Opinion
No. 65365-2-I.
Filed: April 11, 2011.
Appeal from a judgment of the Superior Court for King County, No. 10-2-09609-4, Paris K. Kallas, J., entered April 30, 2010.
Affirmed by unpublished opinion per Cox, J., concurred in by Grosse and Spearman, JJ.
Vulcan, Inc., Vulcan Capital Private Equity, Inc., and VCPE Orange II, LLC (collectively "Vulcan"), appeal the trial court judgment confirming final arbitration awards. The awards were in favor of former employees, David Capobianco and Navin Thukkaram (collectively "the claimants"). Vulcan fails in its burden to show that vacatur is warranted under section 10 of the Federal Arbitration Act (FAA). Specifically, it fails to show evident partiality of an arbitrator, misconduct, or that the arbitrators exceeded their powers. There is no evidence that the trial court judge reviewing these claims applied the wrong standards of review. We affirm.
9 U.S.C. § 10(a)(2)-(4).
The claimants were at-will employees of Vulcan's private equity group from March/April and May 2003, respectively, until their termination. Paul G. Allen, a prominent Seattle businessman, is the principal of Vulcan.
The parties negotiated and executed three profit sharing agreements governing the claimants' compensation. These agreements include the Operating Agreement of Vulcan Capital Private Equity Management I LLC (PE I Agreement), the Operating Agreement of Vulcan Private Equity Management II LLC (PE II Agreement), and the Vulcan Energy Corporation Incentive Compensation Program (VEC Agreement). For the purposes of this appeal, the parties agree that only the provisions of the VEC agreement are at issue. This agreement provides each of the private equity group investment managers with a specified share of the profits earned from the investments they managed. It also contains an arbitration provision.
"Any dispute, controversy or claim of any kind arising out of, relating to or in connection with, this Plan Document or the breach, termination or validity thereof (each, a "Dispute") shall be finally and exclusively settled by arbitration conducted in Seattle, Washington in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") then in effect (the "Rules").
The arbitration shall be conducted before a tribunal composed of three arbitrators. [Vulcan] shall appoint one arbitrator, and all Participants who are parties to the arbitration shall collectively appoint one arbitrator. . . . The two arbitrators so appointed shall jointly appoint the third arbitrator. . . . The third arbitrator shall serve as the chairperson of the tribunal. " (emphasis added) Clerk's Papers at 183.
On October 24, 2008, Vulcan fired the claimants along with all other members of Vulcan's private equity team. Vulcan simultaneously rehired four of the team members and executed a new compensation agreement with them. The claimants were not rehired.
The claimants demanded arbitration based on the arbitration provision in the profit sharing agreements. They claimed, among other things, that Vulcan breached the VEC agreement.
Thereafter, the parties negotiated and signed an Arbitration Protocol dated January 22, 2009, which set forth further detailed terms and conditions for the arbitration. It appears their respective counsel negotiated the terms and conditions of the protocol. Counsel also executed the protocol on behalf of their respective clients. The claimants were represented by Yarmuth Wilsdon Calfo PLLC. Vulcan was represented by Byrnes Keller Cromwell LLP.
Pursuant to the protocol, the claimants appointed Arthur Harrigan as their party appointed arbitrator. Vulcan appointed Judge Robert Alsdorf (ret.), formerly of the King County Superior Court, as its party appointed arbitrator. These two arbitrators appointed James Smith as the chairperson of the tripartite arbitration panel.
The panel conducted an arbitration hearing from June 22 to 25, 2009. It then made a 21-page unanimous, reasoned arbitration award. The award concluded that Vulcan had breached the VEC agreement and the covenant of good faith and fair dealing. The panel further awarded the claimants substantial damages and attorney fees and costs, subject to submission of billings and fee applications to support these latter two amounts.
The claimants submitted their fee and costs application supported by invoices from Harrigan and Yarmuth Wilsdon. Based on certain information in these submissions, Vulcan moved to disqualify Harrigan from continued participation in the arbitration.
In conformity with the arbitration protocol and the American Arbitration Association (AAA) Rule 17(a), Judge Terry Lukens (ret.), a former judge of the King County Superior Court, heard the disqualification motion, as the parties had expressly agreed in the protocol. Following oral and written submissions and arguments by the parties, he issued a five page, reasoned decision. He concluded that Vulcan failed in its burden to show conduct requiring the disqualification of Harrigan.
The full arbitration panel then issued its final arbitration award, including attorney fees and costs. The claimants moved to confirm this award and Judge Lukens' award in King County Superior Court. Vulcan moved to vacate the arbitration award under section 10 of the Federal Arbitration Act (FAA). It claimed that Harrigan exhibited evident partiality, engaged in misconduct, and that the arbitration panel exceeded its powers. The superior court granted the motion to confirm and denied the motion to vacate. Entry of final judgment followed.
Vulcan appeals.
VACATUR UNDER FEDERAL ARBITRATION ACT § 10
As a threshold matter, Vulcan argues that the trial court applied an incorrect standard of review to its claim of evident partiality and arbitrator misconduct. Vulcan also argues that the trial court erred in denying its motion to vacate the arbitration award because Harrigan's pre-appointment contacts with the claimants and their attorney demonstrate evident partiality and misconduct. Finally, Vulcan argues that the panel exceeded its powers by failing to follow the applicable law. None of these arguments are persuasive.
The FAA, which the parties agree controls, expressly states that "the court must grant [an order confirming the award] unless the award is vacated, modified, or corrected as prescribed in section 10" of the FAA. Section 10 of the FAA states limited bases to vacate an arbitration award:
See 9 U.S.C. § 9 (emphasis added); Hall Street Assoc., LLC v. Mattel Inc., 552 U.S. 576, 587, 128 S. Ct. 1396, 170 L. Ed. 2d 254 (2008).
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers , or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
9 U.S.C. § 10(a) (emphasis added).
There is no dispute that only the last three subdivisions of section 10 are at issue in this appeal.
This court reviews de novo a trial court's decision to confirm or vacate an arbitration award. However, while review of the confirmation of an arbitration award is de novo, we apply the same standard as the trial court to determine whether the award should have been confirmed. The effect is to make judicial review of an arbitration award exceedingly narrow. Vacatur is available only for the limited reasons outlined in section 10 of the FAA.
Fidelity Fed. Bank, FSB v. Durga Ma Corp., 386 F.3d 1306, 1311 (9th Cir. 2004).
See Am. Laser Vision, P.A. v. Laser Vision Inst., LLC, 487 F.3d 255, 258 (5th Cir. 2007), overruled on other grounds by Hall, 552 U.S. 576.
Positive Software Solutions, Inc., v. New Century Mortgage Corp., 476 F.3d 278, 280 (5th Cir. 2007); Lattimer-Stevens Co. v. United Steelworkers of Am., 913 F.2d 1166, 1169 (6th Cir. 1990).
Hall, 552 U.S. at 584.
Standard of Review
We first address Vulcan's threshold argument that the trial court applied incorrect standards of review to the motion to vacate the arbitration award for evident partiality and arbitrator misconduct. This claim arises out of the parties' disagreement over how to characterize Judge Lukens' decision on arbitrator disqualification. But characterization of the decision is not dispositive.
The arbitration protocol stated that the arbitration would be conducted according to the AAA Rules, but without the involvement of the AAA. The protocol also stated that the "terms of [the] Protocol shall govern in lieu of the Rules in those situations where there is an inconsistency between them." The protocol also stated that several of the AAA Rules would not apply and provided alternate terms.
Clerk's Papers at 62.
The protocol states:
Rules 17(b) and 19(a) and (b) shall not apply. Instead:
A. In the event that a Party seeks to disqualify an arbitrator for one of the reasons set forth in Rule 17(a), the Parties agree that a neutral third party shall determine whether the challenged arbitrator shall be disqualified. The neutral third party's determination on the issue shall be final. The neutral third Party shall be the Honorable Terry Lukens (ret.); if Judge Lukens is unavailable, the neutral third Party shall be the Honorable George Finkle (ret.).
Clerk's Paper at 63 (emphasis added).
AAA Rule 17(a) provides, in relevant part:
Any arbitrator shall be impartial and independent and shall perform his or her duties with diligence and in good faith, and shall be subject to disqualification for
(i) partiality or lack of independence.
AAA Commercial Arbitration Rule 17(a)(i), available at http://www.adr.org/sp.asp?id=22440 printable=true.
The arbitration protocol plainly requires that Judge Lukens decide arbitrator disqualification under AAA Rule 17(a). Vulcan argues here, as it did below, that the proceeding before him was "an interlocutory decision on a procedural matter, collateral to but rendered within the [main] arbitration" proceeding. Thus, Vulcan argues, his decision should have been reviewed de novo by the superior court.
Appellants' Opening Brief at 26.
First, Vulcan makes this argument without any citation to relevant authority. We assume that it has found none.
See State v. Young, 89 Wn.2d 613, 625, 574 P.2d 1171 (1978).
Second, and more importantly, the superior court first concluded that the proceeding was an arbitration that was subject to the same deferential review standard as any other arbitration award. We agree with, and adopt as our own, the superior court's reasoning on this point:
From the outset, the parties treated the proceeding as an arbitration. In the Arbitration Protocol, the parties agreed that a challenge to arbitrator impartiality under AAA Rule 17(a) would be decided by Judge Lukens and that his decision would be final. . . . And once invoked, the proceeding was treated as an arbitration. The parties submitted nearly 50 pages of briefing, over 300 exhibits, and Judge Lukens heard oral argument on the matter.
Likewise, Judge Lukens described the proceedings as an arbitration and described himself as the arbitrator. Judge Lukens sent the parties a notice entitled Commencement of Arbitration and Notice of Appointment of Arbitrator. The notice "confirms the appointment of Hon. Terry Lukens (Ret.) as the arbitrator" and further confirms that "this arbitration shall be conducted in accordance with the AAA Commercial Arbitration Rules." And in his five-page reasoned decision, Judge Lukens describes the proceedings as an arbitration. . . .
For these reasons, the record plainly reveals that the parties and Judge Lukens treated the proceeding as an arbitration.
Clerk's Papers at 580-81.
Accordingly, the same deferential review standard that applies to the arbitration panel also applies to Judge Lukens' award.
Applying that standard, the superior court granted the motion to confirm the award by Judge Lukens because Vulcan did not argue any of the grounds for vacatur provided under section 10 of the FAA. This ruling was correct.
"Respondents do not argue that Judge Lukens, the arbitrator of the Disqualification Decision, exhibited corruption, fraud, or any of the other statutory grounds for vacating an arbitrator's decision under section 10." Clerk's Papers at 581-82.
Third, the superior court also assumed, for the sake of argument, that the de novo standard applied and then applied that standard. The court rejected Vulcan's claims on this additional basis. These rulings were also correct.
"As indicated above, this court concludes that judicial review of the Disqualification Decision is limited to the deferential standard imposed by Section 10. Assuming solely for the sake of argument, however, that the independent standard applies, the court also rejects Respondents' challenges to the Disqualification Decision." Clerk's Papers at 583.
Vulcan now argues that the superior court "abdicated its statutory duty to independently assess the impartiality of the arbitrator and ignored the record evidence." As we have just discussed, this assertion directly conflicts with the record. Accordingly, we reject it and will not address it any further.
Appellants' Opening Brief at 2.
Evident Partiality — § 10(a)(2)
Vulcan next argues that the trial court erred in denying its motion to vacate the arbitration award for evident partiality. We disagree.
Under section 10(a)(2) of the FAA, a reviewing court should vacate an arbitration award if the arbitrators acted with evident partiality. "The party challenging the arbitration decision has the burden of showing partiality."
Woods v. Saturn Distrib. Corp., 78 F.3d 424, 427 (9th Cir. 1996).
"Evident partiality" may exist where there is actual bias on the part of the arbitrator or where undisclosed facts "might create an impression of possible bias." In cases of actual bias, the mere appearance of impropriety is not sufficient to warrant vacatur. Rather, the party alleging evident partiality must establish specific facts that indicate improper motives on the part of the arbitrator.
Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S. 145, 147-49, 89 S. Ct. 337, 21 L. Ed. 2d 301 (1968).
Woods, 78 F.3d at 427 (citing Sheet Metal Workers Int'l Ass'n Local Union No. 420 v. Kinney Air Conditioning Co., 756 F.2d 742, 746 (9th Cir. 1985)); see also Toyota of Berkeley v. Automobile Salesmen's Union, 834 F.2d 751, 755-56 (9th Cir. 1987).
Woods, 78 F.3d at 427.
In cases where an arbitrator fails to disclose relevant facts, on the other hand, vacatur is appropriate if the non-disclosure gives the impression of bias in favor of one party. "A reasonable impression of bias sufficiently establishes evident partiality because the integrity of the process by which arbitrators are chosen is at issue in nondisclosure cases." But a "reasonable impression" means something different in a nondisclosure case than it means in an actual bias case.
Commonwealth Coatings, 393 U.S. at 149.
Woods, 78 F.3d at 427 (citing Schmitz v. Zilveti, 20 F.3d 1043, 1047 (9th Cir. 1994)).
Id.
The standard that applies to nondisclosure cases has been subject to much debate, with a split in the federal circuit courts of appeal over the appropriate interpretation of Commonwealth Coatings Corp. v. Continental Casualty Co., the Supreme Court case on which it is based. In that case, the plurality opinion authored by Justice Black stated that arbitrators must "disclose to the parties any dealings that might create an impression of possible bias." However, in his concurrence, Justice White stated that non-disclosure of "trivial" or "remote" relationships is generally insufficient to demonstrate a reasonable impression of partiality. Because the vote of either Justice White or Justice Marshall, the other concurring justice, was necessary to create a majority, courts have given Justice White's concurrence particular weight.
393 U.S. 145, 89 S. Ct. 337, 21 L. Ed. 2d 301 (1968).
Positive Software Solutions, 476 F.3d at 281-84 (discussing circuit split).
Commonwealth Coatings, 393 U.S. at 149.
Id. at 150-51 (White, J., concurring).
ANR Coal Co., Inc. v. Cogentrix of N.C., Inc., 173 F.3d 493, 499 n. 3 (4th Cir. 1999).
Several circuit courts have concluded that nondisclosure does not require vacatur of an arbitral award unless the undisclosed facts are significant or demonstrate an improper connection between the arbitrator and one of the parties. However, the Ninth Circuit Court of Appeals has concluded that Commonwealth Coatings mandates vacatur where the undisclosed facts create a "reasonable impression of bias" in significantly broader circumstances, including where the arbitrator was unaware of the relationship or the relationship was fairly tenuous.
Positive Software Solutions, 476 F.3d at 282-83 (citing Nationwide Mut. Ins. Co. v. Home Ins. Co., 429 F.3d 640, 644 n. 5 (6th Cir. 2005) ("[A] majority of the Court did not endorse the 'appearance of bias' standard set forth in the plurality opinion"); ANR Coal, 173 F.3d at 499-500 n. 3 (noting that courts have given Justice White's "concurrence particular weight" and holding that "an arbitrator's failure to reveal facts may be relevant in determining evident partiality under 9 U.S.C. § 10(a)(2), but that mere nondisclosure does not in itself justify vacatur"); Morelite Constr. Corp. v. N.Y. City Dist. Council Carpenters Benefit Funds, 748 F.2d 79, 83 n. 3 (2d Cir. 1984) ("Because the two opinions are impossible to reconcile, however, we must narrow the holding to that subscribed to by both Justices White and Black"); Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673, 681 (7th Cir. 1983) (noting that Commonwealth Coatings "provides little guidance because of the inability of a majority of Justices to agree on anything but the result"); cf. Univ. Commons-Urbana, Ltd. v. Universal Constructors, Inc., 304 F.3d 1331, 1339-40 (11th Cir. 2002) (citing Justice White's Commonwealth Coatings opinion and permitting vacatur only if facts creating "a reasonable impression of partiality" are not disclosed); Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co., 991 F.2d 141, 146 (4th Cir. 1993) ("It is well established that a mere appearance of bias is insufficient to demonstrate evident partiality. Arbitrators are not held to the same ethical standards required of Article III judges. . . ." (citations omitted)); Ormsbee Dev. Co. v. Grace, 668 F.2d 1140, 1147, 1150-51 (10th Cir. 1982) (citing Justice White's Commonwealth Coatings opinion and requiring "clear evidence of impropriety" for vacatur).
Schmitz, 20 F.3d at 1046-48 (vacating arbitration award where the arbitrator was not aware of the potential conflict, but had failed to undertake due diligence to ascertain and then disclose the potential conflict to the parties).
To the extent that Vulcan claims actual bias by Harrigan, it fails to point to any specific evidence of any motive for or other indicia of such bias. In cases alleging actual bias, "the integrity of the arbitrators' decision is directly at issue." "Therefore, the party alleging evident partiality 'must establish specific facts which indicate improper motives.'" No such motive is present here.
Id. at 1047.
Woods, 78 F.3d at 427 (quoting Kinney Air Conditioning Co., 756 F.2d at 746).
Rather, Vulcan claims pre-appointment arbitrator misconduct and evident partiality due to Harrigan's non-disclosure of pre-appointment contacts with claimants and their counsel. Vulcan characterizes both claims under the same general heading as "Extensive, Substantive, Undisclosed and Ex Parte Communications." The question is whether Vulcan has met its burden to either show misconduct or show that the non-disclosures create a reasonable impression of bias sufficient to demonstrate evident partiality of Harrigan.
Appellants' Opening Brief at 28.
We first consider the evident partiality claim. Vulcan claims that Harrigan's invoice dated January 7, 2009, is evidence of improper ex parte contact with the claimants. Specifically, it claims the invoice shows discussions about the merits of the dispute to be arbitrated.
Clerk's Papers at 200.
That invoice reads:
FOR LEGAL SERVICES:
11/25/08 HOURS AWH Interview with R. Yarmuth 1.70 1,037.00 12/03/08 AWH Review draft demand again; meet with R. 1.80 1,098.00 Yarmuth and parties to discuss overview, potential neutral arbitrator and timing/scheduling issues 12/04/08 AWH Read draft demand and begin contract review; 1.60 976.00 note questions for clarification of facts 12/05/08 AWH Telephone conference with R. Yarmuth with .40 244.00 questions re background facts Vulcan also points to partially redacted invoices from claimants' counsel covering the same dates as Harrigan's invoice as further proof of the alleged improper contacts. These invoices state the following with respect to the dates in question: Hours 11/25/2008 RCY Meeting with potential arbitrators, 4.20 1,890.00 [redacted], [redacted], and [redacted]; work on case organization and strategy. 11/25/2008 MAC Revise arbitration demand; research re: 4.50 1,395.00 same; conference with R. Yarmuth. 11/25/2008 MWM Prepare .ost file for conversion and .pst 0.80 100.00 files for document review. 12/03/2008 RCY Meeting with David and Navin re: 3.40 1,530.00 demand and pending issues; conferences with M. Carvalho re: pending issues. 12/03/2008 JG Legal research and analysis re: potential 2.70 837.00 causes of action; draft email memo re: same. 12/03/2008 MAC Confer with R. Yarmuth; revise 7.60 2,356.00 arbitration demand; conference with clients. 12/03/2008 MWM Conversion of .ost file and delivery to 1.80 225.00 client for review; review and analysis of client e-mail files. 12/04/2008 RCY Work on finalizing demand. 1.40 630.00 12/04/2008 MAC Revise arbitration demand; confer with J. 5.20 1,612.00 Gross re: research; read cases re: potential additional claims; confer with R. Yarmuth; email correspondence. 12/05/2008 RCY Telephone conference with A. Harrigan; 1.40 630.00 review and revise demand; review revisions with clients. Vulcan argues that the invoice notations prove that Harrigan "transgressed appropriate boundaries, delving well into the merits of the case." Vulcan relies on AAA Rules 18, 31, and the AAA Code of Ethics to support this argument.AAA Rule 18(a) provides:
No party and no one acting on behalf of any party shall communicate ex parte with an arbitrator or a candidate for arbitrator concerning the arbitration, except that a party, or someone acting on behalf of a party, may communicate ex parte with a candidate for direct appointment pursuant to Section R-12 in order to advise the candidate of the general nature of the controversy and of the anticipated proceedings and to discuss the candidate's qualifications, availability, or independence in relation to the parties or to discuss the suitability of candidates for selection as a third arbitrator where the parties or party-designated arbitrators are to participate in that selection.
AAA Commercial Arbitration Rule 18(a), available at http://www.adr.org/sp.asp?id=22440 printable=true (emphasis added).
The plain words of this rule permit ex parte contacts between an arbitrator candidate and a party under limited circumstances. Vulcan claims that Harrigan's invoice shows that his discussions with claimants and their counsel fell outside the limits specified by this rule. Specifically, it claims that he met with them for three hours and that Harrigan learned about the merits of the dispute by "repeatedly reviewing drafts" of claimants' arbitration demand while their counsel was revising the demand. It also claims that Harrigan discussed work product with claimants and their counsel. Vulcan points to the December 4, 2008, time entry "not[ing] questions for clarification of facts" as evidence of analysis of contract issues, contrary to the prohibition against discussing the merits.
We first note that Rule 18(a) does not impose any time limit on the permissible scope of discussions between an arbitrator candidate and a party interviewing that candidate.
Furthermore, Vulcan's characterization of Harrigan's reviews of a draft demand is somewhat misleading. The invoice states that he reviewed a draft demand several times. It does not say that he reviewed drafts of the demand as they were developed by claimants' counsel. This distinction is important because it undermines Vulcan's argument that Harrigan was involved in the discussion of claimants' arbitration strategy, as it developed. The declaration of claimants' counsel, quoted by Judge Lukens, that there were no discussions of the merits of the claims further undermines this argument. In short, multiple reviews of a draft demand, the content of which is unknown to this court, does not show that this arbitrator discussed the merits of this case.
The claim that Harrigan discussed work product is unsubstantiated. Those words do not appear anywhere in either of the invoices before us. Moreover, there is simply nothing in the wording of those invoices to support the speculation that work product was discussed. The notation that memorializes Harrigan's intent to obtain clarification of facts evidences nothing more than that. There simply is nothing to show that the facts the arbitrator sought to clarify were on the merits of this case.
Vulcan's arguments focus on the ethical guidelines for arbitrators and its own impression of what is or is not appropriate pre-appointment contact under AAA Rule 18(a). Vulcan also cites to AAA Rule 31, which provides that "All evidence shall be taken in the presence of all of the arbitrators and all of the parties." There is no showing that any evidence was taken solely in the presence of Harrigan in violation of Rule 31.
The Code of Ethics, approved by both the AAA and the American Bar Association addresses ex parte contact in Cannon III. Specifically, Cannon III(B)(1) limits pre-appointment ex parte discussions between a potential arbitrator and the appointing party to: (1) the identities of the parties, counsel or witnesses, (2) the general nature of the case, and (3) the arbitrator's suitability or availability for the appointment. In addition, Cannon III(B)(2) allows a party-appointed arbitrator to consult with the appointing party concerning the choice of the third arbitrator, compensation, and the status of the arbitrator as a neutral or non-neutral. There is no showing here that Harrigan violated this code of ethics.
The Code of Ethics for Arbitrators in Commercial Disputes, Cannon III available at http://www.adr.org/si.asp?id=4582.
Id.
Id.
Vulcan relies on Metropolitan Property and Casualty Insurance Co. v. J.C. Penney Casualty Insurance Co. to support its argument that the pre-appointment contacts were improper. That case is distinguishable.
780 F. Supp. 885 (D.Conn. 1991).
The court in Metropolitan Property did not rule on whether the conduct at issue constituted "evident partiality" for purposes of vacating an arbitration award under section 10 of the FAA. Rather, the court addressed whether Metropolitan Life's action for injunctive relief seeking to disqualify an arbitrator from serving as another party's party-appointed arbitrator on a tripartite arbitration panel provided any possible basis for establishing a cause of action. The actual issue before the court was whether a sufficient cause of action existed for remanding the case to state court following its removal to federal court.
Id. at 890.
Id. at 887.
In that context, the court concluded that Metropolitan Life's factual allegations of misconduct against J.C. Penny's party-appointed arbitrator were sufficient to establish a cause of action for disqualification. The alleged misconduct included that, prior to being appointed, the party-appointed arbitrator: (1) traveled to J.C. Penney's headquarters where he engaged in ex parte meetings with J.C. Penney officials about the pending arbitration, discussed the merits of the case, and accepted hospitality, (2) received documentary evidence from J.C. Penney regarding material facts of the dispute, (3) attempted to discuss the substance of the ex parte communications with the other party-appointed arbitrator prior to selection of the third arbitrator, (4) and engaged in deliberations and considered material evidence prior to selection of the full arbitration panel.
Id. at 890.
Id.
Here, whether Vulcan has shown evident partiality under the FAA is at issue. Even if the contacts in Metropolitan Life would have supported vacatur on the grounds of evident partiality, they far exceed anything that this record reflects.
Vulcan also argues that Harrigan's failure to disclose the pre-appointment contacts is sufficient to demonstrate a reasonable impression of partiality. We disagree.
AAA Rule 16 addresses arbitrator disclosure. It provides, in relevant part:
Any person appointed or to be appointed as an arbitrator shall disclose to the AAA any circumstances likely to give rise to a justifiable doubt as to the arbitrator's impartiality or independence, including any bias or any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their representatives.
AAA Commercial Arbitration Rule 16, available at http://www.adr.org/sp.asp?id=22440 printable=true.
The Code of Ethics for Arbitrators in Commercial Disputes further expounds on what types of relationships must be disclosed.
The Code of Ethics for Arbitrators in Commercial Disputes, Cannon II(A)(2), http://www.adr.org/si.asp?id=4582 ("any known existing or past financial, business, professional or personal relationships which might reasonably affect impartiality or lack of independence in the eyes of any of the parties. For example, prospective arbitrators should disclose any such relationships which they personally have with any party or its lawyer, with any co-arbitrator, or with any individual whom they have been told will be a witness. They should also disclose any such relationships involving their families or household members or their current employers, partners, or professional or business associates that can be ascertained by reasonable effort.") (last visited February 2, 2011).
We start by noting that the parties negotiated and signed a disclosure form that would "meet [the arbitrator's] initial disclosure requirements and allow the parties to weigh [their] impartiality and independence." Nowhere in this form is there any reference to disclosure of information regarding pre-appointment contacts during the arbitration selection process.
Clerk's Papers at 251.
These "sophisticated contracting parties" surely either knew or should have known that there would be pre-appointment contacts between both sides and arbitrator candidates. Yet neither the fact nor nature of such contacts was of any concern to Vulcan until after the arbitration panel's decision in favor of the claimants.
We note this is Vulcan's characterization of the parties. Appellants' Opening Brief at 41.
We also note that Judge Alsdorf, one of the members of this arbitration panel, did not disclose any information regarding either the fact or nature of his pre-appointment contacts with Vulcan during the selection process. This is also telling.
Thus, the question is whether Harrigan was required to disclose either the fact or nature of his pre-appointment contacts with the claimants and their counsel during this selection process, where the disclosure form did not require either. Reading the above rules and considering the circumstances of this case, we fail to see any evidence that Harrigan's failure to disclose his pre-appointment contacts violated AAA Rule 16. Based on the analysis we already discussed in this opinion, we fail to see "any circumstances likely to give rise to a justifiable doubt as to the arbitrator's impartiality or independence" by virtue of the contacts. In short, nothing about the fact or nature of the contacts breaches any term of this rule.
Vulcan argues that Harrigan was required to disclose his pre-appointment contacts with the claimants and their counsel because they created a professional or business relationship. Vulcan further argues that Harrigan did not disclose that he sent invoices to the claimants for the time he spent with them pre-appointment. Neither argument changes our view that there was no violation.
The first contention is not supported by persuasive authority. Cases addressing what facts may give rise to a reasonable impression of partiality are distinguishable. They primarily address undisclosed past or present relationships between the arbitrator and a party or his representative that arose outside the context of the arbitration. Vulcan fails to point to a single case, other than Metropolitan Life, where the undisclosed relationship arose out of the arbitration itself. Moreover, independent research has failed to unearth any cases where a reviewing court vacated an arbitration award for nondisclosure of this type of "business relationship."
See, e.g., Commonwealth Coatings, 393 U.S. at 146 (a party to the arbitration was one of the arbitrator's "regular customers" with whom the arbitrator had a business relationship that was "repeated and significant"); Olson v. Merrill Lynch, Pierce, Fenner Smith, Inc., 51 F.3d 157, 159 (8th Cir. 1995) (arbitrator was a high-ranking officer in a company that had a substantial ongoing business relationship with one of the parties to the arbitration); Schmitz, 20 F.3d at 1044 (arbitrator's law firm represented parent company of a party to the arbitration for decades, including within two years of the arbitration); Morelite Const., 748 F.2d at 81 (arbitrator's father was General President of a union involved in the arbitrated dispute).
The second contention has no merit. The Code of Ethics for Arbitrators in Commercial Disputes is directly on-point. Cannon II provides,
each party-appointed arbitrator may consult with the party who appointed the arbitrator concerning arrangements for any compensation to be paid to the party-appointed arbitrator.
Submission of routine written requests for payment of compensation and expenses in accordance with such arrangements and written communications pertaining solely to such requests need not be sent to the other party.
The Code of Ethics for Arbitrators in Commercial Disputes, Cannon III(B), available at http://www.adr.org/si.asp?id=4582.
The invoices here clearly fall within the scope of this rule. In addition, Vulcan fails to point to any authority that suggests that an arbitrator may not bill for time spent with parties during the pre-appointment selection process.
Vulcan also argues that facial inconsistencies between the story told by claimants' counsel and the billing records must be resolved. What such inconsistencies might be is unclear. The full "story" told by claimants' counsel is not part of the record before this court.
Judge Lukens' memorandum decision is limited to quoting these remarks of claimants' counsel: "At no time were any questions asked of Mr. Harrigan, or was any input received from him, regarding the merits of the dispute. . . . At no time did Mr. Harrigan provide 'legal services' to Claimants or their counsel." Clerk's Papers at 584.
In addition, Vulcan argues that even if Harrigan's invoices themselves do not mandate vacatur, remand is required in order to allow for discovery or other fact finding. This is incorrect. An evidentiary hearing is required only after a prima facie case of evident partiality is presented. Vulcan fails to make a prima facie showing of evident partiality under the governing law.
University Commons-Urbana, 304 F.3d at 1341-343.
Vulcan's showing falls short of the mark to show evident partiality of Harrigan. None of the evidence on which Vulcan relies shows, either individually or collectively, evident partiality by Harrigan. We further note that this is true under both the independent standard of review urged by Vulcan and the deferential standard applicable under section 10 of the FAA.
Misconduct — § 10(a)(3)
Vulcan also argues that the trial court erred in denying its motion to vacate the arbitration award for arbitrator misconduct. We disagree.
Vulcan makes no separate argument with respect to misconduct. Our analysis regarding the evidence supporting the claim of evident partiality is sufficient to address this claim.
Arbitrators Exceeded Their Power — § 10(a)(4)
Vulcan finally argues that the trial court erred in denying its motion to vacate the arbitration award because the arbitrators exceeded their powers. We disagree.
Section 10(a)(4) of the FAA provides that a court may vacate an award "where the arbitrators exceeded their powers." "Arbitrators exceed their power when they express a 'manifest disregard of law,' or when they issue an award that is 'completely irrational.'" For an arbitration award to be in manifest disregard of the law, it must be clear from the record that the arbitrators recognized the applicable law and then ignored it. "These grounds afford an extremely limited review authority, a limitation that is designed to preserve due process but not to permit unnecessary public intrusion into private arbitration procedures." "'As such, mere allegations of error are insufficient.'" An arbitrator does not exceed his powers by misunderstanding or incorrectly applying the law.
Bosack v. Soward, 586 F.3d 1096, 1104 (9th Cir. 2009) (internal citations omitted), cert. denied, 130 S. Ct. 1522 (2010).
Id.
Kyocera Corp. v. Prudential-Bache Trade Serv., Inc., 341 F.3d 987, 998 (9th Cir. 2003).
Collins v. D.R. Horton, Inc., 505 F.3d 874, 879 (9th Cir. 2007) (quoting Carter v. Health Net of Cal., Inc., 374 F.3d 830, 838 (9th Cir. 2004)).
Merrill Lynch, Pierce, Fenner Smith, Inc., v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986).
Vulcan makes four arguments to support its claim under section 10(a)(4). First, it claims the panel awarded a remedy to the claimants for a breach they could not claim as their own. Second, Vulcan claims that the panel misapplied Delaware law regarding at-will employment. Third, Vulcan claims that the award is beyond the scope of what Delaware law allows for a breach of the covenant of good faith. Finally, Vulcan claims that there was no breach of the agreement on which the claimants rely. None of these arguments are persuasive.
The first argument misinterprets the scope of this court's review. The issue for this court is not whether the contract interpretation is correct but whether the arbitrators failed to interpret the contract at all. We must uphold the decision of the arbitrator unless "'there is no possible interpretive route to it, so a non-contractual basis can be inferred.'" Here, the panel decided that the claimants were entitled to assert and prevail on the claim of breach of the agreement. Vulcan does not argue that the arbitration panel failed to interpret the contract. It merely argues that its interpretation of the contract was incorrect. This is insufficient to support vacatur.
Wise v. Wachovia Sec., LLC, 450 F.3d 265, 269 (7th Cir. 2006).
Prostyakov v. Masco Corp., 513 F.3d 716, 723 (7th Cir. 2008) (quoting CUNA Mut. Ins. Soc'y v. Office Prof'l Empl. Int'l Union, Local 39, 443 F.3d 556, 562 (7th Cir. 2006)).
Vulcan's second claim is contrary to the panel's findings. The findings state that Vulcan had the right to terminate the claimants, but not to breach their profit-sharing rights under the VEC Agreement. There is nothing manifestly incorrect about this.
Vulcan's third claim is also unpersuasive. Its burden requires it to show that, "that the arbitrator understood and correctly stated the law, but proceeded to disregard [it] the same." Vulcan does not argue that the panel understood the law and failed to apply it. Rather, it argues that the panel misunderstood and misapplied the law. This argument does not support vacatur.
Collins, 505 F.3d at 879 (internal quotation marks and citations omitted).
Vulcan's final argument is but another claim that the panel incorrectly determined that Vulcan breached the agreement. This is not a sufficient ground for vacatur under the case law.
ATTORNEYS FEES AND COSTS
Both Vulcan and the claimants request attorney fees and costs on appeal based on the agreement.
Section 10.8 of the agreement provides for the award of attorney fees and costs to the prevailing party. The claimants prevail on appeal. Accordingly, they are entitled to an award of fees and costs, subject to compliance with RAP 18.1.
We affirm the judgment confirming the awards.