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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. O’CONNOR., 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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§ 10 (2003).” R. See 9 U. Federal Arbitration Act. and definite award upon the submitted subject matter was not made. This policy is motivated by the desire to maintain an alternative adjudicative procedure with increased efficiency. The third case arises under section (a)(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing despite a party’s showing of sufficient cause to postpone or refusal to hear evidence pertinent and material to the controversy. or so imperfectly executed them that a mutual. Vacatur of Arbitration Awards by the Court The Federal Arbitration Act places strong limits on judicial review of arbitration awards. Federal policy favors arbitration and the preservation of the integrity of the arbitration process.S. by adding an expensive and potentially protracted second round to the process whether the motion to vacate ultimately succeeds or not. A. fraud. under section (a)(4) where the arbitrators exceeded their powers. In view of the FAA’s broad reach. Lastly.C. First. Mills. or undue means.the Federal Arbitration Act applies. is where the award was procured by corruption. 522717/C/1 3 . an award may be vacated under section (a)(2) where there was evident partiality or corruption in any arbitrator. a discussion of 9 USC 10 §§ (a)-(d) follows. vacatur is available. efficient and final proceeding. 9 USC Section 10 1. Vacatur litigation inevitably compromises at least some of these goals. under section (a)(1). Lani Bader. Thomas J. J. final. Second. or of any other misbehavior by which the rights of any party have been prejudiced. less complexity. One comment notes “… the goal of an arbitral proceeding should be a just award rendered in a fair. and reduced costs compared to the traditional litigation process. 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. shorter proceedings.

Ct. Dist. Inc. 532 U. Am. V. and Proempres Panama. and Peggy J. Enter.S..Brewer. 1993)). 2d 1403. Subject Matter. 363 U. Ed.. 2002 U. 564.. Koehring Co. See Hayford.2d 633. 593. courts have interpreted the language of the FAA consistent with this federal policy by limiting judicial review and interpreting the statute narrowly. this section ‘is to be accorded the narrowest of readings’”. LEXIS 5131 (S. co. Vacating Arbitration Awards Study Reveals Real-World Odds of Success by Grounds. 80 S.S. 636 (2d Cir. and Jurisdiction. Congress’ pro-arbitration policy is illuminated by the plain language of the statute’s extremely narrow categories of review and the high level of deference afforded arbitrators’ opinions. S. 56869 4 L. the Supreme Court has stated that “‘courts…have no business weighing the merits of a grievance [or] considering whether there is equity in a particular claim. Motorola. Mfg. 1343 (1960). A decision by the Southern District of New York held that “to effectuate the federal policy in favor of arbitration. 999 F. at 744-46. Garvey. the parties have bargained for the arbitrator’s construction of the agreement. 522717/C/1 4 .. Supra. 597 (1960).D. v. 2002) (quoting Blue Tee Corp v.A. Summer 2005. DISPUTE RESOLUTION MAGAZINE. March 28. Although there is little legislative history for the Act.N.S. Milcom International V N. at 26-27. Likewise. it usurps a function which is entrusted to the arbitration tribunal” Major League Baseball Players Ass’n v. This policy is evident in the limits placed on judicial review of arbitration awards.S. Additionally. For example. 363 U.. Wheel & Car Corp. Williams. 504. The Supreme Court has also expressed that by choosing arbitration.Y.’ if the judiciary does so. the FAA reflects federal policy in favor of arbitration and the preservation of the arbitration process. 509-10 (2001) (quoting Steelworkers v.

18[3][b]. the FAA also lacks procedural requirements that would facilitate judicial review. 109 (N. 493 F. Sklar. Oftentimes the petitioner cannot make this showing simply for lack of record. 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). Stanley P. Stone. As the District Court for the District of Columbia noted “an arbitration panel is not subject to the more rigid mechanisms that courts are. 715 F..2d 1234 (D. Liang. 989 F. overcoming this burden of proof is a particularly challenging task without the benefit of a complete record of the proceedings. records are typically sparse. 1125. The FAA does not require arbitrators to explain their decisions nor does it require the creation of a detailed record of arbitration proceedings. Supp. C.” Flight Systems v.D. v. the petitioner must show that the evidence could not have been discovered prior to the arbitration proceeding. Supp. Washington Post Co. then. As a result. Folkways Music Publishers v. Matthew Bender Treatise on Construction Law (2003) Chapter 12. Arbitration panels have great discretion and courts have narrow review of their actions and decisions.. 1989) (referencing Washington-Baltimore Newspaper Guild v. 104.In addition to providing a slim category of review. Paul Lawrence Co. 111 (2d Cir 1993). 442 F. Weiss. 522717/C/1 5 . A high showing is required to avoid summary confirmation of an arbitration award. if a petitioner attempts to rely on newly discovered evidence. Considering the high level of deference afforded arbitration awards. the petitioner must overcome a presumption of validity. D.2d 108. To set aside an arbitration award. and must show an objective basis supporting his allegation. 1128 (D. Inc. In addition. 1971).C. and a party petitioning for review bears the burden of proof. Cir.

while these procedural obstacles and the limited review categories available may complicate a party’s challenge of an award. and Peggy J. the petitioner must make specific allegations of bad faith. standing alone. fraud.. Williams. or corruption.6% success rate. of Md. Additionally. Matthew Bender Construction Law (2003) (citing Shearson Hayden Stone.2d 247 (7th Cir. or Undue Means The first of the review categories enumerated under the FAA is where the award was procured by corruption.However. Subject Matter. An interesting study. Summer 2005. aff’d. v. Mills. found that corruption. Liang. Brewer. fraud or undue means was the least frequently asserted allegation. Fraud. as to evidence. The size of an arbitration award or disparity between the award amount and the amount claimed. is insufficient to show fraud or bias. Ill. DISPUTE RESOLUTION MAGAZINE. J. Corruption. 653 F2d 310 (7th Cir. and also the least successful at a 7. Inc. Matthew Bender (citing MSP Collaborative Developers v. Shearson Hayden Stone at 108. fraud or undue means. Vacating Arbitration Awards Study Reveals Real-World Odds of Success by Grounds. Lani Bader. The party raising such allegations bears a substantial burden of proof.D. Thomas J. at 109. speed. not merely allege “undue means” as to the evidence. Vacating an award for “undue means” requires a showing of bad faith in procuring the award is required. “undue means is not proven by showing the offering of prejudicial evidence. Additionally. Stanley Sklar. this procedural structure facilitates the goals for which the arbitration process is designed: efficiency. R. at 26 (limiting review to cases in which vacatur was sought following an arbitration proceeding 522717/C/1 6 . Fidelity & Deposit Co. 104 (N. analyzing both state and Federal cases in which the petitioner sought vacatur of an arbitration award. Id. 1981). 2. 1980). 596 F. and Jurisdiction. and reduced costs. 1979)). Supp. 493 F..

” Sheet Metal Workers Int’l Ass’n Local Union #420 v. 923 (2d Cir. 638 F.J. Amerada Hess Corp.2d 548. Bell Aerospace Co. Continental Casualty Co. 1939).2d 742. 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”).Supp at 281 (citing Hyman v. To meet this burden.). 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. A. 385 F. v. 101 F. Courts have found.O. Kinney Air Conditioning Co.) 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.. 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. 145 (1968). reh. however. v. 1112.S. 385 F. 279. standing alone. Labor Union. 1017 (1981)).2d 262 (2d Cir. 756 F. UAW. that undisclosed business dealings between an arbitrator and a party to arbitration meet the showing required to vacate on grounds of evident partiality. denied. 1974). 451 U..F.. the petitioner bears burden of proof.S. 1985) (quoting Int’l Produce. Local 516.. the party challenging the award “must establish facts which indicate improper motives on the part of the Board. cert. v. Local 22026 Fed. is insufficient. Rosshavet. Inc. 281 (N. v. The appearance of impropriety.L. den. 551 (2d Cir.involving an enforceable arbitration clause. 500 F. Supp. 1974) (citing Commonwealth Coatings Corp. 393 U. Ameralda.-C. 393 U.S. 522717/C/1 7 . 3.2d 921.I. 748 (9th Cir. Pottsberg’s Exrs. Again.

upon sufficient case shown. (citing Nyall Storey v.” 792 F. 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. subsequently Ceco sought to confirm the award and Schrimsher sought to have it vacated based on section 10(a)(3) of the FAA. Additionally. 110 (1992) (citing Volt Info Sciences v. The Court held that the arbitrators were correct in their decision not to postpone the proceedings pending determination of the related administrative proceedings.. 4. 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 arbitrator’s disclosures of conflicts or potential conflicts. 468. 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. Leland Stanford Jr. or in refusing to hear evidence pertinent and material to the controversy. 470 (1988). 489 U. 109.1 percent of the time. 685 522717/C/1 8 . study. University. Searle Blatt Ltd. at 25.S. Supp. and went on to explain that “[t]he granting or denying of an adjournment or postponement falls within the broad discretion of appointed arbitrators. this claim was only successful about 12.” Id. the parties submitted to arbitration. In Ceco Concrete Construction v.According to the Mills et al.. Such right to a stay does not exist under the Federal Arbitration Act.. Inc. 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. Schrimsher Construction Co. Mills et al. or of any other misbehavior by which the rights of any party have been prejudiced.

N. . According to the Mills et al. final. v. or so imperfectly executed them that a mutual.Y. 1305.D. 5. and it is successful in approximately 17 percent of cases. courts may vacate arbitration awards under 10(a)(4) where the arbitrators exceeded their powers. 82 (S.” Creco. study. Supra.. 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. 385 522717/C/1 9 . or require the parties to submit discovery and documents prior to the arbitration.. 1988). the Court will be reluctant to interfere with the award on these grounds. 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. 516 F. 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. 110 (citing Fairchild and Co. Arbitrators Exceeded Their Powers Lastly. and definite award upon the subject matter submitted was not made. Id.Supp. City of Richmond et al. Amerada. Typically. The court further stated “assuming a reasonable basis for the arbitrator’s decision not to grant a postponement. Paul A. 1989). . 1125 (D.C. Article at 25. 715 F. In addition. a party’s 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 . hold a preliminary hearing. or arbitrary and capricious. Laurence Co.Supp.D. at 1128-29. 1313-1314). 80.Supp. have not allowed an arbitration decision to be vacated on a claim of new evidence. Flight Systems v. 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. this is the third most frequently advanced ground for challenging an award.

534 U. and was subsequently awarded significant damages by the arbitrator. although judicial review is narrowly bounded by the FAA.F. the plaintiff. “the scope of an arbitrator’s authority is defined and confined by the agreement to arbitrate. but (3) a court may conclude that an arbitrator exceeded his or her authority when it is obvious from the written opinion. 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.. In affirming the lower court’s decision. An ambiguity in an arbitrator’s written opinion is not sufficient to establish that the arbitrator exceeded his powers. at 1039-40. (2) this presumption may not be rebutted by an ambiguity in a written opinion. Inc. alleged that the defendant failed to fulfill his contractual obligations under the Linehaul Contractor Operating Agreement and terminated the defendant’s employment. 1020. at 282. the United States Supreme Court stated that.. The defendant demanded arbitration pursuant to his contractual right. 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 defendant’s performance rather than limiting his decision to the submitted grounds of whether the termination violated the Linehaul Contractor Operating Agreement. The Amerada court expressly stated “ordinarily the complaining party must show that the arbitrator’s award is contrary to the express language of the collective bargaining agreement.” Kayser v. Inc. at 282. In Kayser v.. 522717/C/1 10 . Roadway Package System.S.” Id.Supp. Roadway Package Sys. a small package shipper. 1036 (2001).” Id.

in examining cases where arbitrators exceeded their powers. Sheet Metal Workers.8% of cases in which it was asserted.The Mills study. there are judicially created standards of review to determine the sufficiency of an award. and Jurisdiction. 522717/C/1 11 . DISPUTE RESOLUTION MAGAZINE. succeeding in 20. at 24. However. As a result. These standards include arbitrary and capricious. J. Lani Bader. Brewer. Mills. Vacating Arbitration Awards Study Reveals Real-World Odds of Success by Grounds. Lawrence R. 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. 756 F. clearly erroneous. courts must also apply the appropriate standard of review in determining whether to confirm or vacate an arbitration award. there has been a trend that contracting parties will contract for expanded or enhanced judicial review of their arbitration awards. found this ground for vacatur to be the most frequently successful. The parties may. this is still a difficult showing to make. and often do. Williams. and Peggy J. courts are challenged even more frequently to apply the appropriate standard of review to such agreements. though widely recognized. For instance. Thomas J. lack uniformity in their application and meaning. or so imperfectly executed them that a final and definitive award on the merits was not made. and substantial evidence. Recently. Subject Matter. choose and designate a level of review to be applied should their award be appealed. B. In addition. There are several potential standards of review that parties may elect to include in their arbitration agreements including de novo. 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. manifest disregard of the law. These judicially fashioned standards.2d at 764. Summer 2005. completely irrational. and violation of public policy.

in discussing the arbitrary and capricious. 1996)). 1. An overview of judicial standards for vacatur of awards follows. 634 (10th Cir. Likewise. 86 F.. v. 1988)). completely irrational.. 8 (1st Cir. no matter what ‘terms of art have been employed to ensure that the arbitrator’s decision relies on his interpretation of the contract contrasted with his own beliefs of fairness and justice. Stipanowich & Peter H. Inc.In fact. Parties electing to incorporate appellate review into their arbitration agreement may choose this standard of review. but conducts a less thorough review regarding questions of fact. 2001). an appellate court is arguably in just as good a position as the trial court to consider questions of law.” The Court went further to say “although these differences in phraseology have caused a modicum of confusion.” Chapter Id at 292 (citing Flexible Manuf. in the arbitration context this standard would allow parties to have a court review errors of law. In applying de novo review. 847 F. 100 (7th Cir. Sys. Kaskell eds.’” Advest.. 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.2d 631. McCarthy 914 F. 1990) (quoting Jenkins v. Super Products Corp. Inc. 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. this standard is reserved for reviewing errors of law. We regard the standard of review undergirding these various formulations as identical.2d 6. we deem them insignificant. The Seventh Circuit once stated that limiting review to legal errors would be “clearly far less searching and time consuming than a full trial.3d 96. Prudential-Bache Securities. COMMERCIAL ARBITRATION AT ITS BEST: SUCCESSFUL STRATEGIES FOR BUSINESS USERS 292 Thomas J. Typically. but largely defer to the 522717/C/1 12 . manifest disregard of the law. V.

“under the ‘clearly erroneous’ review a court may substitute its judgment for that of a trial court and upset findings which are unreasonable.. and looking for a strict application of the law regardless of commercial circumstances.” COMMERCIAL ARBITRATION AT ITS BEST: SUCCESSFUL STRATEGIES FOR BUSINESS USERS 292 Thomas J. 2001).” COMMERCIAL ARBITRATION AT 522717/C/1 13 . based on the evidence as a whole. 2. One observer notes “As in the public justice arena. Specifically. Adding an appellate level review to an arbitration award inevitably adds costs. This standard may not. the “clearly erroneous” standard. the appellate court positively determines that the trial court’s finding was mistaken or unreasonable. this standard of review is most appropriately elected by parties seeking review for errors of law only. however. but this standard of review reduces the monetary and time costs somewhat by limiting review to errors of law. which are subject to the de novo standard. This standard allows the court to apply its own interpretation of the fact when. whereas de novo review allows courts to review and newly address errors of law. The “clearly erroneous standard” significantly enlarges the power of courts in reviewing arbitration awards. Stipanowich & Peter H. Clearly Erroneous Standard Another standard. Kaskell eds.arbitrator’s interpretation of the facts. from purely factual questions. is typically applied to factual determinations reached by trial courts. 2001). COMMERCIAL ARBITRATION AT ITS BEST: SUCCESSFUL STRATEGIES FOR BUSINESS USERS 293 (Thomas J. Therefore. which are not. Stipanowich & Peter H.. 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. Kaskell eds. may produce complex analyses since factual and legal issues are often closely intertwined. distinguishing mixed question of law and fact.

541 F. again.. Comm’n et al. Edison Co. 607. 2001). However. EPA. Cir 1976)). The Supreme Court has also stated of this standard that “[i]t must be enough to justify. Columbian Enameling & Stamping Co. This evidentiary standard questions whether a particular conclusion could have been drawn by 522717/C/1 14 . Additionally. 306 U. v. 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. 619-20 (1966) (quoting Consol. parties may choose this standard in drafting arbitration agreements inclusive of enhanced or additional review. V.. at 620 (quoting Labor Bd.S. Stipanowich & Peter H. 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. 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.. 300). Substantial Evidence Standard The substantial evidence standard is another standard that may be applied to the review of an award and.” Consolo v.2d 1. 35 n. Labor Bd.74 (D.S. 229). 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. parties who desire more than minimal review with the court as the ultimate decision-maker may contract for this standard of review.. a refusal to direct a verdict when the conclusion sought to be drawn from it is one of fact for the jury. 3. (quoting Ethyl Corp. including the searching consideration of factual issues. Fed. 383 U. This level of review.7 (Thomas J. Kaskell eds. Mar. this level of review may require a more extensive record.S. v.” Id. 197.ITS BEST: SUCCESSFUL STRATEGIES FOR BUSINESS USERS § 7. Id. 305 U. 292.C. if the trial were to a jury.

Pierce. The Supreme Court ruled against First Options stating. 174 (1994). and would provide only a very limited opportunity for judicial review. however. 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. 938.” 514 U. 4. but not to those that set aside awards. not special. Kaplan. even as to questions of law.S. and a more extensive record is required so that the court may effectively examine the arbitrator’s decision. “we believe. 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. This standard highly deferential to the arbitrator’s award. 946 (1995). standards when reviewing district court decisions upholding arbitration awards. Abuse of Discretion Standard The “abuse of discretion” standard is another available standard of review. Jr.2.a reasonable person.. following the Supreme Court’s decision in First Options of Chicago v. 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. Moreover. Kenneth Culp Davis and Richard J. In fact. ADMINISTRATIVE LAW TREATISE §11. that the majority of Circuits is right in saying that courts of appeals should apply ordinary . yet it makes the court the ultimate decision-maker. 522717/C/1 15 . some Circuit courts will no longer apply the “abuse of discretion” standard in reviewing a district court’s confirmation of an arbitration award.

’’” Raiford v. Corp. Pierce.2d 891.” Brabham v. Miss. The lack of clarity given to the application of this standard can be problematic.5.. Edwards & Sons. 1972)).2d 1211. 1216 (2d Cir.Supp.D. 779 F. non- 522717/C/1 16 .” Id. Merril Lynch. 265 F. A. Inc. Fenner & Smith. Warner & Co. Apparently. 2d 720. 725 (S. the court stated “…outside of the collective bargaining context. The Brabham court further explains that “the Fifth Circuit has developed two lines of cases—one discussing a ‘manifest disregard of the law and the other discussing an ‘arbitrary and capricious’ standard of review. this standard carries a strong presumption that the arbitration award is correct. 469 F. in Brabham v. Titan Indus. For instance... 1990) (citing Siegel v. The Brabham court went on to disavow the arbitrary and capricious non-statutory standard. The Eleventh Circuit has held that “an award is arbitrary and capricious only if ‘‘a ground for the arbitrator’s decision can[not] be inferred from the facts of the case. 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. while the Fifth Circuit describes an award as arbitrary and capricious when the conclusions are not inferable from the facts. However. 903 F. 894 (2d. 2003).2d 1410. the Fifth Circuit has provided little guidance on the mechanics of the arbitrary and capricious standard for reviewing arbitration awards. Arbitrary and Capricious Standard Some but not all courts have recognized another non-statutory standard “arbitrary and capricious” of review in vacating arbitration awards.G. 1412 (11th Cir. A. the application of this standard varies by the court. Cir 1985) (quoting Sobel v. Generally. Inc. Hertz. and permits only narrow grounds for vacatur where there are no grounds for the arbitrator’s decision. the Fifth Circuit uses the term ‘manifest disregard’ in situations where the arbitrators failed to apply controlling legal principles.G.. Edwards & Sons.

providing only an opportunity for parties to vacate an award which severely frustrates their expectations. 466 F. the Botany Industries claimed on appeal that the arbitration award went beyond the scope of the submission and was completely irrational. See Swift Indus. that the arbitrator had exceeded his powers and that portion of the award was invalid. the district court determined that this bond requirement was not part of the agreement the arbitrator was construing. Inc. v.7 (Thomas J. Ocean Energy. but rather part and parcel of the test of whether an arbitrator exceeded his powers under Section 10(a)(4) of the FAA. COMMERCIAL ARBITRATION AT ITS BEST: SUCCESSFUL STRATEGIES FOR BUSINESS USERS § 7.. therefore. 2001) pg. 2004). Stipanowich & Peter H. 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. 353-54 (5th Cir. Botany Indus. Kaskell eds. The “completely irrational” standard first appeared in Swift Industries v.3d 346. In Swift.” Milcom Int’l 522717/C/1 17 . 1972). Again. Kergosien v. Botany Industries. “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. Complete Irrationality Standard The “completely irrational” standard allows vacatur when an arbitrator’s award is completely irrational.. 6. The Court held. this standard is highly deferential to arbitration awards.2d 1125 (3rd Cir. cites Swift in stating. 390 F.. in the more recent Milcom case. At the trial level. 296. This bond requirement also was beyond the scope of the parties’ submissions. When Swift Industries appealed this determination. a 1972 commercial arbitration case. which required cash payments for final determinations of liability. the The Southern District of New York.statutory test.

Motorola. 2d 730. v. 74 S. 2006 U. 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. 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. 7. v. LEXIS 5131 (S.. In a later case. Rodriguez de Quijas v. V. to judicial review for error in interpretation. Ia. Supp. Co. 341 F. App. 2002 U. (1989). Swan. 109 S. Shearson/Am.D.D. Travelers Cas. Van Horn 393 F. Graphic Communications Int’l Union. 824 (8th Cir. Express. 346 U.S. the Supreme Court confirms that it recognizes nonstatutory bases upon which a reviewing court may vacate an arbitrator’s award under the FAA. 437.S. 427. .S. the interpretations of the law by arbitrators in contrast to manifest disregard are not subject. including the “manifest disregard” 522717/C/1 18 .V N. 2002). 2005) (citing Schoch v.A.788 (8th Cir. 1917. 427.3d 821. 19. overruled in part on other grounds. S. 477. Inc. InfoUSA. Inc.Y. Inc. N. Van Horn v. Dist. Ct. LEXIS 1177 (3d Cir. 182 (1953) (dictum). 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. In Wilco.3d 785. Ct. the Supreme Court stated “In unrestricted submissions . other courts have held that an arbitrator’s award can be vacated if it is completely irrational. Local 1B. 490 U. 2003). the arbitrator’s award fails to draw it essence from the agreement. March 28. Jan. .S. and Proempres Panama. Completely irrational has been defined as an award that “fails to draw its essence from the agreement.S. ACandS.N.. The “manifest disregard” standard first appeared as dicta in Wilko v. 2002). 284 F. Inc.. 2006)... v. After Swift. and Sur.” 346 U. in the federal courts.

3d 15. Pamela Tynes. The First Circuit enumerates a three part test. Moreover. For example.L. 126 F. it must have been an obvious error and the arbitrator. 1997) (citing Merrill Lynch. Toys “R” Us. Aug. 808 F.’” Phillip Allen Lacovera. 1986). allowing a court to vacate an award as manifest disregard of the law if it was “(1) unfounded in reason and fact.S. Hon. Subsequent to its appearance. the “manifest disregard” standard took on a multiplicity of different applications. the error “must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator.S. The Fifth Circuit has stated that manifest disregard of the law goes beyond a mere error or misapplication.standard. 2005. Lawyers Can Make Expanded Review of an Award Part of the Deal. Inc. 933 (2d Cir. The Supreme Court reaffirmed this nonstatutory judicial review power in First Options. May 2. providing differing degrees of review. Pierce. v. v. but again did not clearly define the “manifest disregard” standard. 938. varying by the presiding court. Fenner & Smith.2d 930. Kayser. New York Law Journal. The judicially created standard is applied in most circuit courts. chose to ignore it. 2. Inc. even though all but one disclaim the power to set aside arbitral awards that are otherwise ‘arbitrary and capricious. Texas Lawyer. (2) based on reasoning so palpably faulty that no judge or 522717/C/1 19 . Inc. 534 U. Roadway Package Sys.. The Varying Standards of Review of Arbitration Awards. 2004. 942 (1995). One commentator noted “this is the concept that allows varying degrees of judicial review in virtually every circuit court. 24 (2d Cir. 1020 (2001). v. understanding the law. Kaplan. The Art of Drafting Arbitration Agreements. V. W.” Alghanim & Sons.L. 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. to qualify as manifest disregard. 524 U. the Second Circuit held that. Bobker.

some courts. United 522717/C/1 20 . Prudential-Bache Securities. 1988)). 847 F.” Prudential-Bache Sec. 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). Inc.3d 234. Inc. Prudential-Bache Securities.Rev. although the manifest disregard standard is widely recognized.2d 631 (10th Cir. v. 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. Stephen L. Similar to the Fifth Circuit’s take on the arbitrary and capricious standard in which it determined that test was part and parcel of FAA §10(a)(4). Hayford states that “the full range of the link/no link debate is captured by the observation of the Tenth Circuit in Jenkins v. it lacks a clear. or (3) mistaken based on a crucial assumption that is concededly a non-fact. In his article. Inc. universal definition.L. 731. As is evident by these cases.group of judges ever could conceivably have made such a ruling. 72 F. and the standard may vary somewhat from court to court. which prohibits] arbitrators from exceeding their powers. 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. 1995). 762. under which a court may decline to enforce an arbitration award if it violates public policy or could harm the public interest. Hayford. The United States Supreme Court has recognized this exception. Tanner. 741-45 (1996) (quoting Jenkins v. 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. 30 Ga.238 (1st Cir. 8. Law in Disarray: Judicial Standards for Vacatur of Commercial Arbitration Awards.. Stephen L.

at 43). Sinicropi. In Boston Medical. but rather whether enforcement of the award will put one or more of the parties in violation of a well defined public policy. Inc. . and Sur.. the Third Circuit stated that courts may decline to enforce arbitration awards that violate well-defined public policy identified by federal law. The court determined stated “.Paperworkers Int’l Union v. 2001). Co. Disp.. v. Service Employees Int’l Union. Local 285. . Misco. In Boston Medical. US App LEXIS 1177 (January 19.S. the court instructs that the inquiry is not whether the conduct causing the dispute was against public policy. 260 F. Misco at 17-18. but instead whether the enforcement of the award would violate public policy. 484 U.3d 1189 522717/C/1 21 . 42 (1987) (determining enforceability of a labor arbitration award).3d at 16 (citing Misco. Exxon Seaman’s Union. and is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests. 484 U. Haydon at 783 (referencing Stephen L. 249 (1993)). Travelers Cas. 11 F. J.S. ACandS. 29.’” Boston Medical 260 F. v. 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. The First Circuit followed the Misco case in deciding Boston Medical Center v. The court need not evaluate the merits of the award. 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. Inc. Resol. In a more recent case applying the public policy exception. The Labor Contract and External Law: Revisiting the Arbitrator’s Scope of Authority. Hayford & Anthony V.3d 16 (1st Cir. a hospital terminated the employment of a union member nurse following an investigation into the death of an infant that died of septic shock.

Where applicable. when lecturing before lawyer groups invariably one of the objections raised to the arbitration process is the lack of the appeal process. ILWU Local 142 that the public policy exception should be read narrowly. though. the blame is laid not upon the drafters of the dispute resolution clause but upon the process itself. II. 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. APPELLATE REVIEW PROCEDURES BY CONTRACT Before dealing with appeals based upon contract terms. LEXIS 13768. It is important to note. that some courts have not followed the decision of the Misco court. 1994)). 522717/C/1 22 . Interestingly enough. However. told his counsel. Inc. such as the United States District Court for the District of Hawaii that held in Big Three Industries. for example refusing to enforce an arbitrator’s award where it called for the reinstatement of an employee to a highly regulated industry. the drafters could easily include such a process in the dispute resolution clause. v. 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.(3d Cir. 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. When they fail to do so. 9 (1987). appeal immediately.

“The court shall vacate. 935 F.” Neesemann cited the case of Lapine Technology Corp. Contracting for Judicial Review. and is good for arbitration.A. 130 F. (ii) where the arbitrator’s findings of fact are not supported by substantial evidence. or (iii) where the arbitrator’s conclusions of law are erroneous. that parties can be “more confident that their agreements about the scope of judicial review of arbitral awards will 522717/C/1 23 . Thus the parties contracted for a judicial review of their nonjudicial process. As for the basis of his conclusion. The terms of the agreement provided. Fall. v Kyocera Corp.. 1998). It should be noted that the case produced over 15. Chicago Sun Times.2d 1501 (7th Cir. Carroll E.000 pages of transcript and 72 boxes of documents and an award containing hundreds of findings of fact and conclusions. modify or correct any award: (i) based upon any of the grounds referred to in the Federal Arbitration Act.” 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. To Review or Not to Review. That is the Question In a point/counterpoint article published in the ABA Dispute Resolution Magazine in 1998. 1997) which upheld a pre-dispute arbitration agreement that specified a standard for judicial review for an award.an appellate arbitration panel to review the arbitrator’s award. 1991) denied the parties the right to seek judicial review of the arbitrator’s award since federal jurisdiction cannot be created by contract but did approve the right of the parties for “. Neesemann took the position that “party chosen arbitral review standards can inspire confidence in the process. AAA Dispute Resolution Magazine.3d 884 (9th Cir. Stanley McDermott took the position that “expanded review of arbitration awards is a mixed blessing that raises serious questions. Contrast this with Chicago Typographical Union v.

Summer 2004. economical and most importantly final. Thus the parties find themselves thrust back into the very forum they sought to avoid by considering arbitration. more expensive and lacking finality. Construct! Edward Hennessey reviews the current state of cases relating to judicial review of arbitration awards (Contractual Standards for Judicial Review of Arbitration Awards. “Stepping on the Judiciary’s Toes: Can Arbitration Agreements modify the Standard of Review that the Judiciary Must Apply to Arbitration Decisions” Elizabeth J. Ms. pointing out that there is a significant difference in the approach of the courts depending upon which circuit may have jurisdiction over the matter. In her article. Anderson reviews 522717/C/1 24 . The Construction Lawyer.” 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. McDermott points out the very issues that give rise to making the inefficient. the expense associated with the preparation by the arbitrators of a “written opinion to meet expected judicial scrutiny. Anderson. In a more recent article published in the ABA Section on Litigation magazine. Construct! Summer 2004). not to mention resolution in a court system already overloaded with cases and understaffed judicial personnel. Needless to say. Edward Hennessey.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. Thus the issue of finality is based not upon the process but upon the geographic location of which court will hear the appeal. Some of the practical issues raised by the appeal process such as the expense associated with a thorough record of the proceedings.

it the responsibility of the drafter of the ADR clause to focus on those issues which have to incorporated into the dispute resolution clause.the current state of the law and concludes that the Third. “The Arbitration Award: Finality versus Reviewability. Contract Issues and Appellate Review of Arbitration Awards Assuming that the decision for appellate review is made at the contracting stage. Chapter 7 contains several sections entitled. 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. If the original award provides for the payment of money. In particular. 3. 1. Fourth and Fifth Circuits permit parties to expand judicial review under the Federal Arbitration Act. 2. how is that to be secured pending the outcome of the appellate review process? 522717/C/1 25 . Seventh. Reasoned awards are by their nature an additional expense to the parties. B.” 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. 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. Eighth. Commercial Arbitration at its Best lists several issues to be considered when drafting such a provision. Ninth and Tenth Circuits refuse to permit the parties to modify the Federal Arbitration Act’s standards for judicial review. while the Second.

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. Existing Procedures for Appellate Review by Agreement 1. 6. American Arbitration Association Currently the American Arbitration Association’s excellent publication. 10. 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 522717/C/1 26 . “Within 30 days of receipt of any award (which shall not be binding if an appeal is taken). 7. C. The appeal tribunal shall be entitled to adopt the initial award as its own. should it go back to the original panel or should a new panel be constituted to hear the matter de novo? 9.4. 5. modify the initial award or substitute its own award for the initial award. 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 arbitrator’s – should it include statements of reasons. 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. 8. findings of fact and conclusions of law? Is oral argument part of the appellate review process? On remand. Drafting Dispute Resolution Clauses.

The award of the appeal tribunal shall be final and binding. there is the JAMS optional Arbitration Appeal Procedure and the International Institute for Conflict Prevention & Resolution (CPR). Oral argument is an option provided. The record on appeal consists of the stenographic or other record of the hearings and all exhibits. all fees must be paid in full before the appeal is scheduled and once the appeal has been filed.” 2. 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 522717/C/1 27 . and judgment may be entered by a court of competent jurisdiction. In the absence of agreement the Case Manager is authorized to appoint the Appeal Panel. of course. A cross appeal meeting the same requirements must be filed within 7 days thereafter. The JAMS Optional Arbitration Appeal Procedure is included in the appendix to this paper.errors]. Under the JAMS procedure. JAMS Arbitration Appeal Procedure As for rules for guidance. 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. and. and affidavits entered into the record. the Appeal Panel consists of three neutral members unless the parties agree to a single appellate arbitrator. the award is no longer considered final for purposes of seeking judicial enforcement. 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. deposition transcripts. Disclosure requirements are similar to those disclosure requirements for any arbitration.

Cross appeals are permitted. 4. Unless the parties agree to a single appellate arbitrator. 5. Unless otherwise agreed by the parties and the appeal tribunal. 3.com/rules 3.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. 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. 1. The appeal panel consists exclusively of formal federal judges with experience in arbitration. 522717/C/1 28 . “ Commercial Arbitration at its Best lists the highlights of the appeal procedure. the panels will consist of three appellate arbitrators. 2. The arbitrators in the original proceeding are required to apply the law. 6. The procedure may be invoked whether or not the original arbitration was conducted under CPR rules. The rules can be downloaded from the following site: http://jamsadr. the appeal shall be conducted at the place of the original arbitration. Unless requested by a party. a record of the original proceedings and a written award stating findings of fact and conclusions of law. there will be no oral hearings.

It also points out that to minimize an irrational award. The appellate panel must either affirm. it bears the opponents costs related to the court proceeding. the appellate tribunal is empowered to allocate all such costs. appellant bears the entire cost of the appeal including the appellee’s legal fees and other expenses. The appeal procedure is confidential. 11. unless the panel decides otherwise. 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. 10. 12. The parties may agree on an appellate procedure as part of their original agreement or after the dispute has arisen. 9. 522717/C/1 29 . If a party appeals the decision of the appellate panel to a court and is unsuccessful. 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. modify or set aside the original award but it may not remand the case. only highly qualified arbitrators should be selected in the first place. 8. If the original award is affirmed on appeal.7. If the original award is not fully affirmed.

The question is. The cases totaled 182. While dealing with an area unrelated to construction. It should be noted that the authors reviewed every case. a member of the CPR commission stated “Even if I had Judge Cardozo on my panel. 25.” He refers to the CPR procedures in his article. Scott Donahey published in the Economic Commerce & Law Report. 120 were state court cases and 62 were federal court cases.7% of the federal cases resulting in vacatur. In the Commercial Arbitration at its Best. is the opportunity for review worth the time and expense.8 % of the state cases resulted in vacatur while 9. it is interesting to note that the concept of appellate review does have proponents in other areas. III. Interestingly enough. We all make mistakes. BNA 2001 entitled “A Proposal for an Appellate Panel for the Uniform Domain Name Dispute Resolution Policy. Their study showed that only 37 cases or 20% were vacated. state and federal published and unpublished. 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).An interesting variation is a proposal by M.” 522717/C/1 30 . 2004 in which a court decided a motion to vacate an arbitration award based the federal statutory grounds for vacatur. reported between January 1. 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. 2004 and October 31. ” which was the subject of commentary in the early portions of this paper. there might be mistakes.

unless they are being used by the parties to an arbitration as the rules for that arbitration. Upon the filing of an Appeal in accordance with (B)(i) below. 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. The Procedure for filing and arguing an Appeal is as follows: (i) If all Parties have agreed to the Optional Appeal Procedure. (B) 522717/C/1 31 . any party may Appeal an Arbitration Award that has been rendered pursuant to the applicable JAMS Arbitration Rules and has become final. 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. The Case Manager will seek the agreement of the Parties as to the selection of the Appeal Panel members. They cannot be copied.APPENDIX 1 JAMS Optional Arbitration Appeal Procedure NOTICE These rules are the copyrighted property of JAMS. (iii) The record on Appeal will consist of the stenographic or other record of the Arbitration Hearing and all exhibits. 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 Parties will cooperate with the Case Manager in compiling the record on 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. If they are being used as the rules for an arbitration. (ii) Within seven (7) calendar days of the service of the Appeal. proper attribution must be given to JAMS. unless the Parties agree that there will be one neutral member. 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. please contact JAMS at 949-224-1810. to the Case Manager and on the opposing Party(ies) within fourteen (14) calendar days after the Award has become final. 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 parties hereby agree to the following Optional Appeal Procedures: (A) The Appeal Panel will consist of three neutral members. The Appeal must be served. reprinted or used in any way without permission of JAMS. and the Case Manager will provide the record to the Appeal Panel. deposition transcripts and affidavits that had been accepted into the record of the Arbitration Hearing by the Arbitrator(s). in writing. If you wish to obtain permission to use our copyrighted materials.

unless all Parties agree otherwise. whichever is applicable or later. In the absence of agreement. will issue the decision within twenty-one (21) calendar days of the date of either oral argument. Ordinarily. (v) The Appeal Panel will conduct an oral argument if all Parties request such argument or may conduct oral argument. (E) If a Party refuses to participate in the Optional Appeal Procedure after having agreed to do so. In the absence of such election. assuming it believes that the record. including the allocation of time. the Case Manager will set the briefing schedule. reverse or modify an Award. The Appeal Panel will respect the evidentiary standard set forth in Rule 22(d) of the JAMS Comprehensive Arbitration Rules. If there is to be oral arguments. the Arbitration Award is no longer considered final for purposes of seeking judicial enforcement. after application of the appropriate standard of Appeal. including the allocation of time. only opening briefs (of no more than 25 double-spaced pages) will be allowed. the Case Manager will obtain the agreement of the Parties on a briefing schedule.(iv) The Parties may elect to rely on the memoranda or briefs previously submitted to the 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. 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. the receipt of the new evidence or receipt of the record and of all briefs. in complex cases or unusual circumstances. A three-member Appeal Panel will make its decision by majority vote and. The Panel may affirm. If no agreement is reached. 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. on its own initiative. (D) 522717/C/1 32 . absent good cause for an extension. (vi) All fees for the original arbitration must be paid in full before an appeal will be scheduled. the Appeal Panel will maintain jurisdiction over the Appeal and will consider the Appeal as if all Parties were participating. The Panel may not remand to the original Arbitrator(s). justifies such action. the Appeal Panel will set the date and duration of the oral argument. the Case Manager will obtain the agreement of the Parties on both the date of such argument and the duration. The Panel's decision will consist of a concise written explanation. modification or vacating pursuant to the applicable JAMS Arbitration Rules. (C) Once an Appeal has been timely filed. The briefs may be in the form of a letter.

Signed: Print Name: For: Dated: Signed: Print Name: For: Dated: Signed: Print Name: For: Dated: Signed: Print Name: For: Dated: 522717/C/1 33 . the Award will be final for purposes of judicial review. Upon service of the Appeal Panel decision.(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.

Unless otherwise agreed by the parties and the appeal tribunal. A similar clause can also be inserted in a postdispute arbitration agreement. and there is a record (the "Record") that includes all hearings and all evidence (including exhibits. 1. The parties to any binding arbitration conducted in the United States. 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. II. (b) 522717/C/1 34 . 1.1. 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"). consisting of former Federal judges. admitted into evidence) in the arbitration proceeding from which the appeal is taken. RULES OF PROCEDURE A.APPENDIX 2 CPR Arbitration Appeal Procedure (1999) CPR Institute for Dispute Resolution I. General and Introductory Rules Scope of Application Rule 1. etc. pursuant to CPR Rules or otherwise. the appeal shall be conducted at the place of the original arbitration. deposition transcripts. affidavits. 1. 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.3 No appeal may be filed hereunder. 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. The appeal provision should in most circumstances appear in the basic agreement between the parties.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").

the Original Award shall not be considered final for purposes of seeking judicial confirmation. If the Tribunal does not affirm the Original Award. it shall be deemed final as of the date of the Tribunal's affirmance. the Original Award shall be deemed final as of the date of such withdrawal. vacation or modification. 2000) (the "CPR Arbitration Rules") shall apply to all proceedings pursuant to these Rules. in lieu of the Original Award.2 hereof. If the Appeal is withdrawn for any reason (other than a settlement). 522717/C/1 35 . enforce. given within thirty days of the date on which the Original Award was received but the parties. The notice shall set forth the agreement in writing providing for the appeal.4 By agreeing to become a party to an Appeal under these Rules.Rule 2. 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. enforcement. each party may request the Tribunal to affirm. The appellee shall transmit any portion of the Record deemed relevant by the appellee that was not transmitted by the appellant. its award on appeal (the "Appellate Award") shall be deemed the final award in the arbitration. and (b) agrees that any statutory time period for the commencement of court actions to confirm.1 An Appeal shall be commenced by written notice to the opposing party(ies) and to CPR (attention: Panel Management Group). unless the parties agree on a different period. 2. Notices The provisions of Rule 2 of the CPR Rules for Non-Administered Arbitration (Rev.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. If the Tribunal affirms the Original Award. vacate or modify the Original Award on any of the grounds specified in Rule 8.3 Once an Appeal has been timely filed. enforce. each party (a) irrevocably waives the right to initiate court action to seek to confirm. 2. Subject to these Rules of Procedure. vacate or modify the Original Award until the appeal process has been completed. Rule 3. 2. The notice shall state the elements of the Original Award that are being appealed and the basis for the Appeal. 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. Commencement of Appeal 2.

The appellee(s) shall be allowed one brief. Rule 6. Rules with Respect to the Conduct of the Appeal General Provisions Rule 7. the parties shall submit the list to CPR within an additional five days.2 of the CPR Arbitration Rules shall apply to the conduct of any appeal under these Rules. The parties shall attempt to agree on the required number of candidates from the list. except that an appellee who is also a cross-appellant shall be allowed two briefs. unless the parties agree that it shall consist of one Panel member. 4. but shall be equal in voting and all other respects. 7. 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. The list shall be accompanied by each candidate's biographic information and compensation rate.B. Rule 5.3 If the Tribunal is composed of three members. which shall also break any tie. the required number of candidates receiving the lowest combined score shall be chosen by CPR. They shall promptly inform CPR of any candidates on whom they have agreed. rank ordering the candidates on whom they did not agree. Rules with Respect to The Tribunal Selection of Appeal Tribunal Rule 4. 4. Briefs or memoranda previously submitted may be used. 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. 4.1 and 9. The Chair shall be responsible for the expeditious conduct of the proceedings and for administrative matters. challenges to and replacement of members of Tribunals selected pursuant to these Rules. Qualifications. Thereupon. The Chair shall request the parties to agree on a briefing 522717/C/1 36 . Failing complete agreement within ten days.2 The appellant(s) shall be allowed one opening brief and one response brief.1 The Tribunal shall consist of three members of the Panel. 7.1 Rules 9. Challenges and Replacement of Arbitrator Rule 7 of the CPR Arbitration Rules shall apply to the qualifications of.2 After CPR has received the notice of appeal and any notice of cross-appeal. C. 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. they shall select one of their number as the chair (the "Chair").

or so imperfectly executed them that a mutual.4 Oral argument shall be held at the request of a party or if the Tribunal sees a need therefor. or any of them.1 If the Tribunal finds that it does not have appellate jurisdiction. b. the Tribunal may take evidence supporting and rebutting such an allegation. or in refusing to hear evidence pertinent and material to the controversy. Where the arbitrators exceeded their powers.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. fraud or undue means. upon sufficient cause show. it shall forthwith dismiss the Appeal and the Original Award will thereupon be final. The Tribunal does not have the power to remand the award. Rule 8. 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. 8. or (ii) is based upon factual findings clearly unsupported by the record. final. 2. or of any other misbehavior by which the rights of any party have been prejudiced. The Decision 8. The Tribunal shall set the date. Failing prompt agreement. 3. 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.schedule. These grounds are the following: 1. Where the arbitrators were guilty of misconduct in refusing to postpone the hearing. Where there was evident partiality or corruption in the arbitrators. it may issue an Appellate Award modifying or setting aside the Original Award. and definite award upon the subject matter submitted was not made. the Chair shall set the schedule. 522717/C/1 37 . duration and place for oral argument in consultation with the parties. 4. The Tribunal may request the parties to submit such further briefs or other materials as it may deem appropriate. Whether the award was procured by corruption.2 If the Tribunal hears the Appeal. 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. 7. but only on the following grounds: a. 7.

shall be final upon receipt by the parties. The decision shall be set forth in an Appellate Award in writing and shall include a concise written explanation. the Tribunal may suspend or terminate the proceedings. After the Appellate Award has been rendered.8. including authority to make an Appellate Award.3 If the Tribunal does not modify or set aside the Original Award pursuant to Rule 8. it shall issue an Appellate Award approving the Original Award and the Original Award shall be final as provided in Rule 8. If the requested deposits are not paid in full within twenty days after receipt of the request. and (b) the appellee's attorney fees and 522717/C/1 38 . Rule 12. unless all parties agree otherwise. the Tribunal shall maintain jurisdiction over the Appeal. the Tribunal shall return any unexpended balance from deposits made to the parties.5 If a party refuses to participate in an Appeal after having agreed to do so. Miscellaneous Rules Use of Best Efforts to Avoid Delay Rule 9. Rule 11. the Tribunal may so inform the parties in order that jointly or severally they may make the required payment. 8. 8. 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. A member who does not join the decision may file a dissenting opinion. 8. 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 10.2 above. 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. D. the appellant(s) shall promptly reimburse the appellee(s) (a) the share of the costs of the Appeal theretofore expended by the appellee(s). The Appellate Award or the Original Award.6 below. Distribution of Costs In the event that the Tribunal fully affirms the Original Award.4 A three member Tribunal shall make its decision by majority vote.6 The Chair shall cause the Tribunal's Appellate Award and any dissenting opinion to be mailed to the parties. which shall not constitute part of the Appellate Award. as the case may be. If such payment is not made.

that party(ies) shall promptly reimburse the opposing party(ies) legal fees and other out-ofpocket expenses incurred in connection with the judicial review. 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. unless the Tribunal orders otherwise. Rule 14. Rule 13. 522717/C/1 39 . except in connection with a judicial challenge to. including the Record. Rule 15.other out-of-pocket expenses related to the Appeal. the Original Award and the Appellate Award. Costs with Respect to Judicial Appeal If following an Appellate Award. 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. and unless otherwise required by law. that does not result in the vacation or substantial modification of the Original Award or the Appellate Award handed down by the Tribunal. except for wilful misconduct. Confidentiality The parties and the arbitrators shall treat the proceedings. If the Tribunal modifies or reverses the Original Award. a party(ies) seeks judicial review (or opposes confirmation). or enforcement of. the Tribunal may apportion the parties' costs of the Appeal. and the decision of the Tribunal as confidential.

FAILURE TO DISCLOSE AS A BASIS FOR VACATING AN AWARD 522717/C/1 40 .IV.

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. and any grounds for disqualification provided by applicable law. if it deems it appropriate to do so. however. 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. which decision shall be conclusive. and shall be subject to disqualification for (i) (ii) (iii) partiality or lack of independence. or on its own initiative. that arbitrators directly appointed by a party pursuant to Section R-13 shall be non-neutral. 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. (b) (c) (b) Upon objection of a party to the continued service of an arbitrator. The parties may agree in writing. In order to encourage disclosure by arbitrators. inability or refusal to perform his or her duties with diligence and in good faith. 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.AMERICAN ARBITRATION ASSOCIATION Construction Industry Arbitration Rules and Mediation Procedures July 1. Such obligation shall remain in effect throughout the arbitration. the AAA shall communicate the information to the parties and. to the arbitrator and others. Upon receipt of such information from the arbitrator or another source. in which case such arbitrators need not be impartial or independent and shall not be subject to disqualification for partiality or lack of independence. and shall inform the parties of its decision. the AAA shall determine whether the arbitrator should be disqualified under the grounds set out above. 522717/C/1 41 .

AN ARBITRATOR SHOULD DISCLOSE ANY INTEREST OR RELATIONSHIP LIKELY TO AFFECT IMPARTIALITY OR WHICH MIGHT CREATE AN APPEARANCE OF PARTIALITY. 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. each should inform the others of all matters disclosed. as soon as practicable. or by law. partners. applicable rules or practices of an institution. disclose: (1) (2) Any known direct or indirect financial or personal interest in the outcome of the arbitration. relationships. Any doubt as to whether or not disclosure is to be made should be resolved in favor of disclosure. For example. prospective arbitrators should disclose any such relationships which they personally have with any party or its lawyer. or which are recalled or discovered. or with any individual whom they have been told will be a witness. professional or personal relationships which might reasonably affect impartiality or lack of independence in the eyes of any of the parties. E. Any known existing or past financial. or professional or business associates that can be ascertained by reasonable efforts. the rules or practices of an institution. or applicable law regulating arbitrator disclosure. Persons who are requested to serve as arbitrators should. They should also disclose any such relationships involving their families or household members or their current employers. The nature and extent of any prior knowledge they may have of the dispute. Where more than one arbitrator has been appointed. with any co-arbitrator. Disclosure should be made to all parties unless other procedures for disclosure are provided in the agreement of the parties. 522717/C/1 42 . or interests which they are obligated to disclose by the agreement of the parties. C. at any stage of the arbitration. before accepting. (3) (4) B. any such interests or relationships which may arise. business. and Any other matters. A. 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. D.AAA CODE OF ETHICS IN COMMERCIAL DISPUTES 2003 REGARDING DISCLOSURE CANON II.

the arbitrator should withdraw unless either of the following circumstances exists: (1) An agreement of the parties. nevertheless desire that person to serve as an arbitrator. 522717/C/1 43 . 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. if the arbitrator. the arbitrator must do so. If an arbitrator is requested to withdraw by less than all of the parties because of alleged partiality. or arbitration rules agreed to by the parties. with knowledge of a person's interests and relationships. in which case those procedures should be followed. after carefully considering the matter. or Withdraw. (2) H. or applicable law establishes procedures for determining challenges to arbitrators. G. If an arbitrator is requested by all parties to withdraw. or In the absence of applicable procedures. determines that the reason for the challenge is not substantial.F. that person may properly serve. If compliance by a prospective arbitrator with any provision of this Code would require disclosure of confidential or privileged information. and that he or she can nevertheless act and decide the case impartially and fairly. When parties.

counsel. verbal disclosures are deemed to be insufficient to properly communicate disclosed information. be situations in which the AAA would remove an arbitrator from a pending case and declare the office vacant.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. however. Generally. 522717/C/1 44 . witnesses or parties to an arbitration. Arbitrators should always reduce disclosures to writing even if the information is initially conveyed verbally. There may. 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 Association’s Roster of Neutrals. Inactive Status means not being proposed for the parties’ consideration on new cases and will likely have no impact on the arbitrator’s status on pending cases.

The Seventh Circuit held that even if this disclosure was insufficient. this would not have been implied ‘evident partiality. despite the fact that there was a 25 year gap between the end of the relationship and the arbitration. All American Life Insurance Company.3d 617 (7th Cir. In Positive Software Solutions. prior to retiring from his law firm. “even if [the arbitrator] had been the umpire. The Court stated that the 20 year relationship was “not so trivial as to preclude disclosure” even with the time gap. In Seigelman v.2d 403 (2003). Inc. LEXIS 1090 (5th Cir. the Supreme Court of New York vacated an arbitration award based on the arbitrator’s failure to disclose that he had a long-term relationship with Allstate. one of Home’s attorneys and their wives. The evident partiality is demonstrated from the nondisclosure.3d 640. 522717/C/1 45 .. and that Nationwide failed to show that these disclosures showed evident impartiality or that they were powerfully suggestive of bias. In Nationwide Mutual Insurance Company v. regardless of whether actual bias is established. To support this accusation. The Sixth Circuit held that the arbitrator had sufficiently disclosed his business dealings with the subsidiary. the Fifth Circuit held that. the Court stated. “an arbitrator selected by the parties displays evident partiality by the very failure to disclose facts that might create a reasonable impression of the arbitrator’s partiality. In fact. and Nationwide appealed the award on grounds of evident partiality. 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. 756 N. Allstate Insurance Company. 429 F. following arbitrator’s award All American was displeased with the result and asserted that the arbitrator had displayed evident partiality. App.” (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).A BRIEF REVIEW OF SOME RELEVANT CASES In Sphere Drake Insurance Limited v. including business dealings with a subsidiary of the defendant and a birthday dinner including arbitrator.S. 2002). In addition.’ Indeed. 2006 U.S. This allegation was based on the fact that the arbitrator had. and the scope of disqualification under §10(a)(2) is considerably more confined than the rule applicable to judges. v. [the arbitrator] could have served as a federal judge in this case without a challenge on grounds of partiality. Home Insurance Company. Nationwide and Home engaged in arbitration to resolve whether or not Home had breached a reinsurance contract. been engaged by a Bermuda subsidiary of Sphere Drake as counsel on an unrelated matter. 307 F. New Century Mortgage Corp. The arbitrator sided for Homes. January 11. the court affirmed the district court’s determination that the arbitrator’s social engagements did not constitute improper or prohibited ex parte contracts. 2006).Y. All American still could not show evident partiality. Nationwide pointed to the nondisclosure of business and social relationships.

Montez then discovered that one of the three arbitrators on the panel had worked with Prudential’s attorneys through his previous employer and appealed to vacate the award under section 10(a)(2) of the FAA alleging evident partiality. In arbitration. which became due with interest if Montez were terminated. 260 F. Inc. Most importantly.. 4th 830. Had the arbitrator timely disclosed. including having previously been married to a relative of a named partner of the firm. Fidelity asserted “evident partiality” because one of the three arbitrators on the panel had personal connections to Durga Ma’s attorneys. The Eighth Circuit affirmed the district court’s determination that evident partiality could not be found because the arbitrator did not have any financial interest related to Prudential’s attorneys. (2005). The Court went on to state. Prudential Securities. explaining that the waiver doctrine applied because Fidelity was put on constructive notice and failed to raise an objection before the award. In the arbitration of a dispute stemming from a joint venture to create motion pictures. The Ninth Circuit affirmed the district court decision upholding the award. 133 Csl.In Montez v. he may have been disqualified. affirmed orders vacating the arbitration award and denied reconsideration.3d 1306 (9th Cir. Fidelity sought to vacate the award after arbitration of a breach of contract dispute between the parties. Montez was given a loan by his then employer Prudential Securities. Durga Ma Corporation. 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. the Court of Appeals of California. 522717/C/1 46 . Second Appellate District Division Four. In Fidelity Federal Bank v. Ovitz v. Schulman. App. the award called for Montez to repay the loan. “there is no charge or evidence of actual bias and no indication that the arbitration award was anything but fair. a few months later Montez was fired for an alleged misrepresentation on his employment application. 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. Inc.3d 980 (8th Circuit 2001). 2004). 386 F. the arbitrator’s relationship with Prudential’s attorneys had ended five years earlier. he was not a major shareholder of his prior employer and had no reason to foster a relationship between it and Prudential.” In 2005.

Ms. He was the 2004 recipient of the ABA Forum on Construction Cornerstone Award. Ms. During her undergraduate studies. Illinois. He is also a member of Lambda Alpha Honorary Real Estate Society. negotiated plea agreements and counseled witnesses. Sklar is a Mediator and Arbitrator for the American Arbitration Association and a member of its National Training Faculty for Commercial and Construction Arbitrators. Levy worked as an intern for the Illinois Office of the Governor in the Department of Corrections at the Illinois Youth Center in Warrenville. Complex Commercial and Construction cases. the national political science honor society. corrected flaws in the facility’s records to comply with the American Correctional Association’s Standardization and Accreditation Standards. Prior to law school. She received her Juris Doctor magna cum laude from the University of Illinois College of Law. Levy is an associate in the Real Estate Department of Bell.V. Melissa L. drafted case briefs. Levy was a law clerk in the Department of Consumer Services of the City of Chicago. Illinois. as well as being a panelist for its Large. Boyd & Lloyd LLC in Chicago. He is a past president of the Society for Illinois Construction Attorneys. Levy received her Bachelor of Arts in political science from the University of Illinois at Urbana-Champaign. an elected member of the American College of Real Estate Lawyers and the College of Commercial Arbitrators. where she investigated the validity of compliance affidavits. and processed documentation pertinent to the incarceration of juvenile offenders. she was inducted to Pi Sigma Alpha. where he currently serves on its Board of Directors. He is a Founding Fellow and past president of the American College of Construction Lawyers. BIOGRAPHIES Stanley P. Boyd & Lloyd LLC. Mr. where he concentrates in Construction Law and Alternative Dispute Resolution methods. 522717/C/1 47 . Sklar also serves on the AAA National Construction Resolution Dispute Committee and is a member of the CPR Construction Arbitrator Panel. Ms. She assisted with the implementation of a competency-based performance auditing initiative. Mr. During law school. Sklar is a Senior Member of Bell.