emotional distress,
21 false imprisonment, or negligent hiring, supervision,
22 or retention.
23 (b) None of the funds appropriated or otherwise
24 made available by this Act may be expended for any Fed-
25 eral contract unless the contractor certifies that it requires
1 each covered subcontractor to agree not to enter into, and
2 not to take any action to enforce any provision of, any
3 agreement as described in paragraphs (1) and (2) of sub-
4 section (a), with respect to any employee or independent
5 contractor performing work related to such subcontract.
6 For purposes of this subsection, a ‘‘covered subcon-
7 tractor’’ is an entity that has a subcontract in excess of
8 $1,000,000 on a contract subject to subsection (a).
9 (c) The prohibitions in this section do not apply with
10 respect to a contractor’s or subcontractor’s agreements
11 with employees or independent contractors that may not
12 be enforced in a court of the United States.
13 (d) The Secretary of Defense may waive the applica-
14 tion of subsection (a) or (b) to a particular contractor or
15 subcontractor for the purposes of a particular contract or
16 subcontract if the Secretary or the Deputy Secretary per-
17 sonally determines that the waiver is necessary to avoid
18 harm to national security interests of the United States,
19 and that the term of the contract or subcontract is not
20 longer than necessary to avoid such harm. The determina-
21 tion shall set forth with specificity the grounds for the
22 waiver and for the contract or subcontract term selected,
23 and shall state any alternatives considered in lieu of a
24 waiver and the reasons each such alternative would not
25 avoid harm to national security interests of the United
1 States. The Secretary of Defense shall transmit to Con-
2 gress, and simultaneously make public, any determination
3 under this subsection not less than 15 business days be-
4 fore the contract or subcontract addressed in the deter-
5 mination may be awarded.

The agreed legislation is now expected to pass Congress very promptly. But, if the appropriations bill is not signed by the President before midnight Friday, then the US Government will once again shut down for lack of funds (https://www.cnn.com/2018/03/21/politics/congress-unveils-spending-package-fix-nics/index.html). Observers expect the bill to pass Congress on a bipartisan vote, just as the original agreement did earlier this year. But the timing of passage, and thus the possibility of another very short Government shutdown, may be affected by opponents’ parliamentary maneuvers.

 

Mark Kantor is a CPR Distinguished Neutral. Until he retired from Milbank, Tweed, Hadley & McCloy, Mark was a partner in the Corporate and Project Finance Groups of the Firm. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). Additionally, Mr. Kantor is Editor-in-Chief of the online journal Transnational Dispute Management.

This material was first published on OGEMID, the Oil Gas Energy Mining Infrastructure and Investment Disputes discussion group sponsored by the on-line journal Transnational Dispute Management (TDM, at https://www.transnational-dispute-management.com/), and is republished with consent.

No Notice: NJ Federal Court Declines to Compel Arbitration

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By Elena Gurevich

Morgan Stanley has lost a bid to compel arbitration against a former employee.

A New Jersey federal district court ruled that the arbitration agreement circulated by the company via email could not be constituted as adequate notice, and therefore was not binding on the plaintiff.

This is not the first time a New Jersey court has struck down a motion to compel arbitration. There seems to be a trend in the approach that New Jersey state and federal courts take in examining the ADR process. The courts are looking closely at arbitration clauses in light of the state’s consumer protection and employment discrimination laws. See “Examining New Jersey’s Arbitration Scrutiny,” CPR Speaks blog  (July 12, 2016)(available at http://bit.ly/2GMH0A5).

In Schmell v. Morgan Stanley & Co., Civ. No. 17-13080 (D.C. N.J. March 1)(available at http://bit.ly/2FZnmiY), the court did not even look at the cases Morgan Stanley relied on, saying that the fact the plaintiff—a senior vice president in the financial services company’s Red Bank, N.J., office—had notice of the agreement was in dispute.

The court found that the defendant company’s evidence that the plaintiff was working and accessing emails on the day the email in question was sent could not be considered as proof of adequate notice.

U.S. District Court Judge Anne E. Thompson also found that the plaintiff’s certified statements that he had no recollection of receiving and viewing the email were indicative of the fact that there had been no meeting of the minds, and therefore no mutual assent to the agreement.

Noting the plaintiff’s certification, the opinion also stated that the email notification and the plaintiff’s continued employment did not constitute notice, despite contrary case law. Therefore, Thompson reasoned, the court did not have to “consider whether this dispute falls within the scope of the Arbitration Agreement.”

She declined to compel arbitration, rejecting Morgan Stanley’s motion. The firm had fired the plaintiff last October, alleging discrimination for past conduct involving drug and alcohol abuse that the plaintiff detailed in a book about his life. The Thompson opinion states that the plaintiff was terminated even though he had made the changes to the book that Morgan Stanley had demanded he make, in order to continue working at the company.

According to the plaintiff’s attorney, Joshua Bauchner, a partner in the Woodland Park, N.J., office of Ansell Grimm & Aaron, no notice of appeal has been filed in the case. Attorney for Morgan Stanley, Kerrie Heslin, a partner in Chatham, N.J.’s Nukk-Freeman & Cerra, has not responded to an email request for comment.

The New Jersey treatment of arbitration agreements continues to evolve. A December attempt to make legislative changes died in committee, but it is likely that similar initiatives will emerge.

A Senate bill attempted to bar provisions in employment contracts that waive rights or remedies as well as agreements that conceal details relating to discrimination claims. Though the bill didn’t mention arbitration, the accompanying statement makes its intention clear, noting that “provision in any employment contract or agreement which has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment, including claims that are submitted to arbitration, would be deemed against public policy and unenforceable.”

The proposal can be found here: http://bit.ly/2IEKtBl.

* * *

The author is a CPR intern.

 

 

District Court Overrules Arbitrator’s Authority on Class Certification

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By Ginsey Varghese

A recent decision in a long-running New York case permitting federal review of an arbitrator’s authority in class arbitration may have substantial implications for arbitration law.

In January, a New York Southern District Court decision vacated an arbitrator’s class certification award to protect the due process rights of more than 70,000 absent class members in a gender discrimination matter, Jock v. Sterling Jewelers Inc., No. 08 CIV. 2875, 2018 WL 418571 (S.D.N.Y. Jan. 15, 2018) (available at http://bit.ly/2EjEQWp).

U.S. District Court Judge Jed Rakoff held that the arbitrator exceeded her powers under the Federal Arbitration Act because an arbitrator cannot bind non-parties when the arbitration agreement does not allow class-action procedures. Id. at 2018 WL 418571, at *5; 9 U.S.C. §10(a)(statute available at http://bit.ly/120BmfV).

The FAA authorizes vacatur in four limited circumstances, one of which Rakoff employed in this case, “where the arbitrators exceeded their powers, or so imperfectly executed them that a . . . final and definite award upon the subject matter was not federal made.” 9 U.S.C. §10(a).

The case began in March 2008 with several female Sterling employees filing a class action discrimination suit against the company. The district court compelled arbitration. Jock v. Sterling Jewelers, Inc., 564 F. Supp. 2d 307, 310-12 (S.D.N.Y 2008).

The case has since endured several procedural appeals, with the latest decision resting in part on U.S. Supreme Court Associate Justice Samuel A. Alito Jr.’s concurrence in Oxford Health Plans LLC v. Sutter, where Alito distinguished “absent members,” reasoning that “it is far from clear [whether] they will be bound by the arbitrator’s ultimate resolution of the dispute.” 569 U.S. 564, 574 (2013).

This case appears to be the first time that Alito’s concurrence has been used to overrule an arbitrator’s authority. See Andrew C. Glass, Robert W. Sparkes III, Roger L. Smerage, and Elma Delic, “A First in Second (Circuit): On Remand, District Court Breaks New Ground by Vacating Arbitrator’s Class Certification Award,” K&L Gates blog (Feb. 1, 2018)(available at http://bit.ly/2ELn66I).

At this stage, Rakoff’s decision provides protection for companies with arbitration provisions that are silent on class action procedures, but it undermines and challenges arbitrator authority.

As has been a constant in the litigation, there’s more to come. Rakoff’s decision is the subject of a Jan. 18 notice of appeal, and is now, once again, pending review before the Second U.S. Circuit of Appeals. Jock v. Sterling Jewelers Inc., 18-153.

More on Jock, including its long history and pending appeal will appear in the April issue of Alternatives. March is out now, free here for CPR members, and here for the public.

The author is a CPR Institute 2018 intern. She is a law student at Pepperdine University’s School of Law in Malibu, Calif.

U.S. Supreme Court Grants Cert to Decide “Who Decides” “Independent Contractor” Employment Arbitration Case

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Kantor Photo (8-2012)By Mark Kantor

On February 26, the US Supreme Court granted certiorari to hear New Prime Inc. v. Oliveira, Case No. 17-340, a 1st US Circuit Court of Appeals decision in which the appeals court ruled on two questions: (1) Whether, under a contractual arrangement where the parties have delegated arbitrability questions to the arbitration, a court facing a motion to compel arbitration must first decide whether the US Federal Arbitration Act (FAA) covers or excludes the dispute or instead leave that question to be decided first by the arbitrators and (2) does the provision of Sec. 1 of the FAA excluding contracts of employment of transportation workers  from arbitration apply to an agreement that purports to establish an independent contractor relationship rather than an employer-employee relationship.

This case raises two questions of first impression in this circuit. First, when a federal district court is confronted with a motion to compel arbitration under the Federal Arbitration Act (FAA or Act), 9 U.S.C. §§ 1-16, in a case where the parties have delegated questions of arbitrability to the arbitrator, must the court first determine whether the FAA applies or must it grant the motion and let the arbitrator determine the applicability of the Act? We hold that the applicability of the FAA is a threshold question for the court to determine before compelling arbitration under the Act. Second, we must decide whether a provision of the FAA that exempts contracts of employment of transportation workers from the Act’s coverage, see id. § 1 (the § 1 exemption), applies to a transportation-worker agreement that establishes or purports to establish an independent-contractor relationship. We answer this question in the affirmative.

Oral argument in the matter will occur during the Fall term of the Supreme Court.

The underlying contractual agreements are easily summarized (footnotes omitted):

Among the documents Oliveira signed was an Independent Contractor Operating Agreement (the contract) between Prime and Hallmark.3 The contract specified that the relationship between the parties was that “of carrier and independent contractor and not an employer/employee relationship” and that “[Oliveira is] and shall be deemed for all purposes to be an independent contractor, not an employee of Prime.”4 Additionally, under the contract, Oliveira retained the rights to provide transportation services to companies besides Prime,5 refuse to haul any load offered by Prime, and determine his own driving times and delivery routes. The contract also obligated Oliveira to pay all operating and maintenance expenses, including taxes, incurred in connection with his use of the truck leased from Success. Finally, the contract contained an arbitration clause under which the parties agreed to arbitrate “any disputes arising under, arising out of or relating to [the contract], . . . including the arbitrability of disputes between the parties.”6

Ultimately, Oliveira filed a class action in US District Court against Prime notwithstanding the arbitration clause.  Oliveira alleged that Prime violated the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201-219, as well as the Missouri minimum-wage statute, by failing to pay its truck drivers minimum wage. Oliveira also asserted a class claim for breach of contract or unjust enrichment and an individual claim for violation of Maine labor statutes.  Prime moved to compel arbitration under the FAA.

The provision of the FAA at issue in this dispute is Section 1, which excludes from the coverage of the FAA “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

Section 1 of the FAA provides that the Act shall not apply “to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Id. § 1. The Supreme Court has interpreted this section to “exempt[] from the FAA . . . contracts of employment of transportation workers.”

On the “who decides” issue, the Court of Appeals held in New Prime Inc. v. Oliveira that the courts, rather than the arbitrators, are the proper place to decide whether these disputes are covered by, or exempted from, the FAA.  Having decided the “who decides” question to place the resolution in the courts, the appellate judges then concluded that, on the particular facts of the case, “a transportation-worker agreement that establishes or purports to establish an independent-contractor relationship is a contract of employment under § 1,” and thus excluded from the FAA.

Given the dramatic increase in “independent contractor” agreements in the workplace over the last decades, this case may determine whether a large variety of labor disputes are heard in court or may instead be subjected to mandatory arbitration agreements.  The Scotusblog.com case page with the appellate decision and cert filings is here – http://www.scotusblog.com/case-files/cases/new-prime-inc-v-oliveira/.

 

Mark Kantor is a CPR Distinguished Neutral. Until he retired from Milbank, Tweed, Hadley & McCloy, Mark was a partner in the Corporate and Project Finance Groups of the Firm. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). Additionally, Mr. Kantor is Editor-in-Chief of the online journal Transnational Dispute Management.

This material was first published on OGEMID, the Oil Gas Energy Mining Infrastructure and Investment Disputes discussion group sponsored by the on-line journal Transnational Dispute Management (TDM, at https://www.transnational-dispute-management.com/), and is republished with consent.

Predispute Arbitration Would be Barred for Sex Harassment Claims Under Legislative Proposal

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By Elena Gurevich

The Federal Arbitration Act is being targeted in Congress in a bill that seeks to ban predispute arbitration in matters involving sexual harassment.

Last month, Sen. Kirsten E. Gillibrand, D., N.Y., along with 13 co-sponsors., introduced U.S. Senate bill S-2203, titled “Ending Forced Arbitration of Sexual Harassment Act of 2017.”

The act makes predispute arbitration agreements unenforceable for sex discrimination disputes.  It would put the responsibility for determining arbitrability on courts, not arbitrators.

The Dec. 6 proposal was immediately referred to the Committee on Health, Education, Labor, and Pensions.  It was introduced in the House by Rep. Cheri Bustos, D. Ill., on Dec. 26, with seven co-sponsors, and sent to the Judiciary Committee.

The act would amend United States Code Title 9—the FAA—by adding a new Chapter 4 “Arbitration of Sex Discrimination Disputes” at the end.

In a proposed Section 401, the legislation would define “predispute arbitration agreement” as “any agreement to arbitrate a dispute that had not yet arisen at the time of the making of the agreement,” and “sex discrimination dispute” as “a dispute between an employer and employee arising out of conduct that would form the basis of a claim based on sex under title VII of the Civil Rights Act of 1964 [citation omitted] if the employment were employment by an employer [as defined in the act], regardless of whether a violation of such title VII is alleged.”

Proposed Section 402, on validity and enforceability, states that “no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of a sex discrimination dispute.”

According to a blog by employment attorneys at the law firm of Orrick, Herrington & Sutcliffe, if the act is passed into law, it “would not make employment arbitration agreements altogether unenforceable.” Joe Liburt, Allison Riechert Giese and Akasha Perez, “The Ending Forced Arbitration of Sexual Harassment Act: A Legislative Response to #MeToo,” Orrick Employment Law and Litigation blog (Dec. 14) (available at http://bit.ly/2rmpHSx).

The blog post notes that the proposal “would require employers and employees to litigate sexual harassment claims, while leaving unaffected all other arbitration-eligible claims.  This could potentially require employees who bring both harassment and non-harassment legal claims to litigate some claims in court while simultaneously submitting other claims to arbitrators.”

The proposed law, however, does not prohibit workers and employers from agreeing to arbitration after a dispute arises.

The Orrick blog notes that the legislative proposal “has a long journey” before it is signed into law, explaining that “the bill must be assigned to a committee for consideration, withstand debate” and “pass a vote.” The blog post predicts that it “could take months or even years to complete, if ever.”

A USA Today article notes that Congress also “is wrestling with incidents of sexual harassment,” referring to a resolution passed by the Senate that requires sexual harassment training for senators and staff.

The article discusses a bipartisan bill that was introduced in November that would “overhaul the congressional complaint process and provide better protections for accusers.” The article also notes that “other lawmakers are looking to reform the secret process lawmakers have used to settle numerous workplace harassment and discrimination claims.” See Jessica Guynn, “‘Enough is enough’: Gretchen Carlson says bill ending arbitration would break silence in sexual harassment cases,” USA Today (Dec. 6)(available at https://usat.ly/2ynUM6y).

Some companies already have taken action in the light of the proposed legislation. Last month, Microsoft became the first Fortune 100 company to support the bill. Microsoft President and Chief Legal Officer, Brad Smith, stated that the company should “act immediately and not wait for a new law to be passed.” Brad Smith, “Microsoft endorses Senate bill to address sexual harassment,” Microsoft blog (Dec. 19)(available at http://bit.ly/2mR65jR).

The author is a CPR intern.

Court Backs Award for Class Arbitration, Refusing to Wait for Supreme Court’s Decision

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By Shravanthi Suresh-Silver

A recent Wisconsin federal trial court decision backs confirmation of an arbitration award even though the defendant asked for it to be stayed until the class waivers-arbitration cases currently before the U.S. Supreme Court are decided.

The arbitrator in the case had backed a class arbitration process on behalf of employees, who said that the defendant, Waterstone Mortgage Corp., a Pewaukee, Wis.-based lender, failed to pay its loan officers overtime.

The three consolidated cases on waivers that ban class processes in favor of mandatory individual arbitration were argued together in the Supreme Court on Oct. 2. A decision on the relationship between the Federal Arbitration Act and the National Labor Relations Act is expected soon.

In Herrington v. Waterstone Mortgage Corp., No. 11-cv-779-bbc (U.S.W.D Dec. 4)(available at http://bit.ly/2BgULTT), U.S. District Court Senior Judge Barbara B. Crabb, based in Madison, Wis., concluded that plaintiff’s claims would have to be resolved through arbitration under the parties’ agreement, and that the NLRA gave the plaintiff the right to join other employees in her case.

Herrington also is notable because the court rejected an arbitrator bias argument and addressed claims that the arbitrator, former Second U.S. Circuit Court of Appeals Judge George Pratt, slept through key proceedings.

Plaintiff Herrington commenced arbitration on March 23, 2012, under her employment contract. Arbitrator Pratt issued an order determining that the arbitration could proceed as a collective action. Ultimately, the Wisconsin federal court opinion by Senior Judge Crabb notes, 174 class members opted into the arbitration.

On July 5, 2017, Pratt issued a final decision, holding that Waterstone was liable under the Fair Labor Standards Act for unpaid minimum wages and overtime and attorney fees and costs, but not liable under Wisconsin statutory or contract law. He ordered Waterstone to pay nearly $7.3 million in damages; $3.3 million in attorney fees and costs and an incentive fee of $20,000 to be paid to Herrington.

The plaintiff moved for confirmation of the award under 9 U.S.C. § 9 in the Wisconsin federal court, while the mortgage company moved to vacate or modify the award, asking Senior Judge Bragg to stay any action relating to the award until the U.S. Supreme Court reaches a decision in the consolidated cases of Ernst & Young LLP v. Morris; Epic Systems Corp. v. Lewis, and NLRB v. Murphy Oil USA Inc. (For more information on the cases, see CPR Speaks at http://bit.ly/2yWjWuf.). In the cases, the Court is considering whether class and collective action waivers in arbitration agreements violate the National Labor Relations Act.

The plaintiff countered by asking for sanctions against the defendant lender, arguing that the objections to the award’s confirmation were frivolous.

The court denied the defendant’s motions to stay and to vacate the arbitration award, as well as Herrington’s sanctions motion. The court confirmed the arbitration award, with one modification to correct the mathematical error identified by both parties.

In arguing to stay any action relating to the award until the Supreme Court reaches its decision in the consolidated cases, Waterstone suggested that if the Supreme Court concludes that class and collective action waivers do not violate the National Labor Relations Act, the defendant will be able to rely on that decision to file a motion under Federal Rule of Civil Procedure 60(b)(6) challenging Bragg’s March 2012 decision in the case striking the class waiver in the company’s employment agreement.

In noting that the defendant’s assumption was flawed, the Wisconsin court reemphasized that “a change in law showing that a previous judgment may have been incorrect is not an ‘extraordinary circumstance’ justifying relief under Rule 60(b)(6).” (Quoting Nash v. Hepp, 740 F.3d 1075, 1078 (7th Cir. 2014)(“Rule 60(b) cannot be used to reopen the judgment in a civil case just because later authority shows that the judgment may have been incorrect.” (Internal citation omitted.)), Bragg noted in her opinion that the defendant “made no attempt to explain why a change in the law would justify reconsideration of a decision made in this case five years ago.”

The court also noted that the ultimate decision allowing the case to proceed on a collective basis was made by Arbitrator Pratt, not the court. Bragg noted that Pratt said he was bound by her finding that the class waiver provision was invalid under the National Labor Relations Act.

But the opinion also says that Pratt found the employment agreement’s arbitration clause was ambiguous. Despite the waiver, he noted, the clause also stated that arbitration should proceed “in accordance with the rules of the American Arbitration Association,” which permits class arbitration.

The arbitrator noted that the defendant “at the very least created an ambiguity, which must be construed against [Waterstone,] the party who drafted the Agreement.”

The opinion says that the arbitrator “also noted plaintiff’s argument that the language of the so-called ‘waiver’ clause should actually be read as permitting class or collective arbitration, rather than prohibiting it, though the arbitrator chose not to resolve that dispute.”

Wrote Senior Judge Bragg,

In other words, the arbitrator’s discussion suggests that he believed there were independent bases for permitting collective arbitration, aside from this court’s previous decision. Thus, it is far from clear that the Supreme Court’s decision . . . would cause the arbitrator to change his decision to permit collective arbitration.

The court also stated that the case had been pending since 2011 and that it was not at an early stage. It was noted that a further delay would prejudice the plaintiff, who had been waiting several years through numerous delays to recover unpaid wages.

Additionally, despite the defendant’s assertion that a stay would “greatly simplify the issues and reduce the burden of litigation,” Bragg wrote that she was not persuaded that the Supreme Court’s decision will necessarily simplify the issues in this case, however it rules.

There were other significant issues. The defendant argued that Arbitrator Pratt “demonstrated bias in favor of plaintiff when he sent a survey to potential class members as part of his decision whether to certify a class.” The defendant stated that when the survey was submitted, discovery on class certification was closed and the arbitrator had said that the plaintiff’s evidence supporting class certification was insufficient.

Additionally, Waterstone argued that the phrasing of the survey was biased in favor of plaintiff.

But Bragg dismissed the bias claims.  She held that “there is nothing about the arbitrator’s decision to send out the survey and consider the responses that suggests bias in favor of plaintiff or against defendant.” The inquiries, the opinion noted, were “simply ‘yes’ and ‘no’ questions regarding the experiences of putative class members.”

Furthermore, the arbitrator permitted the parties to argue and brief their views regarding the survey, “and issued a written decision explaining his reasons for considering the results.” Pratt “later issued a well-reasoned 16-page written decision on class certification,” Bragg noted in her opinion, “explaining the survey results and his conclusion that the results supported class certification.”

Finally, the arbitrator was clear that he understood the evidentiary limitations of the survey results. Therefore, the court dismissed the defendant’s allegations of arbitrator bias.

The defendant also argued that the award should be vacated because Arbitrator Pratt “slept through portions of the evidentiary hearing,” the opinion says.

Waterstone argued that the arbitrator’s “alleged sleeping amounts to abdication of his duties and qualifies as misconduct sufficient to justify vacating the arbitration award,” the opinion says.

Senior Judge Bragg said she agreed with Plaintiff Herrington that if the defense believed Pratt slept during the hearing, it should have asked for a break. The court noted that there appeared to be a factual dispute regarding whether Pratt dozed. “To raise this issue now seems far too late,” the opinion says.

Bragg emphasized that even if the arbitrator dozed off, the defendant “had pointed to nothing suggesting that the arbitrator was prejudiced by the alleged napping.” While Waterstone claimed that Pratt slept during important testimony, it failed to identify any specific testimony that he missed.

In dismissing the defendant’s motion that the arbitration award should be vacated, the court noted that the defendant’s arguments about prejudice are based entirely on speculation.

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The author is a CPR intern.

US Dist Ct Upholds Summary Disposition in Arbitration

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Kantor Photo (8-2012)By Mark Kantor

Arbitrators and counsel often wonder whether summary disposition of an arbitral dispute is consistent with the requirements of applicable arbitration law and rules.  In Weirton Medical Center, Inc. v. Community Health Systems, Inc., N.D. West Virginia (Civ. Action No. 5:15CV132, Dec. 12, 2017) (available here – https://scholar.google.com/scholar_case?case=4968969295311804275&hl=en&lr=lang_en&as_sdt=20003&as_vis=1&oi=scholaralrt), Judge Frederick Stamp of the US District Court for the Northern District of West Virginia upheld last week an arbitration award on summary disposition issued under the 2009 AAA Commercial Arbitration Rules against an attack on grounds that summary disposition of the dispute without discovery and an evidentiary hearing was improper.  The District Court instead concluded that “that the arbitrator’s procedural determination that summary disposition was appropriate has a reasonable basis in the parties’ agreements. Accordingly, the arbitrator did not exceed his powers in disposing of the arbitration on summary disposition.”

Judge Stamp’s opinion involves a number of interesting issues, including collateral estoppel.  But for purposes of this post I focus only on the authority of the arbitrator to make a summary disposition.  The situation was complicated by the fact that there were two arbitration agreements.  Each contract referred to the then-current version of the AAA Commercial Arbitration Rules (i.e., the 2009 Rules).  But one also referred to the “substantive and procedural laws of the State of Tennessee applicable to contracts made and to be performed therein” and the other referred to the “substantive and procedural laws of the State of West Virginia applicable to contracts made and to be performed therein” (footnotes and many citations omitted below).

The Interim CFO agreement invokes the “substantive and procedural laws of the State of Tennessee applicable to contracts made and to be performed therein,” … the Turnaround Agreement invokes the “substantive and procedural laws of the State of West Virginia applicable to contracts made and to be performed therein,” … and both agreements invoke the “arbitration rules of the American Arbitration Association (“AAA”) in effect on the date of” the agreements.

The claimant in the arbitration, Weirton, found its claim summarily dismissed in arbitration on statute of limitation grounds.   Weirton argued both before the arbitrator and later in the District Court that the procedural laws of Tennessee and West Virginia prohibited summary dispositions in the circumstances.  By operation of the arbitration agreements, thus asserted Weirton, the arbitrator was bound to follow those laws and deny summary disposition.  The arbitrator concluded, however, that the arbitration agreements were subject for procedural issues to the AAA Commercial Arbitration Rules and that summary disposition was proper.  The arbitrator then dismissed Weirton’s claims “as a matter of law” as time-barred by the applicable statute of limitation.  Weirton thereafter sought to vacate that award on grounds that the arbitrator exceeded his powers and manifestly disregarded applicable law in so ruling.

Weirton argues that the arbitrator exceeded his powers by granting summary disposition rather than permitting discovery and holding a hearing. It argues that the arbitration agreements, the AAA Rules, and West Virginia and Tennessee’s Rules of Civil Procedure did not permit summary disposition. Further, Weirton argues that summary disposition was premature because no discovery had been conducted and factual disputes were evident.

Weirton made these same arguments before the arbitrator, and he rejected them. The arbitrator expressly concluded that the 2009 AAA rules provided him “discretion to hear and grant motions for summary disposition.” …. He concluded that summary disposition was not premature and that Weirton was not entitled to discovery because “the asserted claims fail as a matter of law.” …. The arbitrator also implicitly determined that this matter was governed by the AAA rules and not the Rules of Civil Procedure of Tennessee or West Virginia.

The District Court began its analysis of this issue by observing that US courts will not question an arbitrator’s decision on procedural issues “so long as it has some reasonable basis in the parties’ agreement.”

It is well settled that an arbitrator has jurisdiction to “adopt such procedures as are necessary to give effect to the parties’ agreement” and that “`procedural’ questions which grow out of the dispute and bear on its final disposition are presumptively. . . for an arbitrator[] to decide.” …. Thus, an arbitrator is empowered to make a determination on procedural issues, and courts will not question that determination so long as it has some reasonable basis in the parties’ agreement.

The arbitration agreements provided for a situs in those jurisdictions, thereby (said Weirton) importing the procedural rules of those locales in any event.  According to the petitioner, the procedural laws of the two States “require full discovery and a full evidentiary hearing.”  Weirton also contended that the references in the contracts to the procedural law of Tennessee and West Virginia, respectively, imported the civil procedure rules of those States.  However, according to the Court, “[t]he arbitrator implicitly concluded that the AAA rules rather than West Virginia or Tennessee’s Rules of Civil Procedure applied to determine whether summary disposition was proper.”  That conclusion, said the Judge, had “a reasonable basis in the parties’ agreements.”  Therefore, the arbitrator’s conclusion was proper.

To that end, Weirton argues that the arbitration agreements do not provide authority to dispose of the case on summary disposition. Both arbitration agreements contain substantially identical language. Each provides for binding arbitration of any dispute arising out of or relating to the Interim CFO Agreement or the Turnaround Agreement, both invoke the 2009 AAA rules, both require a written and reasoned award, and both contain choice of law provisions. The Interim CFO Agreement provides for arbitration in Brentwood, Tennessee and for the application of Tennessee law. The Turnaround Agreement provides for arbitration in Pittsburgh, Pennsylvania and for the application of West Virginia law.

First, Weirton argues that, because the arbitration agreements provide for binding arbitration at particular locations, the parties intended to require full discovery and a full evidentiary hearing. It also argues that the arbitration agreements invoke the AAA rules and the procedural laws of Tennessee and West Virginia, none of which allow for summary disposition without an opportunity for discovery.

Second, Weirton argues that the arbitrator was obligated to apply West Virginia and Tennessee’s Rules of Civil Procedure, which, Weirton argues, would not have permitted summary disposition without adequate discovery. The arbitrator implicitly concluded that the AAA rules rather than West Virginia or Tennessee’s Rules of Civil Procedure applied to determine whether summary disposition was proper. This Court finds the arbitrator’s conclusion to have a reasonable basis in the parties’ agreements.

Reasoning in a manner that gave effect to the arbitrator’s authority to resolve ambiguities and to to respect the function of arbitration, rather than a textual analysis of the contracts, the Court held that these agreements made clear that “the AAA rules governed procedural matters in the arbitration … [and] application of those States’ Rules of Civil Procedure in an arbitration proceeding would be wrong….”

Read as a whole, these agreements make clear that the AAA rules governed procedural matters in the arbitration, while Tennessee and West Virginia law governed the substantive legal issues. Although the choice of law provisions provide that the states’ procedural law applicable to contracts was to be applied, application of those States’ Rules of Civil Procedure in an arbitration proceeding would be wrong, especially in light of the express invocations of the AAA rules.  At best, these choice of law and procedural rules provisions create ambiguity as to what procedural law applied, a determination well within the arbitrator’s jurisdiction. The arbitrator’s decision to apply the AAA rules rather than the States’ Rules of Civil Procedure has a reasonable basis in the parties’ agreements. Thus, the arbitrator’s determination that summary disposition was procedurally proper is entitled to deference.

Judge Stamp also rejected the notion that designating a location for the arbitration had the effect of importing that locales’ judicial procedure rules.

Weirton argues that the arbitration agreements required discovery and full evidentiary hearings because they specified the locations for such hearings. However, these designations of sites for arbitration hearings are not equivalent to express requirements that the parties conduct discovery and participate in a full evidentiary hearing on claims that fail as a matter of law.

Interestingly, the Court found authority for arbitral summary judgment in Rule L-4 of the Large, Complex Commercial Case Procedures of the AAA Commercial Arbitration Rules.  Rule L-4 only states generally that arbitrators may “take such steps as they may deem necessary or desirable to avoid delay and to achieve a just, speedy and cost-effective resolution of Large, Complex Commercial Cases.”  Notably, the 2009 AAA Commercial Arbitration Rules did not include a provision expressly referring to summary dispositions, unlike Rule R-33 of the current 2013 version of those Rules which does conditionally authorize dispositive motions (“R-33.  Dispositive Motions.  The arbitrator may allow the filing of and make rulings upon a dispositive motion only if the arbitrator determines that the moving party has shown that the motion is likely to succeed and dispose of or narrow the issues in the case.”).

While the arbitration agreements do not expressly permit summary disposition, they do not expressly prohibit it either. The agreements invoke the 2009 AAA rules, which provide a set of procedural rules including requiring arbitrators to “take such steps as they may deem necessary or desirable to avoid delay and to achieve a just, speedy and cost-effective resolution of Large, Complex Commercial Cases.” Rule L-4, AAA Commercial Arbitration Rules and Mediation Procedures (2009 ed.).

Perhaps sensing that he was relying only general authority under the Rules, Judge Stamp also buttressed his conclusion by asserting that result was consistent in any event with the civil procedure rules of the two states (“Further, the Rules of Civil Procedure of Tennessee and West Virginia allow for the dismissal of or summary judgment on legally insufficient claims.”).  At bottom, though, the District Court applied a deferential standard of review to the arbitrator’s decision that he had authority under the 2009 AAA Commercial Arbitration Rules to grant summary disposition.

As discussed above, the arbitrator implicitly concluded that the AAA rules rather than the States’ Rules of Civil Procedure applied to the arbitration. This was a procedural matter to be determined by the arbitrator, and this Court will defer to that ruling because it has some reasonable basis in the parties’ agreements. …. Thus, because Tennessee and West Virginia’s Rules of Civil Procedure did not apply to the issue of whether summary disposition was proper, the arbitrator did not manifestly disregard those laws.

The Weirton case therefore stands for the propositions that (1) an arbitrator’s decision to apply arbitration rules rather than a local civil procedure code will prevail even if the underlying agreements refer to local procedural law, so long as the arbitrator reasonably found ambiguity in that contractual language, and (2) authority for dispositive motions in arbitration can be found in general language of the AAA Commercial Arbitration Rules, even in the absence of specific reference to summary dispositions in the applicable Rules (“While the arbitration agreements do not expressly permit summary disposition, they do not expressly prohibit it either.”).

We will have to see if this ruling is appealed to the US Circuit Court of Appeals in due course.

Mark Kantor is a CPR Distinguished Neutral and a regular contributor to CPR Speaks. Until he retired from Milbank, Tweed, Hadley & McCloy, Mark was a partner in the Corporate and Project Finance Groups of the Firm. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). Additionally, Mr. Kantor is Editor-in-Chief of the online journal Transnational Dispute Management.

Roundup: Legislation with Mediation or Arbitration…Maybe for the future?

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By Elena Gurevich

According to Congress.gov, the official website for U.S. federal legislative information, and Govtrack.us, an organization that tracks legislation and votes, several bills have been introduced in the U.S. House of Representatives and the Senate this year that touch upon arbitration or mediation.

Out of five bills introduced, only one deals with mediation as well as arbitration. Although (according to Govtrack) it is highly unlikely that these bills will be passed by the present Congress, they might get a shot in the future under a different Congress.

H.R. 156—Labor Relations First Contract Negotiations Act of 2017. The bill, introduced on Jan. 3 by Rep. Gene Green, D., Texas, has a prognosis of passage of 1%, according to Govtrack, whose projection estimates are supplied by Skopos Labs, a New York software company. The bill amends the National Labor Relations Act to address initial contract negotiation. Specifically, the bill requires mediation if an employer and a newly certified union have not reached a collective bargaining agreement within 60 days. “Either the employer or the union may request binding arbitration if the parties have not reached an agreement within 30 days of selecting a mediator.”

See https://www.congress.gov/bill/115th-congress/house-bill/156.

H.R. 832—Arbitration Transparency Act of 2017, with a 3% chance of passage, requires that an arbitration proceeding between a consumer and a financial institution, in a dispute involving a consumer financial product or service, must be open to the public. It was introduced Feb. 2 by Rep. Michael Capuano, D., Mass.

See: https://www.congress.gov/bill/115th-congress/house-bill/832?r=10

H.R. 1374—Arbitration Fairness Act of 2017 was introduced on March 7. The bill prohibits a predispute arbitration agreement from being valid or enforceable if it requires arbitration of an employment, consumer, antitrust, or civil rights dispute. The bill, sponsored by Rep. Hank Johnson, D., Ga., has a 3% chance of passing, according to Govtrack.

See: https://www.congress.gov/bill/115th-congress/house-bill/1374?r=7

  1. 542—Safety Over Arbitration Act of 2017 was introduced on March 7, with a current prognosis of 9%. The Congress.gov summary says the bill “prohibits the use of arbitration whenever a contract between an individual and another party requires arbitration to resolve a claim or controversy alleging facts relevant to a hazard to public health or safety unless all parties to the controversy consent in writing after the controversy arises.” The sponsor is Sheldon Whitehouse, D., R.I.

See: https://www.congress.gov/bill/115th-congress/senate-bill/542?r=22

  1. 647—Mandatory Arbitration Transparency Act of 2017. The bill has only a 2% chance of passing in this Congress, according Govtrack and Skopos Labs. The bill amends U.S.C. Title 9 on arbitration. According to the Congress.gov summary, the bill “prohibits predispute arbitration agreements from containing a confidentiality clause regarding an employment, consumer, or civil rights dispute that could be interpreted to prohibit a party from: (1) making a communication in a manner such that the prohibition would violate a whistle-blower statute; or (2) reporting or making a communication about tortious conduct, unlawful conduct, or issues of public policy or public concern. But the prohibition shall not apply if a party can demonstrate a confidentiality interest that significantly outweighs the private and public interest in disclosure.” Richard Blumenthal, D., Conn., is the sponsor.

See: https://www.congress.gov/bill/115th-congress/senate-bill/647

* * *

The author is a CPR Institute 2017 Fall Intern.

Sealing of Record to Confirm Arbitration Award Rejected in Favor of Specific Redactions of Only the Most Sensitive Information

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Kantor Photo (8-2012)By Mark Kantor

A decision of the US District Court for the District of Columbia in the middle of last month offers a reminder of the hurdle a party must meet in order to seal from public access the entire record of a proceeding to confirm or vacate an arbitration award.  In XPO INTERMODAL, INC. v. American President Lines, Ltd., Civ. Action No. 17-2015 (PLF) (D. D.C., October 16, 2017)(available here – https://scholar.google.com/scholar_case?case=5024133744129204150&hl=en&lr=lang_en&as_sdt=20003&as_vis=1&oi=scholaralrt), the applicant (XPO INTERMODAL) sought an order in a confirmation proceeding to seal its petition to confirm the arbitration award (denominated, oddly, as a “Binding Mediation Decision”), as well as all exhibits.  US District Court Judge Paul L. Friedman denied the request notwithstanding a confidentiality provision in the contract underlying the arbitrated dispute (“this matter can and should be open to the public to the greatest extent possible”).  But he did order that the parties seek to agree in redactions of “only the most sensitive information.”

XPO INTERMODAL sought the order to seal “its Petition to Confirm Arbitration Award, as well as two exhibits attached thereto: the Binding Mediation Decision issued by the three-member mediation panel and the parties’ Amended and Restated Stacktrain Services Agreement and Schedules A-F and Appendices 1-4 thereto.”  The Court characterized that as a request deny public access to “what, in effect, amounts to the entire substantive record in this case.”   In support, the petitioner referred to the confidentiality provisions of the services agreement out of which the underlying dispute arose, and further stated that the award and exhibits contained “highly sensitive propriety [sic] commercial information,” including information regarding the parties’ “rates and business practices.””  Apart from those general arguments, however, XPO INTERMODAL offered little to the court to justify sealing the record.

In support of its motion, applicant directs the Court to the confidentiality terms of the parties’ Services Agreement and represents that “[b]oth parties have strong property and privacy interests in maintaining the confidentiality of these documents, as they contain highly sensitive propriety [sic] commercial information,” including information regarding the parties’ “rates and business practices.” See Mot. 4. Beyond these general assertions, however, applicant’s motion proffers little to justify sealing what, in effect, amounts to the entire substantive record in this case.

The District Court began its analysis by referring to the “strong tradition” of public access to judicial proceedings.

This country has a “strong tradition of access to judicial proceedings.” United States v. Hubbard, 650 F.2d 293, 317 n.89 (D.C. Cir. 1980). “[A]s a general rule, the courts are not intended to be, nor should they be, secretive places for the resolution of secret disputes.” United States v. Bank Julius, Baer & Co., 149 F. Supp. 3d 69, 70 (D.D.C. 2015) (citing Nixon v. Warner Communications, Inc., 435 U.S. 589, 597 (1978))….

Therefore, “[t]he starting point in considering a motion to seal court records is a strong presumption in favor of public access to judicial proceedings.”  To obtain an order to seal judicial records in the Federal courts despite this presumption, the applicant must satisfy the court regarding whether there is a need for public access, the extent of prior public access, whether someone has objected to disclosure, the strength of property and privacy interests, and the purposes of the documents in the court proceeding.

To determine whether a party seeking to seal court records has overcome this presumption, courts apply a six-factor balancing test to assess:

(1) the need for public access to the documents at issue; (2) the extent of previous public access to the documents; (3) the fact that someone has objected to disclosure, and the identity of that person; (4) the strength of any property and privacy interests asserted; (5) the possibility of prejudice in those opposing disclosure; and (6) the purposes for which the documents were introduced during the judicial proceedings.

After reciting this “six-factor balancing test,” though, Judge Friedman simply jumped to his conclusion without addressing how the various factors weighed in the circumstances of this application.  The only two factors noted by the District Court Judge in his analysis were the presumption in favor of public access and the ease of redaction.

Given the strong presumption in favor of public access and the ease with which confidential information may be redacted from documents before they are publicly filed, the Court concludes that this matter can and should be open to the public to the greatest extent possible.

Importantly, Judge Friedman was not persuaded that exhibits should be sealed in their entirety “simply because they contain or refer to confidential information.”  Generalized business interests in confidentiality (even if mutual between the parties) would not suffice, especially if redaction is feasible.

First, generalized business interests in confidentiality simply “do[] not rise to the level of the privacy and property interests that courts have permitted to outweigh the public’s right of access.” ….   This is particularly so where trade secrets, pricing, and other sensitive information regarding business practices or strategies may be redacted. ….

Judge Friedman noted in particular a line of cases rejecting the argument that confidentiality provisions in the underlying contract were sufficient to provide for sealing the judicial record.

Furthermore, the parties’ mutual desire for confidentiality, without more, does not justify the sealing of the entire substantive record of the case. See Grynberg v. BP P.L.C., 205 F. Supp. 3d 1, 3 (D.D.C. 2016) (explaining that even if disclosure would violate the terms of the parties’ settlement and confidentiality agreements, such agreements between private parties “do not dictate whether documents can be filed under seal” (citing In re Fort Totten Metrorail Cases, 960 F. Supp. 2d 2, 9-11 (D.D.C. 2013))); see also Am. Prof. Agency v. NASW Assurance Serv., 121 F. Supp. 3d 21, 25 (D.D.C. 2013); Brown & Williamson Tobacco Corp. v. FTC, 710 F.2d at 1180.

The District Court acknowledged that XPO INTERMODAL’s confirmation filings appeared to contain “some potentially sensitive business information, including rates and schedules.”  Accordingly, the Court ordered the parties to seek to agree on redactions to the documents rather than complete sealing of the filings.

Here, it appears that the exhibits to applicant’s Petition do include some potentially sensitive business information, including rates and schedules, but the filings otherwise do not warrant sealing from the public. The Court thus sees no reason why the Petition itself should not be made publicly available in full, nor any reason why the exhibits thereto should not be made generally available, with only the most sensitive information redacted. The Court is confident that a more rigorous examination undertaken in good faith will lead to a more tailored and appropriate proposal for redaction.

****

FURTHER ORDERED that the parties shall confer regarding the Petition’s exhibits and submit proposed redactions to the Court on or before October 30, 2017

The simple lesson from XPO INTERMODAL is that, if the judge is paying attention, requests to seal the entirety of a judicial proceeding to confirm an arbitration award are likely to be met with an instruction instead to identify particular redactions of “only the most sensitive information.”

Mark Kantor is a CPR Distinguished Neutral and a regular contributor to CPR Speaks. Until he retired from Milbank, Tweed, Hadley & McCloy, Mark was a partner in the Corporate and Project Finance Groups of the Firm. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). Additionally, Mr. Kantor is Editor-in-Chief of the online journal Transnational Dispute Management.

Subpoenas to Arbitrators Quashed for Lack of Clear Evidence of Impropriety

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Kantor Photo (8-2012)By Mark Kantor

Last week, a Magistrate Judge in the US District Court of the Eastern District of North Carolina quashed document subpoenas served on three arbitrators seeking evidence of alleged non-disclosures of relationships with counsel in connection with a FINRA securities arbitration award.  In In the Matter of Arbitration Between Shepherd, et al., v. LPL Financial LLC, No. 5:17-CV-150-D (Order, Nov. 1, 2017), Magistrate Judge Robert Jones decided that the failure by one arbitrator, Lynne T. Albert, to disclose in the current arbitration two previous arbitrations where counsel for the arbitration defendants had represented parties before her, did not constitute “clear evidence of impropriety” justifying post-award discovery from the arbitrator.  Moreover, Magistrate Judge Jones additionally rejected petitioner Shepherd’s effort to seek discovery by means of document subpoenas addressed to the two other arbitrators, Richard J. Igou and Richard S. Zaifert, which petitioner Shepherd sought to justify not on grounds of “impropriety” but rather because “the alleged impropriety by Albert makes it necessary to “double-check” the other two panelists for additional nondisclosures.”  This decision is yet another in the string of Federal court rulings rejecting aggressive efforts by disappointed parties to extend the “evident partiality” standard under the US Federal Arbitration Act for vacatur of awards due to arbitrator misconduct, as well as reiterating a high hurdle that must be met before the court will permit discovery from an arbitrator.

The Magistrate Judge first concluded that the proper standard for permitting post-award discovery from an arbitrator was “clear evidence of impropriety,” rather than the lesser general standard from Federal Rules of Civil Procedure 26(b)(1) that the information sought was “relevant to any party’s claim or defense and proportional to the needs of the case” (footnotes omitted).

the weight of persuasive case law demands a heightened showing of “clear evidence of impropriety” to obtain discovery from a non-party arbitrator. See Lucent Techs. Inc. v. Tatung Co., 379 F.3d 24, 32 (2d Cir. 2004) (concluding discovery into potential arbitrator bias was not appropriate where the party “has not presented the ‘clear evidence of impropriety’ we have held necessary before granting post-award discovery into potential arbitrator bias.”) (citing Andros v. Marc Rich & Co., A.G., 579 F.2d 691, 702 (2d Cir. 1978)); Van Pelt v. UBS Fin. Servs., No. 3:05-CV-477, 2006 WL 1698861, at * 2 (W.D.N.C. June 14, 2006) (applying the clear evidence of impropriety standard and denying discovery of an arbitrator’s employment records to determine whether he failed to disclose a material fact); see also TransAtlantic Lines LLC v. Am. Steamship Owners Mut. Prat. & Indem. Ass’n, Inc., 253 F. Supp. 3d 725 (S.D.N.Y. 2017)(“In order to take discovery from the ADR panel itself, a litigant must present ‘clear evidence of impropriety,’ such as bias or corruption.”) (citation omitted).

Arguing in the alternative, Shepherd also asserted that arbitrator Albert’s alleged non-disclosures constituted the requisite “clear evidence.”  Magistrate Judge Jones was unmoved.

Plaintiffs argue they have presented clear evidence of impropriety based on Albert’s two nondisclosures. …  The Second Circuit’s decision in the Andros case is instructive here. The Andros court determined that an arbitrator’s undisclosed professional relationship with one of the parties was insufficient to establish clear evidence of impropriety and did not justify discovery into the issue. …  The arbitrator in Andros knew the president of one of the companies involved in the arbitration, as both men previously served on 19 arbitration panels together. …  Despite claims by the opposing side that the president and arbitrator were “close personal friends,” the lower court found the relationship was professional in nature because the interactions were limited to arbitration panels and other social functions related to arbitrations. ….  Moreover, the arbitrator had no financial stake or other interest in the outcome of the arbitration. … Based on these facts, the Second Circuit affirmed the lower court’s decision and found no “clear evidence of impropriety” was presented to support an evidentiary hearing, to compel discovery, or to vacate the ruling.

The Judge considered the instant dispute to be similar to the 2nd Circuit Andros case.  The contact between Albert and the counsel in the other two arbitrations was, he wrote, “strictly professional.”  Further, the FINRA arbitration award was unanimous, and thus any “interactions” between Albert and the counsel had no impact on the result.  And, in any event, Albert eventually disclosed the “interactions” six months before petitioners chose to allege that the conduct constituted impropriety.

Similarly here, the undisclosed relationship is strictly professional-a lawyer appearing before an arbitrator-and the circumstances surrounding Albert’s nondisclosures do not give the impression of clear impropriety: Plaintiffs won the Underlying Arbitration with a unanimous award from all three panelists, including Albert…; and instead of exhibiting behavior consistent with wrongdoing, such as hiding her interactions with Defense Counsel, Albert disclosed this relationship in the June and July 2016 Arbitrations almost six months before Plaintiffs first alleged any impropriety by the Arbitrators in the Underlying Arbitration….

At bottom, “[t]o allow discovery of an arbitrator under these circumstances would “encourage the losing party to every arbitration to conduct a background investigation of each of the arbitrators in an effort to uncover evidence of a former relationship” and “increase the cost and undermine the finality of arbitration, contrary to the purpose of the United States Arbitration Act of making arbitration a swift, inexpensive, and effective substitute for judicial dispute resolution.””  Accordingly, Judge Jones quashed the subpoena addressed to arbitrator Albert.

The Judge then dealt shortly with Shepherd’s further subpoenas seeking documents from the other two arbitrators to “double-check” for possible non-disclosures (“Such reasoning is in direct conflict with a policy favoring the finality of arbitration and does not establish the requisite clear evidence of impropriety”).

With respect to Igou and Zaifert, Plaintiffs present no evidence of impropriety, but rather argue that the alleged impropriety by Albert makes it necessary to “double-check” the other two panelists for additional nondisclosures. …. Such reasoning is in direct conflict with a policy favoring the finality of arbitration and does not establish the requisite clear evidence of impropriety to justify the discovery sought from Igou and Zaifert.

Mark Kantor is a CPR Distinguished Neutral and a regular contributor to CPR Speaks. Until he retired from Milbank, Tweed, Hadley & McCloy, Mark was a partner in the Corporate and Project Finance Groups of the Firm. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). Additionally, Mr. Kantor is Editor-in-Chief of the online journal Transnational Dispute Management.