When the arbitrator is biased: Part I
A California resident takes a dispute to arbitration. He loses. Not only doe he lose, but he’s ordered to pay over $100,000 in legal fees to the prevailing party.
Months later, he learns that the arbitrator had an undisclosed potential conflict—a conflict that could have cost him the case—and exorbitant fees.
In reviewing the circumstances surrounding the dispute one might question how the resident even lost his case. He had entered into a contract to purchase a condominium that was to be constructed— a development that was plagued with construction delays time and time again. Questions went unanswered or were answered vaguely.
Can an award be vacated based on arbitrator bias?
That depends, according to the American Bar Association.
“The U.S. Supreme Court has not addressed the issue of evident partiality in more than 40 years. The confusing relationship between the majority and concurring opinions in that case has resulted in decades of U.S. Circuit Court interpretations that at times radically alter the factors to be considered for determining evident partiality under the FAA, the ABA states in a recent publication.
“This uncertainty finds its genesis in the U.S. Supreme Court’s plurality-plus decision, Commonwealth Coatings Corp. v. ContinentalCasualty Co.1 Justice Black, writing for the majority and finding that vacatur was warranted due to the arbitrator’s failure to disclose a recently terminated business relationship with one of the parties, stated: it is true that arbitrators cannot sever all their ties with the business world, since they are not expected to get all their income from their work deciding cases, but
we should, if anything, be even more scrupulous to safeguard the impartiality of arbitrators than judges, since the former have completely free rein to decide the law as well as the facts and are not subject to appellate review. We can perceive no way in which the effectiveness of the arbitration process will be hampered by the simple requirement that arbitrators disclose to the parties any dealings that might create an impression of possible bias.”
It continues, “Justice White, in a concurring opinion joined by Justice Marshall, asserted that arbitrators ‘are not automatically disqualified by a business relationship with the parties before them if both parties are informed of the relationship in advance, or if they are unaware of the facts but the relationship is trivial.’ Justice White recognized the balance between expertise of arbitrators in their respective business fields and the inherent potential for conflicts that may arise. ‘He [the arbitrator] cannot be expected to provide the parties with his complete and unexpurgated business biography’ but arbitrators should ‘err on the side of disclosure.’”
Those opinions have resulted in no uniform interpretation of the meaning of “evident partiality.”
So, where does that leave the consumer who learns after-the-fact that the arbitrator who heard their case had an undisclosed conflict of interest?
It will, according to the experts, depend on the court where the case is heard. Until the US Supreme Court renders an affirmative and binding decision.