American Arbitration Association-arbitration-conflict of interest-arbitrator conflict-arbitration dispute
Blind justice: Arbitrators have immunity from lawsuits- Part II
November 27, 2014  //  By:   //  Legal  //  Comments are off

by Carol Thompson

Each year, hundreds, if not thousands, of people who have a dispute with a company or employer find themselves in arbitration, often unwittingly because they didn’t read the fine print in a contract or service agreement.  Arbitration is somewhat of a double-edged sword– an arbitrator hears and decides the case but isn’t required to follow the letter of the law as a judge must.  Conversely, the arbitrator is entitled to the same immunity granted to the judiciary.

In a court, a judge will recuse him or herself from a case in the event of a conflict-of-interest or even the potential for a conflict. In some instances, a change of venue will be requested at the time of filing a lawsuit. With arbitration, the arbitrator must disclose, in writing, any conflicts or potential conflicts. It is then up to the parties to do their own research into the arbitrator to determine if all potential conflicts were disclosed.

According to the American Arbitration Association, one of the largest arbitration organizations in the United States, “The AAA rules allow for any party to object to the continued service of a neutral arbitrator. In determining whether removal of the arbitrator is warranted for partiality or lack of independence, the Council bases its decision on the disclosure made, the parties’ comments (e.g., alleging a conflict exists or containing other objection to the arbitrator’s continued service) and the Review Standard’s four-part test, examining whether the disclosure is: direct, continuing, substantial, and recent. Weighing these factors together serves as a guide as to whether the disclosure rises to the level of warranting the arbitrator’s removal from the case. Ultimately, pursuant to the Council Review Standards, the Council’s determination is based on whether the disclosure creates, to a reasonable person, the appearance that an award would not be fairly rendered.”

It continues, “The most common objections to the continued service of an arbitrator were based on an arbitrator’s initial disclosure, however there were also a number of objections based on an arbitrator’s alleged non-disclosure that a party discovered later in the case, or other objections were raised after additional disclosures were made by the arbitrator in the form of a supplemental disclosure while the arbitration was pending. Another common issue was partial disclosures by arbitrators, where the arbitrator disclosed a potential conflict but arguably did not provide full and complete information, and while the arbitration was pending a party raised an objection after discovering the full extent of the potential conflict.”

AAA claims that of the 229 challenges to an arbitrator’s continued service, the Council removed the arbitrator in 97 cases and reaffirmed in 132 cases, hence, less than 50 percent of the complaints were resolved by removal.

Should the arbitrator fail to disclose all conflicts, the burden of proof falls on the parties to the arbitration. That can require the parties to do an extensive online search and contact those known to have an association with the arbitrator. While the AAA recommends also speaking to those who have used a particular arbitrator, confidentiality clauses generally prevent it from being made public or available to even the parties.

The courts have upheld that arbitrators are immune from failure to disclose conflicts. In the matter of Howard v. Drapkin, the court ruled, “We have already noted that arbitral immunity applies even where the acts alleged are malicious or corrupt.” Similarly, the United States Supreme Court has opined that as a matter of federal common law, judicial immunity applies no matter how erroneous the act, or how evil the motive. (Stump v. Sparkman (1978) 435 U.S. 349, 355-356.)

When an arbitrator fails to disclose, or is vague in disclosing, a conflict-of-interest there is little remedy available after-the-fact, hence, it is critical for the involved parties to do their own research into the background of the arbitrator.

 

Image: Flickr/civicboosterclub

 

 

 

 

 

About the Author :

Carol Thompson is a veteran investigative reporter residing in central New York. She spent 23 years with a local newspaper, The Valley News, before leaving for the Syracuse New Times, and now, VNN. Thompson has won dozens of first-place awards for investigative reporting and was the 2006 recipient of the Syracuse Press Club’s prestigious Selwyn Kershaw Professional Standards Award. Thompson’s reporting has resulted in the arrest of public officials and has prompted policy changes. She uncovered two money laundering schemes that traveled the globe and resulted in the indictments of several developers.

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