American Arbitration Association Forum on the Construction Industry

BEYOND NO: APPEALING THE ARBITRATION AWARD

Stanley P. Sklar, Esq. Melissa L. Levy, Esq. Bell, Boyd & Lloyd LLC Chicago, Illinois

May 18-19, 2006 Paradise Point Resort & Spa - San Diego, California

ABA FORUM ON THE CONSTRUCTION INDUSTRY ANNUAL MEETING

2006 American Bar Association

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Page TABLE OF CONTENTS Page I. LIMITATIONS ON JUDICIAL REVIEW...................................................................... 1 A. Federal Arbitration Act, 9 USC Section 10.......................................................... 3 1. 2. 3. 4. Vacatur of Arbitration Awards by the Court............................................. 3 Corruption, Fraud, or Undue Means......................................................... 6 Evident Partiality or Corruption ............................................................... 7 Misconduct in Refusing to Postpone the Hearing or to Hear Evidence Pertinent to the Controversy or Misbehavior Prejudicing Rights of Parties.................................................................... 8 Arbitrators Exceeded Their Powers.......................................................... 9

5. B.

Overview of Judicial Standards for Vacatur of Arbitration Awards.....................11 1. 2. 3. 4. 5. 6. 7. 8. De Novo Review for Errors of Law ........................................................12 Clearly Erroneous Standard ....................................................................13 Substantial Evidence Standard ................................................................14 Abuse of Discretion Standard .................................................................15 Arbitrary and Capricious Standard ..........................................................16 Complete Irrationality Standard ..............................................................17 Manifest Disregard .................................................................................18 Public Policy Exception..........................................................................20

II.

APPELLATE REVIEW PROCEDURES BY CONTRACT...........................................22 A. B. C. To Review or Not to Review, That is the Question .............................................23 Contract Issues and Appellate Review of Arbitration Awards.............................25 Existing Procedures for Appellate Review by Agreement...................................26 1. 2. American Arbitration Association...........................................................26 JAMS Arbitration Appeal Procedure.......................................................27

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Page 3. III. CPR Institute for Dispute Resolution Rules for Arbitration Appeal ....................................................................................................28

CONCLUSION .............................................................................................................30

APPENDIX 1............................................................................................................................31 APPENDIX 2............................................................................................................................34 IV. FAILURE TO DISCLOSE AS A BASIS FOR VACATING AN AWARD....................40 AMERICAN ARBITRATION ASSOCIATION Construction Industry Arbitration Rules and Mediation Procedures ......................................................41 AAA CODE OF ETHICS IN COMMERCIAL DISPUTES 2003 REGARDING DISCLOSURE ...........................................................................42 FAILURE TO DISCLOSE MAY LEAD TO REMOVAL FROM THE NATIONAL ROSTER OF NEUTRALS ............................................................44 A BRIEF REVIEW OF SOME RELEVANT CASES....................................................45 V. BIOGRAPHIES.............................................................................................................47

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I.

LIMITATIONS ON JUDICIAL REVIEW An arbitration agreement is a contractual commitment by the parties to resolve

issues of fact, law and contract through an alternative adjudicative forum, and accept the decision of a neutral arbitrator. Stephen L. Hayford, Law in Disarray: Judicial Standards for Vacatur of Commercial Arbitration Awards, 30 Ga.L.Rev. 731, 741-45 (1996) (discussing the nature of arbitration agreements and public policy indicated by the Federal Arbitration Act). The key objective of arbitration is to resolve disputes quickly, inexpensively, and without the complexity of traditional litigation. Id. See also PHILLIP L. BRUNNER & PATRICK J. OCONNOR., CONSTRUCTION LAW, 12 (2002); 9 U.S.C. 10 (2003). The longstanding common law rule, as enunciated in the landmark case of Burchell v. Marsh was that a court will not set aside an arbitration award for error in law or fact. 58 U.S. 344 (MB) (1855). In describing the narrow limit of allowable judicial review of final arbitration awards, the Burchell court stated that if the arbitrators have given their honest, incorrupt judgment on the subject-matters submitted to them, after a full and fair hearing of the parties, they are bound by it; and a court of chancery have no right to annul their award because it thinks it could have made a better. Id. at 352. Stanley P. Sklar, Matthew Bender Construction (2003). Under the common law rule, if the decision was honest and the hearings were fair, an award could not be set aside. Id. at 12.18[3][b]. Modern arbitration statutes, both federal and state, have codified

arbitration laws in keeping with the common law rule regarding judicial review of an arbitration award. Id. (citing 9 U.S.C. 10 ; U.A.A. 12; In re Time Constr., Inc., 43 F.3d 1041 (6th Cir. 1995) (citing Michigan's statutory bases for vacating arbitrator awards in Mich. Ct. Rule 3.602(J)(1)(d)); O&K Glass Co. v. Innes Constr. Co., Inc., 608 N.W.2d 236 (N.D. 2000); Anzillotti v. Gene D. Liggin, Inc., 899 S.W.2d 264

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(Tex.Ct.App. 1995) (citing Texas' statutory bases in Tex.Rev.Civ.Stat.Ann. art. 237(A) (Vernon 1973)); Hooten Constr. Co. v. Borsberry Constr. Co., 108 N.M. 192, 769 P.2d 726 (1989); Hazeltown Area School Dist. v. Krasnoff, 156 Pa.Commw. 76, 626 A.2d 675 (1993), reh'g denied, 1993 Pa.Commw. LEXIS 431 (Pa.Commw.Ct. July 13, 1993) (under a contract that provided for statutory arbitration, the court should have applied the judgment N.O.V. standard of review and not the standard of judicial review reserved for awards governed by common law arbitration)). The Federal Arbitration Act (FAA) has become increasingly applicable as a limitation on judicial review of arbitration awards. For example, in deciding whether the FAA governed an award, the Supreme Court of Alabama interpreted the term involving commerce in the FAA as the functional equivalent of the affecting commerce words of art used regarding Congress commerce clause power. Serra Toyota, Inc., v. Johnson, 876 So. 2d 1125, 1129 (Ala S. Ct. 2003). The Court went on to say that this power may be exercised in individual cases without showing any specific effect on interstate commerce if in the aggregate the economic activity in question would represent a general practice subject to federal control. Id. (quoting Mandville Island Farms, Inc., v. American Crystal Sugar Co., 334 U.S. 219, 236 (1948). Likewise, In Roadway Package Systems, Inc., v. Kayser the Third Circuit considered whether an arbitration agreement was governed by the FAA where citizens of different states contracted for the delivery of packages interstate. 257 F.3d 287, 292 (3d Cir. 2001). In Roadway, the Third Circuit held that, if parties agree to arbitrate a matter that is within Congress reach under the commerce clause, it is unquestioningly governed by the FAA. Id at 292. Essentially, if a transaction involved interstate commerce and there is a contract requiring arbitration,

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the Federal Arbitration Act applies. In view of the FAAs broad reach, a discussion of 9 USC 10 (a)-(d) follows. A. Federal Arbitration Act, 9 USC Section 10 1. Vacatur of Arbitration Awards by the Court

The Federal Arbitration Act places strong limits on judicial review of arbitration awards. Under section 10(a) of the FAA, the grounds for vacating an award upon the application of any party to the award are limited to four areas. See 9 U.S.C. 10 (2003). First, under section (a)(1), is where the award was procured by corruption, fraud, or undue means. Second, an award may be vacated under section (a)(2) where there was evident partiality or corruption in any arbitrator. The third case arises under section (a)(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing despite a partys showing of sufficient cause to postpone or refusal to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced. Lastly, vacatur is available, under section (a)(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the submitted subject matter was not made. Federal policy favors arbitration and the preservation of the integrity of the arbitration process. This policy is motivated by the desire to maintain an alternative adjudicative procedure with increased efficiency, less complexity, shorter proceedings, and reduced costs compared to the traditional litigation process. One comment notes the goal of an arbitral proceeding should be a just award rendered in a fair, efficient and final proceeding. Vacatur litigation inevitably compromises at least some of these goals, by adding an expensive and potentially protracted second round to the process whether the motion to vacate ultimately succeeds or not. R. Mills, J. Lani Bader, Thomas J.

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Brewer, and Peggy J. Williams, Vacating Arbitration Awards Study Reveals Real-World Odds of Success by Grounds, Subject Matter, and Jurisdiction, DISPUTE RESOLUTION MAGAZINE, Summer 2005, at 26-27. This policy is evident in the limits placed on judicial review of arbitration awards. For example, the Supreme Court has stated that courtshave no business weighing the merits of a grievance [or] considering whether there is equity in a particular claim. if the judiciary does so, it usurps a function which is entrusted to the arbitration tribunal Major League Baseball Players Assn v. Garvey, 532 U.S. 504, 509-10 (2001) (quoting Steelworkers v. Am. Mfg. co., 363 U.S. 564, 56869 4 L. Ed. 2d 1403, 80 S. Ct. 1343 (1960). The Supreme Court has also expressed that by choosing arbitration, the parties have bargained for the arbitrators construction of the agreement. Enter. Wheel & Car Corp., 363 U.S. 593, 597 (1960). Likewise, the FAA reflects federal policy in favor of arbitration and the preservation of the arbitration process. Although there is little legislative history for the Act, Congress pro-arbitration policy is illuminated by the plain language of the statutes extremely narrow categories of review and the high level of deference afforded arbitrators opinions. Additionally, courts have interpreted the language of the FAA consistent with this federal policy by limiting judicial review and interpreting the statute narrowly. See Hayford, Supra, at 744-46. A decision by the Southern District of New York held that to effectuate the federal policy in favor of arbitration, this section is to be accorded the narrowest of readings. Milcom International V N. V., v. Motorola, Inc. and Proempres Panama, S.A., 2002 U.S. Dist. LEXIS 5131 (S.D.N.Y. March 28, 2002) (quoting Blue Tee Corp v. Koehring Co., 999 F.2d 633, 636 (2d Cir. 1993)).

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In addition to providing a slim category of review, the FAA also lacks procedural requirements that would facilitate judicial review. As the District Court for the District of Columbia noted an arbitration panel is not subject to the more rigid mechanisms that courts are. Arbitration panels have great discretion and courts have narrow review of their actions and decisions. Flight Systems v. Paul Lawrence Co., 715 F. Supp. 1125, 1128 (D. D. C. 1989) (referencing Washington-Baltimore Newspaper Guild v. Washington Post Co., 442 F.2d 1234 (D.C. Cir. 1971). The FAA does not require arbitrators to explain their decisions nor does it require the creation of a detailed record of arbitration proceedings. As a result, records are typically sparse. A high showing is required to avoid summary confirmation of an arbitration award, and a party petitioning for review bears the burden of proof. Folkways Music Publishers v. Weiss, 989 F.2d 108, 111 (2d Cir 1993). Considering the high level of deference afforded arbitration awards, then, overcoming this burden of proof is a particularly challenging task without the benefit of a complete record of the proceedings. To set aside an arbitration award, the petitioner must overcome a presumption of validity, and must show an objective basis supporting his allegation. Stanley P. Sklar, Matthew Bender Treatise on Construction Law (2003) Chapter 12.18[3][b]. Oftentimes the petitioner cannot make this showing simply for lack of record. In addition, if a petitioner attempts to rely on newly discovered evidence, the petitioner must show that the evidence could not have been discovered prior to the arbitration proceeding. Stone, Inc. v. Liang, 493 F. Supp. 104, 109 (N.D. Ill 1980) (holding that newly discovered evidence could not be used to vacate under the ground of fraud under section 10(a) of the Federal Arbitration Act because the evidence was a matter of public record and therefore discoverable prior to the arbitration proceedings).

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However, while these procedural obstacles and the limited review categories available may complicate a partys challenge of an award, this procedural structure facilitates the goals for which the arbitration process is designed: efficiency, speed, and reduced costs. 2. Corruption, Fraud, or Undue Means

The first of the review categories enumerated under the FAA is where the award was procured by corruption, fraud or undue means. The party raising such allegations bears a substantial burden of proof. The size of an arbitration award or disparity between the award amount and the amount claimed, standing alone, is insufficient to show fraud or bias. Stanley Sklar, Matthew Bender (citing MSP Collaborative Developers v. Fidelity & Deposit Co. of Md., 596 F.2d 247 (7th Cir. 1979)). Additionally, undue means is not proven by showing the offering of prejudicial evidence. Matthew Bender Construction Law (2003) (citing Shearson Hayden Stone, Inc., v. Liang, 493 F. Supp. 104 (N.D. Ill. 1980). affd, 653 F2d 310 (7th Cir. 1981). Vacating an award for undue means requires a showing of bad faith in procuring the award is required. Shearson Hayden Stone at 108. Additionally, the petitioner must make specific allegations of bad faith, fraud, or corruption, as to evidence, not merely allege undue means as to the evidence. Id. at 109. An interesting study, analyzing both state and Federal cases in which the petitioner sought vacatur of an arbitration award, found that corruption, fraud or undue means was the least frequently asserted allegation, and also the least successful at a 7.6% success rate. R. Mills, J. Lani Bader, Thomas J. Brewer, and Peggy J. Williams,

Vacating Arbitration Awards Study Reveals Real-World Odds of Success by Grounds, Subject Matter, and Jurisdiction, DISPUTE RESOLUTION MAGAZINE, Summer 2005, at 26 (limiting review to cases in which vacatur was sought following an arbitration proceeding

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involving an enforceable arbitration clause, not including cases involving labor or collective bargaining agreements nor decisions involving statutorily mandated arbitrations involving a less deferential standard of review than the FAA) (hereinafter referred to as the Mills study). 3. Evident Partiality or Corruption

The second category warranting judicial review under the FAA occurs where there is evident partiality or corruption in any of the arbitrators. Again, the petitioner bears burden of proof. To meet this burden, the party challenging the award must establish facts which indicate improper motives on the part of the Board. The appearance of impropriety, standing alone, is insufficient. Sheet Metal Workers Intl Assn Local Union #420 v. Kinney Air Conditioning Co., 756 F.2d 742, 748 (9th Cir. 1985) (quoting Intl Produce, Inc. v. Rosshavet, 638 F.2d 548, 551 (2d Cir.), cert. denied, 451 U.S. 1017 (1981)). Even repeated rulings by an arbitrator against a particular party to the arbitration do not meet the burden of proof of evident partiality without the additional demonstration of some improper motivation. Bell Aerospace Co. v. Local 516, UAW, 500 F.2d 921, 923 (2d Cir. 1974). Courts have found, however, that undisclosed business dealings between an arbitrator and a party to arbitration meet the showing required to vacate on grounds of evident partiality. Amerada Hess Corp. v. Local 22026 Fed. Labor Union, A.F.L.-C.I.O., 385 F. Supp. 279, 281 (N.J. 1974) (citing Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968), reh. den. 393 U.S. 1112.) Other examples of

determinations of evident partiality or corruption occur where the arbitrator had a nonbusiness relationship with a party to the arbitration and where the arbitrator had a personal or business interest in the outcome of the arbitration. Ameralda, 385 F.Supp at 281 (citing Hyman v. Pottsbergs Exrs., 101 F.2d 262 (2d Cir. 1939).

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According to the Mills et al. study, attempts at vacatur based on an allegation of evident partiality or corruption in the arbitrators was only sought in 33 of the 182 total cases examined. The article authors found the number of assertions of this ground for vacatur to be surprisingly low in light of the fact that this category includes those assertions pertaining to an arbitrators disclosures of conflicts or potential conflicts. Additionally, this claim was only successful about 12.1 percent of the time. Mills et al. at 25. 4. Misconduct in Refusing to Postpone the Hearing or to Hear Evidence Pertinent to the Controversy or Misbehavior Prejudicing Rights of Parties

The third category under 10(a) is where arbitrators are guilty of misconduct in refusing to postpone the hearing, upon sufficient case shown, or in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior by which the rights of any party have been prejudiced. In Ceco Concrete Construction v.

Schrimsher Construction Co., Inc., the parties submitted to arbitration; subsequently Ceco sought to confirm the award and Schrimsher sought to have it vacated based on section 10(a)(3) of the FAA. The District Court for the Northern District of Georgia determined that [by] its motion to vacate Schrimsher effectively was seeking a stay of proceedings pending determination of a related proceeding. Such right to a stay does not exist under the Federal Arbitration Act. 792 F. Supp. 109, 110 (1992) (citing Volt Info Sciences v. Leland Stanford Jr. University, 489 U.S. 468, 470 (1988). The Court held that the arbitrators were correct in their decision not to postpone the proceedings pending determination of the related administrative proceedings, and went on to explain that [t]he granting or denying of an adjournment or postponement falls within the broad discretion of appointed arbitrators. Id. (citing Nyall Storey v. Searle Blatt Ltd., 685

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Supp. 80, 82 (S.D.N.Y. 1988). The court further stated assuming a reasonable basis for the arbitrators decision not to grant a postponement, the Court will be reluctant to interfere with the award on these grounds. Creco, Supra, 110 (citing Fairchild and Co. v. City of Richmond et al., 516 F.Supp. 1305, 1313-1314). Another example of an allegation which was also insufficient to meet the burden of proof for this ground was that arbitrators did not set a discovery schedule, hold a preliminary hearing, or require the parties to submit discovery and documents prior to the arbitration. Flight Systems v. Paul A. Laurence Co., 715 F.Supp. 1125 (D.D.C. 1989). In addition, a partys argument that an award represents and evident mistake because the arbitrators did not hear afteracquired evidence is also insufficient because cases decided under the FAA . . . have not allowed an arbitration decision to be vacated on a claim of new evidence. Id. at 1128-29. According to the Mills et al. study, this is the third most frequently advanced ground for challenging an award, and it is successful in approximately 17 percent of cases. These cases include those where the petitioner advanced allegations that the rights of the party were prejudiced because the award was irrational, against public policy, or arbitrary and capricious. Article at 25. 5. Arbitrators Exceeded Their Powers

Lastly, courts may vacate arbitration awards under 10(a)(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. This is the one ground for vacatur under 9 USC 10 that does not require a showing of wrongdoing by the arbitrator or the arbitration process. Typically, in these cases courts apply the objection to the award by comparing the arbitration agreement or other documents through which the parties agreed to arbitrate with the decision rendered by the arbitrator. Amerada, 385

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F.Supp. at 282. The Amerada court expressly stated ordinarily the complaining party must show that the arbitrators award is contrary to the express language of the collective bargaining agreement. Id. at 282. An ambiguity in an arbitrators written opinion is not sufficient to establish that the arbitrator exceeded his powers. In Kayser v. Roadway Package System, Inc., the plaintiff, a small package shipper, alleged that the defendant failed to fulfill his contractual obligations under the Linehaul Contractor Operating Agreement and terminated the defendants employment. The defendant demanded

arbitration pursuant to his contractual right, and was subsequently awarded significant damages by the arbitrator. The plaintiff filed suit in the Eastern District of Pennsylvania to vacate the award on grounds that the arbitrator exceeded his powers by considering the fairness of the procedures the plaintiff used to notify the defendant of its dissatisfaction with the defendants performance rather than limiting his decision to the submitted grounds of whether the termination violated the Linehaul Contractor Operating Agreement. In affirming the lower courts decision, the United States Supreme Court stated that, although judicial review is narrowly bounded by the FAA, the scope of an arbitrators authority is defined and confined by the agreement to arbitrate. Kayser v. Roadway Package Sys., Inc., 534 U.S. 1020, 1036 (2001). The Court went on to explain We distill the following principals from our precedents: (1) a reviewing court should presume that an arbitrator acted within the scope of his or her authority; (2) this presumption may not be rebutted by an ambiguity in a written opinion; but (3) a court may conclude that an arbitrator exceeded his or her authority when it is obvious from the written opinion. Id. at 1039-40.

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The Mills study, in examining cases where arbitrators exceeded their powers, or so imperfectly executed them that a final and definitive award on the merits was not made, found this ground for vacatur to be the most frequently successful, succeeding in 20.8% of cases in which it was asserted. Lawrence R. Mills, J. Lani Bader, Thomas J. Brewer, and Peggy J. Williams, Vacating Arbitration Awards Study Reveals Real-World Odds of Success by Grounds, Subject Matter, and Jurisdiction, DISPUTE RESOLUTION MAGAZINE, Summer 2005, at 24. However, this is still a difficult showing to make. For instance, the Ninth Circuit stated that section 10(a)(4) of the FAA is designed to allow district courts to vacate an arbitration award that clearly goes beyond the substantive issues submitted by the parties. Sheet Metal Workers, 756 F.2d at 764. B. Overview of Judicial Standards for Vacatur of Arbitration Awards

In addition to the applying the grounds for challenging an award as established in Section 10 of the FAA, courts must also apply the appropriate standard of review in determining whether to confirm or vacate an arbitration award. Recently, there has been a trend that contracting parties will contract for expanded or enhanced judicial review of their arbitration awards. As a result, courts are challenged even more frequently to apply the appropriate standard of review to such agreements. The parties may, and often do, choose and designate a level of review to be applied should their award be appealed. There are several potential standards of review that parties may elect to include in their arbitration agreements including de novo, clearly erroneous, and substantial evidence. In addition, there are judicially created standards of review to determine the sufficiency of an award. These standards include arbitrary and capricious, manifest disregard of the law, completely irrational, and violation of public policy. These judicially fashioned standards, though widely recognized, lack uniformity in their application and meaning.

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In fact, in discussing the arbitrary and capricious, manifest disregard of the law, completely irrational, and drawing its essence from the underlying agreement, the First Circuit stated This standard of judicial review has taken on various hues and colorations in its formulations in this and other circuits. The Court went further to say although these differences in phraseology have caused a modicum of confusion, we deem them insignificant. We regard the standard of review undergirding these various formulations as identical, no matter what terms of art have been employed to ensure that the arbitrators decision relies on his interpretation of the contract contrasted with his own beliefs of fairness and justice. Advest, Inc. v. McCarthy 914 F.2d 6, 8 (1st Cir. 1990) (quoting Jenkins v. Prudential-Bache Securities, Inc., 847 F.2d 631, 634 (10th Cir. 1988)). An overview of judicial standards for vacatur of awards follows. 1. De Novo Review for Errors of Law

The first standard of review that a court could potentially apply during the appeal of an arbitration award is de novo review. Parties electing to incorporate appellate review into their arbitration agreement may choose this standard of review. Typically, this standard is reserved for reviewing errors of law. In applying de novo review, an appellate court is arguably in just as good a position as the trial court to consider questions of law, but conducts a less thorough review regarding questions of fact. COMMERCIAL ARBITRATION AT ITS BEST: SUCCESSFUL STRATEGIES FOR BUSINESS USERS 292 Thomas J. Stipanowich & Peter H. Kaskell eds., 2001). The Seventh Circuit once stated that limiting review to legal errors would be clearly far less searching and time consuming than a full trial. Chapter Id at 292 (citing Flexible Manuf. Sys. V. Super Products Corp., 86 F.3d 96, 100 (7th Cir. 1996)). Likewise, in the arbitration context this standard would allow parties to have a court review errors of law, but largely defer to the

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arbitrators interpretation of the facts. Adding an appellate level review to an arbitration award inevitably adds costs, but this standard of review reduces the monetary and time costs somewhat by limiting review to errors of law. This standard may not, however, be an ideal choice for parties who are electing to use arbitration to avoid strict application of the law in circumstances where commercial circumstances warrant otherwise or those parties wishing to avoid the costs. One observer notes As in the public justice arena, distinguishing mixed question of law and fact, which are subject to the de novo standard, from purely factual questions, which are not, may produce complex analyses since factual and legal issues are often closely intertwined. COMMERCIAL ARBITRATION AT ITS BEST: SUCCESSFUL STRATEGIES
FOR

BUSINESS USERS 292 Thomas J. Stipanowich & Peter H.

Kaskell eds., 2001). Therefore, this standard of review is most appropriately elected by parties seeking review for errors of law only, and looking for a strict application of the law regardless of commercial circumstances. 2. Clearly Erroneous Standard

Another standard, the clearly erroneous standard, is typically applied to factual determinations reached by trial courts. This standard allows the court to apply its own interpretation of the fact when, based on the evidence as a whole, the appellate court positively determines that the trial courts finding was mistaken or unreasonable. COMMERCIAL ARBITRATION AT ITS BEST: SUCCESSFUL STRATEGIES FOR BUSINESS USERS 293 (Thomas J. Stipanowich & Peter H. Kaskell eds., 2001). The clearly erroneous standard significantly enlarges the power of courts in reviewing arbitration awards. Specifically, whereas de novo review allows courts to review and newly address errors of law, under the clearly erroneous review a court may substitute its judgment for that of a trial court and upset findings which are unreasonable. COMMERCIAL ARBITRATION AT

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ITS BEST: SUCCESSFUL STRATEGIES

FOR

BUSINESS USERS 7.7 (Thomas J. Stipanowich

& Peter H. Kaskell eds., 2001). (quoting Ethyl Corp. v. EPA, 541 F.2d 1, 35 n.74 (D.C. Cir 1976)). Critics strongly object to the application of this standard to review because they believe it would make the court the ultimate decision-making authority rather than the arbitrators. This level of review, including the searching consideration of factual issues, is arguably too broad for application to arbitration awards because it undermines both the finality of the decision and the efficiency for which the process is oftentimes selected. Id. Additionally, this level of review may require a more extensive record. However, parties who desire more than minimal review with the court as the ultimate decision-maker may contract for this standard of review. 3. Substantial Evidence Standard

The substantial evidence standard is another standard that may be applied to the review of an award and, again, parties may choose this standard in drafting arbitration agreements inclusive of enhanced or additional review. The term substantial evidence has been defined by the United States Supreme Court as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Consolo v. Fed. Mar. Commn et al., 383 U.S. 607, 619-20 (1966) (quoting Consol. Edison Co. v. Labor Bd., 305 U.S. 197, 229). The substantial evidence standard is distinguished from the clearly erroneous standard by its application to jury verdicts rather than decisions of trial courts sitting without juries. The Supreme Court has also stated of this standard that [i]t must be enough to justify, if the trial were to a jury, a refusal to direct a verdict when the conclusion sought to be drawn from it is one of fact for the jury. Id. at 620 (quoting Labor Bd. V. Columbian Enameling & Stamping Co., 306 U.S. 292, 300). This

evidentiary standard questions whether a particular conclusion could have been drawn by

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a reasonable person. Kenneth Culp Davis and Richard J. Pierce, Jr., ADMINISTRATIVE LAW TREATISE 11.2, 174 (1994). Application of this standard has similar advantages and disadvantages to the application of the clearly erroneous standard in that it affords more than minimal review to those who seek it, yet it makes the court the ultimate decision-maker, and a more extensive record is required so that the court may effectively examine the arbitrators decision. 4. Abuse of Discretion Standard

The abuse of discretion standard is another available standard of review. This standard highly deferential to the arbitrators award, and would provide only a very limited opportunity for judicial review. In fact, this standard is arguably no more

meaningful to a party petitioning for review than the standards of review already provided by section 10 of the FAA. Moreover, following the Supreme Courts decision in First Options of Chicago v. Kaplan, some Circuit courts will no longer apply the abuse of discretion standard in reviewing a district courts confirmation of an arbitration award. First Options argued that the Eleventh Circuit was correct in its application of the arbitrary and capricious standard to the review of arbitration awards that district courts have confirmed, even as to questions of law, but not to those that set aside awards. The Supreme Court ruled against First Options stating, we believe, however, that the majority of Circuits is right in saying that courts of appeals should apply ordinary , not special, standards when reviewing district court decisions upholding arbitration awards. 514 U.S. 938, 946 (1995).

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5.

Arbitrary and Capricious Standard

Some but not all courts have recognized another non-statutory standard arbitrary and capricious of review in vacating arbitration awards. Generally, this standard carries a strong presumption that the arbitration award is correct, and permits only narrow grounds for vacatur where there are no grounds for the arbitrators decision. The

Eleventh Circuit has held that an award is arbitrary and capricious only if a ground for the arbitrators decision can[not] be inferred from the facts of the case. Raiford v. Merril Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 1410, 1412 (11th Cir. 1990) (citing Siegel v. Titan Indus. Corp., 779 F.2d 891, 894 (2d. Cir 1985) (quoting Sobel v. Hertz, Warner & Co., 469 F.2d 1211, 1216 (2d Cir. 1972)). However, the application of this standard varies by the court. The lack of clarity given to the application of this standard can be problematic. For instance, in Brabham v. A.G. Edwards & Sons, the court stated outside of the collective bargaining context, the Fifth Circuit has provided little guidance on the mechanics of the arbitrary and capricious standard for reviewing arbitration awards. Brabham v. A.G. Edwards & Sons, Inc., 265 F.Supp. 2d 720, 725 (S.D. Miss. 2003). The Brabham court further explains that the Fifth Circuit has developed two lines of casesone discussing a manifest disregard of the law and the other discussing an arbitrary and capricious standard of review. Apparently, the Fifth Circuit uses the term manifest disregard in situations where the arbitrators failed to apply controlling legal principles, while the Fifth Circuit describes an award as arbitrary and capricious when the conclusions are not inferable from the facts. Id. The Brabham court went on to disavow the arbitrary and capricious non-statutory standard, and go on to explain that the test to determine whether an arbitration award comes from the essence of the agreement is not a separate, non-

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statutory test, but rather part and parcel of the test of whether an arbitrator exceeded his powers under Section 10(a)(4) of the FAA. Kergosien v. Ocean Energy, Inc., 390 F.3d 346, 353-54 (5th Cir. 2004). 6. Complete Irrationality Standard

The completely irrational standard allows vacatur when an arbitrators award is completely irrational. See Swift Indus. v. Botany Indus., 466 F.2d 1125 (3rd Cir. 1972). Again, this standard is highly deferential to arbitration awards, providing only an opportunity for parties to vacate an award which severely frustrates their expectations. COMMERCIAL ARBITRATION AT ITS BEST: SUCCESSFUL STRATEGIES FOR BUSINESS USERS 7.7 (Thomas J. Stipanowich & Peter H. Kaskell eds., 2001) pg. 296. The completely irrational standard first appeared in Swift Industries v. Botany Industries, a 1972 commercial arbitration case. In Swift, the Botany Industries claimed on appeal that the arbitration award went beyond the scope of the submission and was completely irrational. The award required a Botany Industries to immediately post a six-million dollar bond as security for tax deficiencies for which liability was yet to be determined by the tax court. At the trial level, the district court determined that this bond requirement was not part of the agreement the arbitrator was construing, which required cash payments for final determinations of liability. This bond requirement also was beyond the scope of the parties submissions. The Court held, therefore, that the arbitrator had exceeded his powers and that portion of the award was invalid. When Swift Industries appealed this determination, the The Southern District of New York, in the more recent Milcom case, cites Swift in stating, An arbitration award will be enforced if its form can be rationally derived from either the agreement between the parties or the parties submissions to the arbitrators and the terms of the arbitral award are not completely irrational. Milcom Intl

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V N. V., v. Motorola, Inc. and Proempres Panama, S.A., 2002 U.S. Dist. LEXIS 5131 (S.D.N.Y. March 28, 2002). After Swift, other courts have held that an arbitrators award can be vacated if it is completely irrational. Completely irrational has been defined as an award that fails to draw its essence from the agreement. Van Horn v. Van Horn 393 F. Supp. 2d 730, N.D. Ia. 2005) (citing Schoch v. InfoUSA, Inc., 341 F.3d 785,788 (8th Cir. 2003). One

showing sufficient to establish that an award was not derived from the essence of the agreement was illustrated in the case of Bureau of Engraving Inc. v. Graphic Communications Intl Union, Local 1B, in which the Eighth Circuit held that if an arbitrator attempts to interpret an agreement that is silent or ambiguous and does not consider the parties intent, the arbitrators award fails to draw it essence from the agreement. 284 F.3d 821, 824 (8th Cir. 2002). 7. Manifest Disregard

The manifest disregard standard is another standard recognized by some courts as a non-statutory basis for modification or vacatur of an arbitration award. ACandS, Inc. v. Travelers Cas. and Sur. Co., 2006 U.S. App. LEXIS 1177 (3d Cir. Jan. 19, 2006). The manifest disregard standard first appeared as dicta in Wilko v. Swan. 346 U.S. 427, 74 S. Ct. 182 (1953) (dictum), overruled in part on other grounds, Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 109 S. Ct. 1917, (1989). In Wilco, the Supreme Court stated In unrestricted submissions . . . the interpretations of the law by arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation. 346 U.S. 427, 437. In a later case, the Supreme Court confirms that it recognizes nonstatutory bases upon which a reviewing court may vacate an arbitrators award under the FAA, including the manifest disregard

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standard. Roadway Package Sys. V. Kayser, 534 U.S. 1020 (2001). The Supreme Court reaffirmed this nonstatutory judicial review power in First Options, Inc. v. Kaplan, but again did not clearly define the manifest disregard standard. 524 U.S. 938, 942 (1995). Subsequent to its appearance, the manifest disregard standard took on a multiplicity of different applications, varying by the presiding court. The judicially created standard is applied in most circuit courts, providing differing degrees of review. One commentator noted this is the concept that allows varying degrees of judicial review in virtually every circuit court, even though all but one disclaim the power to set aside arbitral awards that are otherwise arbitrary and capricious. Phillip Allen Lacovera, The Varying Standards of Review of Arbitration Awards, New York Law Journal, Aug. 2, 2004. For example, the Second Circuit held that, to qualify as manifest disregard, the error must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator. Moreover, the term disregard implies that the arbitrator appreciates the existence of a clearly governing principle but decides to ignore it or pay no attention to it. Alghanim & Sons, W.L.L., v. Toys R Us, Inc. 126 F.3d 15, 24 (2d Cir. 1997) (citing Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986). The Fifth Circuit has stated that manifest disregard of the law goes beyond a mere error or misapplication; it must have been an obvious error and the arbitrator, understanding the law, chose to ignore it. Hon. Pamela Tynes, The Art of Drafting Arbitration Agreements; Lawyers Can Make Expanded Review of an Award Part of the Deal, Texas Lawyer, May 2, 2005. The First Circuit enumerates a three part test, allowing a court to vacate an award as manifest disregard of the law if it was (1) unfounded in reason and fact; (2) based on reasoning so palpably faulty that no judge or

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group of judges ever could conceivably have made such a ruling; or (3) mistaken based on a crucial assumption that is concededly a non-fact. Prudential-Bache Sec. Inc. v. Tanner, 72 F.3d 234,238 (1st Cir. 1995). As is evident by these cases, although the manifest disregard standard is widely recognized, it lacks a clear, universal definition, and the standard may vary somewhat from court to court. Further complicating the application of this standard is a split among courts regarding a link between the manifest disregard for the law standard and the FAA. Similar to the Fifth Circuits take on the arbitrary and capricious standard in which it determined that test was part and parcel of FAA 10(a)(4), some courts, in interpreting or applying the manifest standard have discussed it as a variation of or having a nexus to FAA section 10(a)(4) as well. In his article, Stephen L. Hayford states that the full range of the link/no link debate is captured by the observation of the Tenth Circuit in Jenkins v. Prudential-Bache Securities, Inc. that the nonstatutory grounds for vacating commercial arbitration awards can be viewed either an inherent appurtenance to the right of judicial review or as a broad interpretation of [section 10(a)(4), which prohibits] arbitrators from exceeding their powers. 762. Stephen L. Hayford, Law in Disarray: Judicial Standards for Vacatur of Commercial Arbitration Awards, 30 Ga.L.Rev. 731, 741-45 (1996) (quoting Jenkins v. Prudential-Bache Securities, Inc., 847 F.2d 631 (10th Cir. 1988)). 8. Public Policy Exception

The public policy exception is analogous to the common law rule allowing courts to refuse to enforce awards that are contrary to public policy. The United States Supreme Court has recognized this exception, under which a court may decline to enforce an arbitration award if it violates public policy or could harm the public interest. United

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Paperworkers Intl Union v. Misco, Inc., 484 U.S. 29, 42 (1987) (determining enforceability of a labor arbitration award). The First Circuit followed the Misco case in deciding Boston Medical Center v. Service Employees Intl Union, Local 285, 260 F.3d 16 (1st Cir. 2001). In Boston Medical, a hospital terminated the employment of a union member nurse following an investigation into the death of an infant that died of septic shock. The court determined stated . . . the public policy exception is limited to

instances where the contract as interpreted [by the arbitrator] would violate some explicit public policy that is well defined and dominant, and is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests. Boston Medical 260 F.3d at 16 (citing Misco, 484 U.S. at 43). In Boston Medical, the court instructs that the inquiry is not whether the conduct causing the dispute was against public policy, but instead whether the enforcement of the award would violate public policy. Misco at 17-18. The court need not evaluate the merits of the award, but rather whether enforcement of the award will put one or more of the parties in violation of a well defined public policy. Haydon at 783 (referencing Stephen L. Hayford & Anthony V. Sinicropi, The Labor Contract and External Law: Revisiting the Arbitrators Scope of Authority, J. Disp. Resol. 249 (1993)). In a more recent case applying the public policy exception, the Third Circuit stated that courts may decline to enforce arbitration awards that violate well-defined public policy identified by federal law. ACandS, Inc. v. Travelers Cas. and Sur. Co., US App LEXIS 1177 (January 19, 2006) (holding that the automatic stay provision of the Bankruptcy Act promotes public policy sufficient to preclude enforcement of an award that violates its terms or interferes with its purposes) (citing Exxon Shipping Co. v. Exxon Seamans Union, 11 F.3d 1189

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(3d Cir. 1994)). It is important to note, though, that some courts have not followed the decision of the Misco court, such as the United States District Court for the District of Hawaii that held in Big Three Industries, Inc. v. ILWU Local 142 that the public policy exception should be read narrowly, for example refusing to enforce an arbitrators award where it called for the reinstatement of an employee to a highly regulated industry. LEXIS 13768, 9 (1987). Where applicable, this exception allows the court the option to refuse to enforce an otherwise enforceable award if its enforcement would violate a clear and defined public policy. II. APPELLATE REVIEW PROCEDURES BY CONTRACT Before dealing with appeals based upon contract terms, one is faced with two conflicting thoughts: the first was that the appeal process was contrary to the concept of finality that one customarily associates with arbitration and the second was the old story about the client upon being informed by counsel that the judges verdict was announced and that justice prevailed, told his counsel, appeal immediately. However, when

lecturing before lawyer groups invariably one of the objections raised to the arbitration process is the lack of the appeal process. Interestingly enough, the problem of lack of appealability lies not with the process but with the drafters of the dispute resolution clause who are so focused on making the deal that they fail to take into account that the arbitration is a matter of contract and being consensual in nature, the drafters could easily include such a process in the dispute resolution clause. When they fail to do so, the blame is laid not upon the drafters of the dispute resolution clause but upon the process itself.

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A.

To Review or Not to Review, That is the Question

In a point/counterpoint article published in the ABA Dispute Resolution Magazine in 1998, Contracting for Judicial Review, AAA Dispute Resolution Magazine, Fall, 1998), Carroll E. Neesemann took the position that party chosen arbitral review standards can inspire confidence in the process, and is good for arbitration. Stanley McDermott took the position that expanded review of arbitration awards is a mixed blessing that raises serious questions. Neesemann cited the case of Lapine Technology Corp. v Kyocera Corp. 130 F.3d 884 (9th Cir. 1997) which upheld a pre-dispute arbitration agreement that specified a standard for judicial review for an award. The terms of the agreement provided, The court shall vacate, modify or correct any award: (i) based upon any of the grounds referred to in the Federal Arbitration Act, (ii) where the arbitrators findings of fact are not supported by substantial evidence, or (iii) where the arbitrators conclusions of law are erroneous. It should be noted that the case produced over 15,000 pages of transcript and 72 boxes of documents and an award containing hundreds of findings of fact and conclusions. Thus the parties contracted for a judicial review of their nonjudicial

process. Contrast this with Chicago Typographical Union v. Chicago Sun Times, 935 F.2d 1501 (7th Cir. 1991) denied the parties the right to seek judicial review of the arbitrators award since federal jurisdiction cannot be created by contract but did

approve the right of the parties for ..an appellate arbitration panel to review the arbitrators award. Neesemann concludes that despite the split of authority the weight of authority seems to clearly support the Kyocera approach and cites several cases in support of his conclusion. As for the basis of his conclusion, that parties can be more confident that their agreements about the scope of judicial review of arbitral awards will

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be enforced by the courts since the parties can create their own mechanism to maximize the benefits of arbitration is a conclusion that I suggest is antithetical to concept that arbitration is to be efficient, economical and most importantly final. Needless to say, McDermott points out the very issues that give rise to making the inefficient, more expensive and lacking finality. Some of the practical issues raised by the appeal process such as the expense associated with a thorough record of the proceedings, the expense associated with the preparation by the arbitrators of a written opinion to meet expected judicial scrutiny. Thus it would lead the very virus which is currently infecting the arbitration process which is over-lawyering the process and turning from an alternate method of dispute resolution to an alternate method of litigation, not to mention resolution in a court system already overloaded with cases and understaffed judicial personnel. Thus the parties find themselves thrust back into the very forum they sought to avoid by considering arbitration. In a more recent article published in the ABA Section on Litigation magazine, Construct! Edward Hennessey reviews the current state of cases relating to judicial review of arbitration awards (Contractual Standards for Judicial Review of Arbitration Awards, Edward Hennessey, Construct! Summer 2004), pointing out that there is a significant difference in the approach of the courts depending upon which circuit may have jurisdiction over the matter. Thus the issue of finality is based not upon the process but upon the geographic location of which court will hear the appeal. In her article, Stepping on the Judiciarys Toes: Can Arbitration Agreements modify the Standard of Review that the Judiciary Must Apply to Arbitration Decisions Elizabeth J. Anderson, The Construction Lawyer, Summer 2004, Ms. Anderson reviews

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the current state of the law and concludes that the Third, Fourth and Fifth Circuits permit parties to expand judicial review under the Federal Arbitration Act, while the Second, Seventh, Eighth, Ninth and Tenth Circuits refuse to permit the parties to modify the Federal Arbitration Acts standards for judicial review. Who said forum shopping was dead? If one searches for a more even handed approach to the issues, one is drawn to the Commercial Arbitration at its Best published by the American Bar Association Section of Dispute Resolution and the CPR Institute for Dispute Resolution. In particular,

Chapter 7 contains several sections entitled, The Arbitration Award: Finality versus Reviewability. Listing the issues to be considered when considering whether or not to permit enhanced judicial review by contract are (1) the requirement that there be a full record of the proceedings which is an additional cost consideration and (2) a reasoned award stating the basis of the award. Reasoned awards are by their nature an additional expense to the parties. B. Contract Issues and Appellate Review of Arbitration Awards

Assuming that the decision for appellate review is made at the contracting stage, it the responsibility of the drafter of the ADR clause to focus on those issues which have to incorporated into the dispute resolution clause. Commercial Arbitration at its Best lists several issues to be considered when drafting such a provision. 1. 2. 3. Should scope of review be limited in terms of issues to be considered or cost thresholds? What costs are associated with the appellate process and who will bear those costs such as special filing fees. If the original award provides for the payment of money, how is that to be secured pending the outcome of the appellate review process?

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4. 5. 6. 7. 8.

What time limitations should be imposed to commence the appeal process? The length of time of the appeal process? What are the qualifications for the appellate arbitrator? Should their be a standard of review. What and how is the record of the proceedings preserved for the review process and how is cost allocated? What is standard for the written award from the original arbitrators should it include statements of reasons, findings of fact and conclusions of law? Is oral argument part of the appellate review process? On remand, should it go back to the original panel or should a new panel be constituted to hear the matter de novo?

9. 10. C.

Existing Procedures for Appellate Review by Agreement 1. American Arbitration Association

Currently the American Arbitration Associations excellent publication, Drafting Dispute Resolution Clauses, A Practical Guide has contractual language for an appeal process which provides for an appellate panel of arbitrators rather than the judicial systems which avoids the problem of trying to contractually create jurisdiction in the court system. Within 30 days of receipt of any award (which shall not be binding if an appeal is taken), any party may notify the AAA of an intention to appeal to a second arbitral tribunal, constituted in the same manner as the initial tribunal. The appeal tribunal shall be entitled to adopt the initial award as its own, modify the initial award or substitute its own award for the initial award. The appeal tribunal shall not modify or replace the initial award except [for manifest disregard of the law or the facts} {for clear errors of law or because of clear and convincing factual

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errors]. The award of the appeal tribunal shall be final and binding, and judgment may be entered by a court of competent jurisdiction. 2. JAMS Arbitration Appeal Procedure

As for rules for guidance, there is the JAMS optional Arbitration Appeal Procedure and the International Institute for Conflict Prevention & Resolution (CPR). The JAMS Optional Arbitration Appeal Procedure is included in the appendix to this paper. Under the JAMS procedure, the Appeal Panel consists of three neutral

members unless the parties agree to a single appellate arbitrator. Disclosure requirements are similar to those disclosure requirements for any arbitration. In the absence of

agreement the Case Manager is authorized to appoint the Appeal Panel. The party wishing to appeal must do so within 14 days from the date the award has become final specifying in writing those elements of the award that are being appealed and a brief statement of the basis for the appeal. A cross appeal meeting the same requirements must be filed within 7 days thereafter. The record on appeal consists of the stenographic or other record of the hearings and all exhibits, deposition transcripts, and affidavits entered into the record, or the parties may elect to rely on the memoranda or briefs previously submitted in an effort to deal with those cases where there is no formal stenographic record. Oral argument is an option provided, and, of course, all fees must be paid in full before the appeal is scheduled and once the appeal has been filed, the award is no longer considered final for purposes of seeking judicial enforcement. The standard of review is established as the same standard of review that the first level appellate court in the jurisdiction would apply to an appeal from the trial court

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decision and will usually issue its opinion within 21 days from the date or oral argument with a concise written explanation unless the parties agree otherwise. The rules can be downloaded from the following site: http://jamsadr.com/rules 3. CPR Institute for Dispute Resolution Rules for Arbitration Appeal

CPR also provides suggested language for an appeal clause which states: An appeal may be taken under the CPR Arbitration Appeal Procedure from any final award of an arbitral panel in any arbitration arising out of or related to this agreement that is conducted in accordance with the requirements of such Procedure. Unless otherwise agreed by the parties and the appeal tribunal, the appeal shall be conducted at the place of the original arbitration. Commercial Arbitration at its Best lists the highlights of the appeal procedure. 1. The appeal panel consists exclusively of formal federal judges with experience in arbitration. 2. The procedure may be invoked whether or not the original arbitration was conducted under CPR rules. 3. Unless the parties agree to a single appellate arbitrator, the panels will consist of three appellate arbitrators. 4. The arbitrators in the original proceeding are required to apply the law, a record of the original proceedings and a written award stating findings of fact and conclusions of law. 5. 6. Cross appeals are permitted. Unless requested by a party, there will be no oral hearings.

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7.

The appellate panel must either affirm, modify or set aside the original award but it may not remand the case.

8.

The grounds for modification or setting aside the award are that the original award (i) contains one or more material and prejudicial errors of law of such a nature that it does not rest upon any appropriate legal basis or (ii) that it is based upon factual findings clearly unsupported by the record or that the original award is subject to one or more grounds set forth in Section 10 of the Federal Arbitration Act for vacating an award.

9.

If the original award is affirmed on appeal, appellant bears the entire cost of the appeal including the appellees legal fees and other expenses, unless the panel decides otherwise. If the original award is not fully affirmed, the appellate tribunal is empowered to allocate all such costs.

10.

If a party appeals the decision of the appellate panel to a court and is unsuccessful, it bears the opponents costs related to the court proceeding.

11. 12.

The appeal procedure is confidential. The parties may agree on an appellate procedure as part of their original agreement or after the dispute has arisen.

CPR has accomplished a miraculous result by establishing a procedure available for those who feel compelled to the security blanket of an appeal process but without encouraging another layer of process by narrowly focusing the grounds for an appeal and establishing a cost-risk for groundless appeals. It also points out that to minimize an irrational award, only highly qualified arbitrators should be selected in the first place.

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An interesting variation is a proposal by M. Scott Donahey published in the Economic Commerce & Law Report, BNA 2001 entitled A Proposal for an Appellate Panel for the Uniform Domain Name Dispute Resolution Policy. He refers to the CPR procedures in his article. While dealing with an area unrelated to construction, it is interesting to note that the concept of appellate review does have proponents in other areas. III. CONCLUSION No article dealing with appealing arbitration awards would be complete without returning to the article published in the Summer 2005 issue of Dispute Resolution Magazine titled Vacating Arbitration Award, which was the subject of commentary in the early portions of this paper. It should be noted that the authors reviewed every case, state and federal published and unpublished, reported between January 1, 2004 and October 31, 2004 in which a court decided a motion to vacate an arbitration award based the federal statutory grounds for vacatur. The cases totaled 182, 120 were state court cases and 62 were federal court cases. Their study showed that only 37 cases or 20% were vacated. Interestingly enough, 25.8 % of the state cases resulted in vacatur while 9.7% of the federal cases resulting in vacatur. The authors were surprised that vacatur based upon evident partiality or corruption of the arbitrators was sought in only 33% of the cases since this ground encompasses the much discussed topic of arbitrator disclosures and succeeded in only 12% of the cases (4 to be precise). In the Commercial Arbitration at its Best, a member of the CPR commission stated Even if I had Judge Cardozo on my panel, there might be mistakes. We all make mistakes. The question is, is the opportunity for review worth the time and expense.

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APPENDIX 1 JAMS Optional Arbitration Appeal Procedure

NOTICE
These rules are the copyrighted property of JAMS. They cannot be copied, reprinted or used in any way without permission of JAMS, unless they are being used by the parties to an arbitration as the rules for that arbitration. If they are being used as the rules for an arbitration, proper attribution must be given to JAMS. If you wish to obtain permission to use our copyrighted materials, please contact JAMS at 949-224-1810.

The parties hereby agree to the following Optional Appeal Procedures: (A) The Appeal Panel will consist of three neutral members, unless the Parties agree that there will be one neutral member. Upon the filing of an Appeal in accordance with (B)(i) below, the Case Manager will recommend to the Parties an Appeal Panel and will make any disclosures that are mandated by applicable law regarding the candidates for the Panel. The Case Manager will seek the agreement of the Parties as to the selection of the Appeal Panel members. If the Parties do not agree on the composition of the Appeal Panel within seven (7) calendar days of having received the Case Manager recommendation for the Appeal Panel, the Case Manager will appoint an Appeal Panel. The Procedure for filing and arguing an Appeal is as follows: (i) If all Parties have agreed to the Optional Appeal Procedure, any party may Appeal an Arbitration Award that has been rendered pursuant to the applicable JAMS Arbitration Rules and has become final. The Appeal must be served, in writing, to the Case Manager and on the opposing Party(ies) within fourteen (14) calendar days after the Award has become final. The letter or other writing evidencing the Appeal must specify those elements of the Award that are being Appealed and must contain a brief statement of the basis for the Appeal. (ii) Within seven (7) calendar days of the service of the Appeal, the opposing Party(ies) may serve on the Case Manager and on the opposing Party(ies) a CrossAppeal with respect to any element of the Award. The letter or other writing evidencing the Cross-Appeal must specify those elements of the Award that are being Appealed and must contain a brief statement of the basis for the CrossAppeal. (iii) The record on Appeal will consist of the stenographic or other record of the Arbitration Hearing and all exhibits, deposition transcripts and affidavits that had been accepted into the record of the Arbitration Hearing by the Arbitrator(s). The Parties will cooperate with the Case Manager in compiling the record on Appeal, and the Case Manager will provide the record to the Appeal Panel. No evidence not previously accepted by the Arbitrator(s) will be considered by the Appeal Panel, unless the basis of the Appeal is non-acceptance by the Arbitrator of certain evidence or unless the Appeal Panel determines that there is good cause to re-open the record pursuant to the applicable JAMS Arbitration Rules.

(B)

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(iv) The Parties may elect to rely on the memoranda or briefs previously submitted to the Arbitrator(s). In the absence of such election, the Case Manager will obtain the agreement of the Parties on a briefing schedule. If no agreement is reached, the Case Manager will set the briefing schedule. Ordinarily, only opening briefs (of no more than 25 double-spaced pages) will be allowed. The briefs may be in the form of a letter. (v) The Appeal Panel will conduct an oral argument if all Parties request such argument or may conduct oral argument, in complex cases or unusual circumstances, on its own initiative. If there is to be oral arguments, the Case Manager will obtain the agreement of the Parties on both the date of such argument and the duration, including the allocation of time. In the absence of agreement, the Appeal Panel will set the date and duration of the oral argument, including the allocation of time. (vi) All fees for the original arbitration must be paid in full before an appeal will be scheduled. (C) Once an Appeal has been timely filed, the Arbitration Award is no longer considered final for purposes of seeking judicial enforcement, modification or vacating pursuant to the applicable JAMS Arbitration Rules. The Appeal Panel will apply the same standard of review that the first-level appellate court in the jurisdiction would apply to an appeal from the trial court decision. The Appeal Panel will respect the evidentiary standard set forth in Rule 22(d) of the JAMS Comprehensive Arbitration Rules. The Panel may affirm, reverse or modify an Award. The Panel may not remand to the original Arbitrator(s), but may re-open the record in order to review evidence that had been improperly excluded by the Arbitrator(s) or evidence that is now necessary in light of the Panel's interpretation of the relevant substantive law. A three-member Appeal Panel will make its decision by majority vote and, absent good cause for an extension, will issue the decision within twenty-one (21) calendar days of the date of either oral argument, the receipt of the new evidence or receipt of the record and of all briefs, whichever is applicable or later. The Panel's decision will consist of a concise written explanation, unless all Parties agree otherwise. (E) If a Party refuses to participate in the Optional Appeal Procedure after having agreed to do so, the Appeal Panel will maintain jurisdiction over the Appeal and will consider the Appeal as if all Parties were participating, including retaining the authority to modify any Award or element of an Award that had previously been entered in favor of the non-participating Party, assuming it believes that the record, after application of the appropriate standard of Appeal, justifies such action.

(D)

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(F)

After the Appeal Panel has rendered a decision and provided the Parties have paid all JAMS fees in full, JAMS will issue the decision by serving copies on the Parties. Service will be deemed effective five (5) calendar days after deposit in the US Mail. Upon service of the Appeal Panel decision, the Award will be final for purposes of judicial review.

Signed: Print Name: For: Dated:

Signed: Print Name: For: Dated:

Signed: Print Name: For: Dated:

Signed: Print Name: For: Dated:

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APPENDIX 2 CPR Arbitration Appeal Procedure (1999) CPR Institute for Dispute Resolution
I. APPEAL CLAUSE

It is suggested that parties wishing to authorize an appeal to the CPR Arbitration Appeal Tribunal under the Rules of Procedure set forth below include the following language in their arbitration clauses. The appeal provision should in most circumstances appear in the basic agreement between the parties. A similar clause can also be inserted in a postdispute arbitration agreement. An appeal may be taken under the CPR Arbitration Appeal Procedure from any final award of an arbitral panel in any arbitration arising out of or related to this agreement that is conducted in accordance with the requirements of such Procedure. Unless otherwise agreed by the parties and the appeal tribunal, the appeal shall be conducted at the place of the original arbitration. II. RULES OF PROCEDURE A. General and Introductory Rules Scope of Application

Rule 1.

1.1. The parties to any binding arbitration conducted in the United States, pursuant to CPR Rules or otherwise, may agree in writing that a party may file an appeal (the "Appeal") under the CPR Arbitration Appeal Procedure (the "Procedure") from an arbitration award (the "Original Award"). 1.2 The appeal shall be to a CPR Arbitration Appeal Tribunal (the "Tribunal") chosen from the panel constituted by CPR to hear Appeals (the "Panel"), consisting of former Federal judges. 1.3 No appeal may be filed hereunder, unless: (a) the arbitrator(s) (was) (were) required to reach a decision in compliance with the applicable law and rendered a written decision setting forth the factual and legal bases of the award; and there is a record (the "Record") that includes all hearings and all evidence (including exhibits, deposition transcripts, affidavits, etc. admitted into evidence) in the arbitration proceeding from which the appeal is taken.

(b)

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Rule 2.

Commencement of Appeal

2.1 An Appeal shall be commenced by written notice to the opposing party(ies) and to CPR (attention: Panel Management Group), given within thirty days of the date on which the Original Award was received but the parties, unless the parties agree on a different period. The notice shall set forth the agreement in writing providing for the appeal, shall state the elements of the Original Award that are being appealed and the basis for the Appeal and shall transmit that portion of the Record that the appellant deems relevant to the Appeal. 2.2 The opposing party(ies) may serve a cross-appeal by notice in writing to the appellant(s) and to CPR (attention: Panel Management Group) within fourteen days of receipt of the notice of appeal. The notice shall state the elements of the Original Award that are being appealed and the basis for the Appeal. The appellee shall transmit any portion of the Record deemed relevant by the appellee that was not transmitted by the appellant. 2.3 Once an Appeal has been timely filed, the Original Award shall not be considered final for purposes of seeking judicial confirmation, enforcement, vacation or modification. If the Tribunal affirms the Original Award, it shall be deemed final as of the date of the Tribunal's affirmance. If the Tribunal does not affirm the Original Award, its award on appeal (the "Appellate Award") shall be deemed the final award in the arbitration, in lieu of the Original Award. If the Appeal is withdrawn for any reason (other than a settlement), the Original Award shall be deemed final as of the date of such withdrawal. 2.4 By agreeing to become a party to an Appeal under these Rules, each party (a) irrevocably waives the right to initiate court action to seek to confirm, enforce, vacate or modify the Original Award until the appeal process has been completed, and (b) agrees that any statutory time period for the commencement of court actions to confirm, enforce, vacate or modify arbitral awards shall be tolled for the period beginning with the commencement of the appeal and ending with the decision on the appeal under these Rules. Subject to these Rules of Procedure, each party may request the Tribunal to affirm, vacate or modify the Original Award on any of the grounds specified in Rule 8.2 hereof. Rule 3. Notices

The provisions of Rule 2 of the CPR Rules for Non-Administered Arbitration (Rev. 2000) (the "CPR Arbitration Rules") shall apply to all proceedings pursuant to these Rules.

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B.

Rules with Respect to The Tribunal Selection of Appeal Tribunal

Rule 4.

4.1 The Tribunal shall consist of three members of the Panel, unless the parties agree that it shall consist of one Panel member. 4.2 After CPR has received the notice of appeal and any notice of cross-appeal, it shall promptly submit to the parties a list of not less than seven candidates from the Panel (or not less than three candidates if one is to be chosen) who have been pre-screened for possible conflicts and availability. The list shall be accompanied by each candidate's biographic information and compensation rate. The parties shall attempt to agree on the required number of candidates from the list. They shall promptly inform CPR of any candidates on whom they have agreed. Failing complete agreement within ten days, the parties shall submit the list to CPR within an additional five days, rank ordering the candidates on whom they did not agree. Thereupon, the required number of candidates receiving the lowest combined score shall be chosen by CPR, which shall also break any tie. Any party failing without good cause to return a rank-ordered-candidate list within the prescribed time shall be deemed to have assented to all candidates on the list. 4.3 If the Tribunal is composed of three members, they shall select one of their number as the chair (the "Chair"). The Chair shall be responsible for the expeditious conduct of the proceedings and for administrative matters, but shall be equal in voting and all other respects. Rule 5. Qualifications, Challenges and Replacement of Arbitrator

Rule 7 of the CPR Arbitration Rules shall apply to the qualifications of, challenges to and replacement of members of Tribunals selected pursuant to these Rules. Rule 6. Challenge to the Jurisdiction of the Tribunal

Rule 8 of the CPR Arbitration Rules shall apply to any challenge to the jurisdiction of the Tribunal. C. Rules with Respect to the Conduct of the Appeal General Provisions

Rule 7.

7.1 Rules 9.1 and 9.2 of the CPR Arbitration Rules shall apply to the conduct of any appeal under these Rules. 7.2 The appellant(s) shall be allowed one opening brief and one response brief. The appellee(s) shall be allowed one brief, except that an appellee who is also a cross-appellant shall be allowed two briefs. Briefs or memoranda previously submitted may be used. The Chair shall request the parties to agree on a briefing

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schedule. Failing prompt agreement, the Chair shall set the schedule. The Tribunal may request the parties to submit such further briefs or other materials as it may deem appropriate. 7.3 The Tribunal may request the parties to supplement the Record initially submitted by the parties as it may deem appropriate in order to fulfill its functions under Rule 8. 7.4 Oral argument shall be held at the request of a party or if the Tribunal sees a need therefor. The Tribunal shall set the date, duration and place for oral argument in consultation with the parties. If the appellant alleges one or more of the grounds for vacating the Original Award set forth in Section 10 of the Federal Arbitration Act, the Tribunal may take evidence supporting and rebutting such an allegation. Rule 8. The Decision

8.1 If the Tribunal finds that it does not have appellate jurisdiction, it shall forthwith dismiss the Appeal and the Original Award will thereupon be final. 8.2 If the Tribunal hears the Appeal, it may issue an Appellate Award modifying or setting aside the Original Award, but only on the following grounds: a. That the Original Award (i) contains material and prejudicial errors of law of such a nature that it does not rest upon any appropriate legal basis, or (ii) is based upon factual findings clearly unsupported by the record; or That the Original Award is subject to one or more of the grounds set forth in Section 10 of the Federal Arbitration Act for vacating an award.

b.

The Tribunal does not have the power to remand the award.

These grounds are the following: 1. Whether the award was procured by corruption, fraud or undue means. 2. Where there was evident partiality or corruption in the arbitrators, or any of them. 3. Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause show, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced. 4. Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

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8.3 If the Tribunal does not modify or set aside the Original Award pursuant to Rule 8.2 above, it shall issue an Appellate Award approving the Original Award and the Original Award shall be final as provided in Rule 8.6 below. 8.4 A three member Tribunal shall make its decision by majority vote. The decision shall be set forth in an Appellate Award in writing and shall include a concise written explanation, unless all parties agree otherwise. A member who does not join the decision may file a dissenting opinion, which shall not constitute part of the Appellate Award. 8.5 If a party refuses to participate in an Appeal after having agreed to do so, the Tribunal shall maintain jurisdiction over the Appeal, including authority to make an Appellate Award. 8.6 The Chair shall cause the Tribunal's Appellate Award and any dissenting opinion to be mailed to the parties. The Appellate Award or the Original Award, as the case may be, shall be final upon receipt by the parties. D. Miscellaneous Rules Use of Best Efforts to Avoid Delay

Rule 9.

The parties and the Tribunal shall use their best efforts to avoid delay and to assure that the Appeal will be concluded within six months of its commencement. Rule 10. Compensation of the Tribunal

Each member of a Tribunal shall be compensated at an hourly rate determined at the time of appointment for all time spent in connection with the proceeding and shall be reimbursed for any travel and other expenses. Rule 11. Deposit of Costs

The Tribunal may require each party to deposit with the Chair an equal amount as an advance for the anticipated fees and expenses of its members. Any such funds shall be held and disbursed in such a manner as the Tribunal may deem appropriate. After the Appellate Award has been rendered, the Tribunal shall return any unexpended balance from deposits made to the parties. If the requested deposits are not paid in full within twenty days after receipt of the request, the Tribunal may so inform the parties in order that jointly or severally they may make the required payment. If such payment is not made, the Tribunal may suspend or terminate the proceedings. Rule 12. Distribution of Costs

In the event that the Tribunal fully affirms the Original Award, the appellant(s) shall promptly reimburse the appellee(s) (a) the share of the costs of the Appeal theretofore expended by the appellee(s), and (b) the appellee's attorney fees and

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other out-of-pocket expenses related to the Appeal, unless the Tribunal orders otherwise. If the Tribunal modifies or reverses the Original Award, the Tribunal may apportion the parties' costs of the Appeal, attorney fees and other out-of-pocket expenses among the parties in such manner as it deems reasonable, taking into account the circumstances and result of the Appeal. Rule 13. Confidentiality

The parties and the arbitrators shall treat the proceedings, including the Record, and the decision of the Tribunal as confidential, except in connection with a judicial challenge to, or enforcement of, the Original Award and the Appellate Award, and unless otherwise required by law. Rule 14. Costs with Respect to Judicial Appeal

If following an Appellate Award, a party(ies) seeks judicial review (or opposes confirmation), that does not result in the vacation or substantial modification of the Original Award or the Appellate Award handed down by the Tribunal, that party(ies) shall promptly reimburse the opposing party(ies) legal fees and other out-ofpocket expenses incurred in connection with the judicial review. Rule 15. Action Against CPR or Member of Tribunal

Neither CPR nor any member of a Tribunal shall be liable to any party for any act or omission in connection with any Appeal conducted under these Rules, except for wilful misconduct.

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IV.

FAILURE TO DISCLOSE AS A BASIS FOR VACATING AN AWARD

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AMERICAN ARBITRATION ASSOCIATION Construction Industry Arbitration Rules and Mediation Procedures July 1, 2003

R-17 Disclosure (a) Any person appointed or to be appointed as an arbitrator shall disclose to the AAA any circumstance likely to give rise to justifiable doubt as to the arbitrator's impartiality or independence, including any bias or any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their representatives. Such obligation shall remain in effect throughout the arbitration. Upon receipt of such information from the arbitrator or another source, the AAA shall communicate the information to the parties and, if it deems it appropriate to do so, to the arbitrator and others. In order to encourage disclosure by arbitrators, disclosure of information pursuant to this Section R-17 is not to be construed as an indication that the arbitrator considers that the disclosed circumstances is likely to affect impartiality or independence. R-18(b) Disqualification of Arbitrator (a) Any arbitrator shall be impartial and independent and shall perform his or her duties with diligence and in good faith, and shall be subject to disqualification for (i) (ii) (iii) partiality or lack of independence, inability or refusal to perform his or her duties with diligence and in good faith, and any grounds for disqualification provided by applicable law. The parties may agree in writing, however, that arbitrators directly appointed by a party pursuant to Section R-13 shall be non-neutral, in which case such arbitrators need not be impartial or independent and shall not be subject to disqualification for partiality or lack of independence.

(b)

(c)

(b)

Upon objection of a party to the continued service of an arbitrator, or on its own initiative, the AAA shall determine whether the arbitrator should be disqualified under the grounds set out above, and shall inform the parties of its decision, which decision shall be conclusive.

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AAA CODE OF ETHICS IN COMMERCIAL DISPUTES 2003 REGARDING DISCLOSURE CANON II. AN ARBITRATOR SHOULD DISCLOSE ANY INTEREST OR RELATIONSHIP LIKELY TO AFFECT IMPARTIALITY OR WHICH MIGHT CREATE AN APPEARANCE OF PARTIALITY.

A.

Persons who are requested to serve as arbitrators should, before accepting, disclose: (1) (2) Any known direct or indirect financial or personal interest in the outcome of the arbitration; Any known existing or past financial, business, professional or personal relationships which might reasonably affect impartiality or lack of independence in the eyes of any of the parties. For example, prospective arbitrators should disclose any such relationships which they personally have with any party or its lawyer, with any co-arbitrator, or with any individual whom they have been told will be a witness. They should also disclose any such relationships involving their families or household members or their current employers, partners, or professional or business associates that can be ascertained by reasonable efforts; The nature and extent of any prior knowledge they may have of the dispute; and Any other matters, relationships, or interests which they are obligated to disclose by the agreement of the parties, the rules or practices of an institution, or applicable law regulating arbitrator disclosure.

(3) (4)

B.

Persons who are requested to accept appointment as arbitrators should make a reasonable effort to inform themselves of any interests or relationships described in paragraph A. The obligation to disclose interests or relationships described in paragraph A is a continuing duty which requires a person who accepts appointment as an arbitrator to disclose, as soon as practicable, at any stage of the arbitration, any such interests or relationships which may arise, or which are recalled or discovered. Any doubt as to whether or not disclosure is to be made should be resolved in favor of disclosure. Disclosure should be made to all parties unless other procedures for disclosure are provided in the agreement of the parties, applicable rules or practices of an institution, or by law. Where more than one arbitrator has been appointed, each should inform the others of all matters disclosed.

C.

D. E.

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F.

When parties, with knowledge of a person's interests and relationships, nevertheless desire that person to serve as an arbitrator, that person may properly serve. If an arbitrator is requested by all parties to withdraw, the arbitrator must do so. If an arbitrator is requested to withdraw by less than all of the parties because of alleged partiality, the arbitrator should withdraw unless either of the following circumstances exists: (1) An agreement of the parties, or arbitration rules agreed to by the parties, or applicable law establishes procedures for determining challenges to arbitrators, in which case those procedures should be followed; or In the absence of applicable procedures, if the arbitrator, after carefully considering the matter, determines that the reason for the challenge is not substantial, and that he or she can nevertheless act and decide the case impartially and fairly.

G.

(2)

H.

If compliance by a prospective arbitrator with any provision of this Code would require disclosure of confidential or privileged information, the prospective arbitrator should either: (1) (2) Secure the consent to the disclosure from the person who furnished the information or the holder of the privilege; or Withdraw.

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FAILURE TO DISCLOSE MAY LEAD TO REMOVAL FROM THE NATIONAL ROSTER OF NEUTRALS AAA arbitrators may be placed on Inactive Status whenever any of their awards are challenged in court based on allegations that the arbitrator failed to properly disclose relationships with individuals, counsel, witnesses or parties to an arbitration. At the conclusion of the court proceedings concerning the challenge to the award and accompanying allegations against the arbitrator, the AAA will make a determination whether to return the arbitrator to Active Status or remove the arbitrator from the Associations Roster of Neutrals. Generally, Inactive Status means not being proposed for the parties consideration on new cases and will likely have no impact on the arbitrators status on pending cases. There may, however, be situations in which the AAA would remove an arbitrator from a pending case and declare the office vacant. Arbitrators should always reduce disclosures to writing even if the information is initially conveyed verbally; verbal disclosures are deemed to be insufficient to properly communicate disclosed information.

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A BRIEF REVIEW OF SOME RELEVANT CASES In Sphere Drake Insurance Limited v. All American Life Insurance Company, following arbitrators award All American was displeased with the result and asserted that the arbitrator had displayed evident partiality. 307 F.3d 617 (7th Cir. 2002). This allegation was based on the fact that the arbitrator had, prior to retiring from his law firm, been engaged by a Bermuda subsidiary of Sphere Drake as counsel on an unrelated matter, and the arbitrators disclosure did not make clear the extent of his involvement or the large number of hours he had billed to the subsidiary. The Seventh Circuit held that even if this disclosure was insufficient, All American still could not show evident partiality. In fact, the Court stated, even if [the arbitrator] had been the umpire, this would not have been implied evident partiality. Indeed, [the arbitrator] could have served as a federal judge in this case without a challenge on grounds of partiality, and the scope of disqualification under 10(a)(2) is considerably more confined than the rule applicable to judges. In Nationwide Mutual Insurance Company v. Home Insurance Company, Nationwide and Home engaged in arbitration to resolve whether or not Home had breached a reinsurance contract. 429 F.3d 640. The arbitrator sided for Homes, and Nationwide appealed the award on grounds of evident partiality. To support this accusation, Nationwide pointed to the nondisclosure of business and social relationships, including business dealings with a subsidiary of the defendant and a birthday dinner including arbitrator, one of Homes attorneys and their wives. The Sixth Circuit held that the arbitrator had sufficiently disclosed his business dealings with the subsidiary, and that Nationwide failed to show that these disclosures showed evident impartiality or that they were powerfully suggestive of bias. In addition, the court affirmed the district courts determination that the arbitrators social engagements did not constitute improper or prohibited ex parte contracts. In Positive Software Solutions, Inc. v. New Century Mortgage Corp., 2006 U.S. App. LEXIS 1090 (5th Cir. January 11, 2006), the Fifth Circuit held that, an arbitrator selected by the parties displays evident partiality by the very failure to disclose facts that might create a reasonable impression of the arbitrators partiality. The evident partiality is demonstrated from the nondisclosure, regardless of whether actual bias is established. (holding that a company did not waive its objection to the non-disclosure of a business relationship between the opposing party and the arbitrator where the company did not discover the relationship until after the arbitration). In Seigelman v. Allstate Insurance Company, the Supreme Court of New York vacated an arbitration award based on the arbitrators failure to disclose that he had a long-term relationship with Allstate, despite the fact that there was a 25 year gap between the end of the relationship and the arbitration. 756 N.Y.S.2d 403 (2003). The Court stated that the 20 year relationship was not so trivial as to preclude disclosure even with the time gap.

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In Montez v. Prudential Securities, Inc., Montez was given a loan by his then employer Prudential Securities, Inc. which became due with interest if Montez were terminated; a few months later Montez was fired for an alleged misrepresentation on his employment application. 260 F.3d 980 (8th Circuit 2001). In arbitration, the award called for Montez to repay the loan. Montez then discovered that one of the three arbitrators on the panel had worked with Prudentials attorneys through his previous employer and appealed to vacate the award under section 10(a)(2) of the FAA alleging evident partiality. The Eighth Circuit affirmed the district courts determination that evident partiality could not be found because the arbitrator did not have any financial interest related to Prudentials attorneys, he was not a major shareholder of his prior employer and had no reason to foster a relationship between it and Prudential. Most importantly, the arbitrators relationship with Prudentials attorneys had ended five years earlier. In Fidelity Federal Bank v. Durga Ma Corporation, Fidelity sought to vacate the award after arbitration of a breach of contract dispute between the parties. 386 F.3d 1306 (9th Cir. 2004). Fidelity asserted evident partiality because one of the three arbitrators on the panel had personal connections to Durga Mas attorneys, including having previously been married to a relative of a named partner of the firm. The Ninth Circuit affirmed the district court decision upholding the award, explaining that the waiver doctrine applied because Fidelity was put on constructive notice and failed to raise an objection before the award. The Court went on to state, there is no charge or evidence of actual bias and no indication that the arbitration award was anything but fair. A rule that places the burden on parties to obtain disclosure statements from arbitrators who were initially party-appointed but later agree to act neutrally is consistent with our policy favoring the finality of arbitration awards. In 2005, the Court of Appeals of California, Second Appellate District Division Four, affirmed orders vacating the arbitration award and denied reconsideration. Ovitz v. Schulman, 133 Csl. App. 4th 830, (2005). In the arbitration of a dispute stemming from a joint venture to create motion pictures, the Court held that the arbitrator did not timely disclose that he would entertain offers of employment from parties and attorneys involved in the arbitration. Had the arbitrator timely disclosed, he may have been disqualified.

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V.

BIOGRAPHIES

Stanley P. Sklar is a Senior Member of Bell, Boyd & Lloyd LLC in Chicago, Illinois, where he concentrates in Construction Law and Alternative Dispute Resolution methods. He is a Founding Fellow and past president of the American College of Construction Lawyers, an elected member of the American College of Real Estate Lawyers and the College of Commercial Arbitrators, where he currently serves on its Board of Directors. He is a past president of the Society for Illinois Construction Attorneys. He was the 2004 recipient of the ABA Forum on Construction Cornerstone Award. Mr. Sklar is a Mediator and Arbitrator for the American Arbitration Association and a member of its National Training Faculty for Commercial and Construction Arbitrators, as well as being a panelist for its Large, Complex Commercial and Construction cases. Mr. Sklar also serves on the AAA National Construction Resolution Dispute Committee and is a member of the CPR Construction Arbitrator Panel. He is also a member of Lambda Alpha Honorary Real Estate Society.

Melissa L. Levy is an associate in the Real Estate Department of Bell, Boyd & Lloyd LLC. During law school, Ms. Levy was a law clerk in the Department of Consumer Services of the City of Chicago, where she investigated the validity of compliance affidavits, drafted case briefs, negotiated plea agreements and counseled witnesses. Prior to law school, Ms. Levy worked as an intern for the Illinois Office of the Governor in the Department of Corrections at the Illinois Youth Center in Warrenville, Illinois. She assisted with the implementation of a competency-based performance auditing initiative, corrected flaws in the facilitys records to comply with the American Correctional Associations Standardization and Accreditation Standards, and processed documentation pertinent to the incarceration of juvenile offenders. Ms. Levy received her Bachelor of Arts in political science from the University of Illinois at Urbana-Champaign. During her undergraduate studies, she was inducted to Pi Sigma Alpha, the national political science honor society. She received her Juris Doctor magna cum laude from the University of Illinois College of Law.

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