Opinion
MISCELLANEOUS ACTION 02-MC-0046, Civil Action 04-CV-0379.
August 24, 2004
MEMORANDUM
Presently before the Court is a dispute over an arbitration award in a suit between The Norwood Company ("Norwood") and Bennett Composites, Inc. ("Bennett"). The dispute between the parties has been filed in two mirror suits: Norwood Company v. Bennett Composites, Inc., Misc. Action No. 02-MC-0046 andBennett Composites, Inc. v. Norwood Company, Civ. Action No. 04-CV-379. As the parties' motions in this case are identical, this opinion will dispose of the pending motions in both actions.
The Court also notes that three other suits were filed dealing with the same set of facts as the two motions currently before the Court. The first action, Norwood Co. v. Great American Insurance Co., Civ. Action No. 02-CV-2435 has been dismissed by the parties. The other two actions, RLI Insurance Co. v. Bennett Composites, Inc., Civ. Action No. 04-CV-272 andNorwood Co. v. RLI Insurance Co., Civ. Action No. 01-CV-6153 are in suspense pending the outcome of the motions currently before the Court.
I. Procedural History
In early 2001, Bennett, an Alabama corporation, entered into two subcontracts with Norwood, a New Jersey corporation with its principal place of business in Pennsylvania, for the installation of concrete at two construction projects in King of Prussia, PA. Norwood was the general contractor on these projects. Disputes arose over the subcontracts and Bennett commenced litigation against Norwood in Alabama state court.
On Norwood's request, this Court entered an order compelling arbitration on July 23, 2002 under the Norwood Company v. Bennett Composites, Inc., Misc. Action No. 02-MC-0046, caption. The parties then proceeded to arbitration before the American Arbitration Association ("AAA") in Philadelphia. The parties chose arbitrators on October 30, 2002, conducted a twenty-five day arbitration hearing, and an award of $1,643,746.18 was ultimately rendered for Norwood on January 5, 2004. Norwood then moved this court to confirm the award and enter judgment on January 14, 2004.
Although Norwood moved to enter judgment on January 14, 2004, due to the filing of Bennett's Motion to Vacate on January 27, 2004, judgment was never entered by this Court.
On January 27, 2004, Bennett moved to vacate the arbitration award in the existing suit and filed a separate suit, Bennett Composites, Inc. v. Norwood Company, Civ. Action No. 04-CV-379, in which Bennett also filed an identical Motion to Vacate. Norwood filed identical responses in each action and the parties conducted discovery and completed supplemental briefing on August 6, 2004. The Court held oral argument on August 11, 2004.
II. Undisputed Facts
The underlying facts of this motion are not disputed by the parties, although they do dispute each other's characterization of the facts. Accordingly, the facts listed below are agreed upon by the parties, unless specifically noted.
Joseph L. Abriola, Sr. ("Abriola Senior") was selected as an arbitrator by the parties in October 30, 2002. At the time Abriola Senior was selected he made no disclosures to the parties about any potential conflicts regarding the company he had founded, The Abriola Company. Abriola Senior has since "semi-retired" and given up his ownership interest in the company. The company is now run by his son, Joseph L. Abriola, Jr. ("Abriola Junior"). Abriola Senior's role is titled Vice President and Treasurer, but his work is limited to going to the office once a week to prepare checks from a list sent to him by his son, to serve as the ERISA trustee for the company's retirement plan, and to keep the company's Board of Directors' minutes. For this role, Abriola Senior is paid $250.00 per week and receives health insurance. Abriola Senior is not aware of the nature of the business or identity of any specific clients of the company, as Abriola Junior has substantially changed the nature of the business since taking over.
The Abriola Company joined a trade association called the Associated Builders Contractors, Inc. ("ABC"), Southeast Pennsylvania Chapter in 2000 or 2001. This organization's membership is open to non-union dues paying contracting companies. In 2003, Abriola Junior was the chair of the Business Development Committee of ABC, one of about five committees in the organization. In the winter of 2003, Abriola Junior was elected to the Board of Directors of ABC for 2004. The Abriola Company had attended at least one of the organization's "showcases" for companies. Abriola Senior was aware of the company's membership in ABC, as he had prepared checks to pay the company's dues, but was not aware of his son's level of involvement in the organization.
The Norwood Company was also a member of ABC, and had also attended the organization's "showcases". In addition, the CEO of Norwood, John E. Farrell ("Farrell") served on the Board of Directors of ABC. Abriola Junior and Farrell were not aware of each other's activity in ABC until November of 2003 when they both attended a meeting of the Business Development Committee. Farrell was a witness called by Norwood in the arbitration hearing.
On November 19, 2003, Norwood received a Merit Construction Award of Excellence for Commercial Projects over $10 Million from ABC for projects built by members in the Delaware Valley. There is no evidence that Abriola Junior participated in the selection process for this award. This award was the subject of testimony in the arbitration between Norwood and Bennett as evidence of the quality of Norwood's work and, thus, Bennett became aware of this award during the arbitration hearing.
The parties agree that the record reflects that Abriola Junior did not become aware of Farrell's involvement in ABC until the Fall of 2003. The parties also agree that if Abriola Senior had asked Abriola Junior if Abriola Junior worked with Norwood when Abriola Senior was considering appointment as an arbitrator, Abriola Junior would have truthfully responded negatively. The parties also agree that the record reflects that Abriola Junior was in no way involved in Abriola Senior's work as an arbitrator.
In the winter of 2003, Abriola Senior and Abriola Junior had a conversation, initiated by Abriola Senior, acknowledging that Abriola Senior was an arbitrator in a case involving Norwood, the company that received the ABC award. There is no evidence in the record that there was any other conversation between Abriola Junior and Abriola Senior regarding either Norwood or the arbitration. After this conversation took place, Abriola Senior did not make any disclosure to either Bennett or Norwood regarding the conversation.
III. Parties' Contentions
In moving to vacate the arbitration award, Bennett alleges that, after receiving notice of the arbitration award, it discovered the previously undisclosed relationship between Farrell and Abriola Junior as members of ABC, and that this relationship and the failure to disclose it constitutes evident partiality on the part of Abriola Senior and warrants vacation of the award pursuant to 9 U.S.C. § 10(a)(2). Bennett argues that, prior to the arbitration, Abriola Senior did not undertake an investigation into whether he had relationships that would affect his partiality, as required by the AAA Code of Ethics for Arbitrators in Commercial Disputes. In addition, Bennett argues that Abriola Senior became aware of his connection to Norwood through his conversation with Abriola Junior during the arbitration and did not disclose that connection to the parties.
Norwood argues that the relationship alleged by Bennett does not meet the definition of a relationship that requires disclosure. In addition, Norwood relies on cases saying that arbitrators are not to be automatically disqualified if the relationship is trivial, to argue that Abriola Senior's relationship, through Abriola Junior, to Norwood was, in fact, trivial. Further, Norwood argues that Bennett's "failure to investigate" argument is a red herring as, even if Abriola had investigated his son's business relationships before the arbitration, he would not have discovered a connection to Norwood.
IV. Analysis
The facts, which are substantially agreed upon by the parties, suggest two separate points of analysis in determining whether Abriola Senior's conduct warrants the vacation of the arbitration award. The first area of analysis concerns the process of selecting arbitrators. Specifically, whether Abriola Senior failed to either investigate or make disclosures at the time that he was being selected as an arbitrator by the parties. The second area of analysis concerns the conversation between Abriola Senior and Abriola Junior in the winter of 2003, and whether Abriola Senior should have made disclosures to the parties following that conversation.
A. Legal Standard
The United States Arbitration Act provides that a federal court may vacate an arbitration award "where there was evident partiality . . . in the arbitrators." 9 U.S.C. § 10(A)(2). While "it is true that arbitrators cannot sever all their ties with the business world," arbitrators are held to "the simple requirement that arbitrators disclose to the parties any dealings that might create an impression of possible bias." Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 148-49, 89 S.Ct. 337, 21 L.Ed. 2d 301 (1968). See Crow Construction Co. v. Brown Assoc. Inc, 264 F. Supp. 2d 217 (E.D. Pa. 2003) (holding that, where parties have influence in the arbitrator selection process, the Commonwealth Coatings "appearance of bias" standard is appropriate for determining evident partiality under 9 U.S.C. § 10(A)(2)).
B. Arbitrator Selection Process
As discussed above, it is not in dispute that, in October 2002, when Abriola Senior was participating in the arbitrator selection process, Abriola Junior had no relationship with Norwood. The Court also notes that Abriola Senior's role in The Abriola Company was very limited, such that he would not have had reason to believe that his role in that company would have triggered any conflict or partiality. Even if this Court assumes, without deciding the issue, that Abriola Senior should have asked Abriola Junior if he had a relationship with Norwood, Abriola Junior would have responded in the negative and Abriola Senior thus would have had nothing to disclose. Thus, there cannot be any question of evident partiality stemming from Abriola Senior's conduct at the time of the arbitrator selection process.
C. Winter 2003 Conversation between Abriola Senior and Abriola Junior
As the above discussion reflects, Abriola Senior's role in The Abriola Company was very limited, as was his knowledge of Abriola Junior's role in ABC. In particular, Abriola Senior had no knowledge of Abriola Junior's membership in any committee of ABC or of his interaction with other companies through ABC, until at least the winter 2003 conversation between Abriola Senior and Abriola Junior Thus, until this conversation, Abriola Senior had no knowledge of any relationship or interaction of Abriola Junior that might give rise to a disclosure obligation. It is important to note that, while Abriola Senior was bound by the disclosure obligations of the AAA due to his role as an arbitrator, including an ongoing duty to disclose, Abriola Junior had no such obligations. Thus, up until the winter 2003 conversation, Abriola Senior could not have made any disclosures regarding Abriola Junior's connection to Norwood of Farrell because he was not aware of such interaction.
Thus, the only remaining issue to address is whether, once Abriola Junior told Abriola Senior about his connection to Norwood, that information was such that Abriola Senior was required to make a disclosure to the parties. Arbitrators are under an obligation to disclose "any dealings that might create an impression of possible bias." Commonwealth Coatings at 149. However, "it is true that arbitrators cannot sever all their ties with the business world." Commonwealth Coatings at 148. Thus, this Court must decide whether Abriola Senior's failure to disclose Abriola Junior's connection to Norwood was one that raised the appearance of bias, or whether it was a relationship that was merely trivial. Justice White, in his concurrence in Commonwealth Coatings addresses this issue:
This does not mean the judiciary must overlook outright chicanery in giving effect to their awards; that would be an abdication of our responsibility. But it does mean that arbitrators are not automatically disqualified by a business relationship with the parties before them if both parties are informed of the relationship in advance, or if they are unaware of the facts but the relationship is trivial.Commonwealth Coatings at 150. In this District, Judge Newcomer applied this standard in Crow Construction Co. v. Brown Assoc. Inc, 264 F. Supp. 2d 217 (E.D. Pa. 2003). In Crow, Judge Newcomer found that the arbitrators' failure to disclose that they had conducted an AAA-sponsored arbitration that involved one of the parties' law firms in the past was a trivial relationship that neither required disclosure nor created the appearance of bias. In contrast, Judge Newcomer found that an arbitrator's failure to disclose her role in a mediation with one of the parties, contemporaneous with the arbitration in question, created the appearance of bias. In addition, Judge Newcomer also found an arbitrator's failure to disclose that he had previously been a private, paid arbitrator for one of the parties' law firms created the appearance of bias.
In this case, there is no relationship alleged between Abriola Senior and Norwood. Rather, the only relationships at issue are one step removed, between Abriola Senior and Abriola Junior, and between Abriola Junior and Norwood. Thus, a cursory treatment of the facts reveals that the relationship at issue here is not as close as those addressed in Crow. With that fact in mind, this Court notes that Judge Newcomer's conclusion that prior interactions between an arbitrator and a law firm in the course of regular business were trivial is analogous to the situation at hand Specifically, the relationship at issue here is one that occurs in the normal course of business — individuals who are involved in an industry are members of a trade association and interacted as fellow members of that association. In addition, that trade association in which the individuals participated made an award to one of the businesses in the industry.
There is no contention that Abriola Junior or The Abriola Company had some hand in the award to Norwood, nor is there a contention that Abriola Senior was at all involved in these interactions. The relationships in Crow that Judge Newcomer found to raise the appearance of bias were ones where the arbitrator had either some direct interaction, either through access to information from another case or through direct payment from the representatives of one of the parties, that raised the appearance of bias. Here, there is no direct interaction between Abriola Senior or Abriola Junior and Norwood, and there is no allegation that any transmission of information or payment occurred between the parties. Thus, the facts before this Court are ones that address what is undoubtedly a distant and trivial business relationship, and that relationship does not raise the appearance of bias.
Even if Abriola Junior had been one of the arbitrators, it is not clear he would have been required to disclose his contacts with Norwood. Bennett seeks to impose a theory of "vicarious partiality" by charging a father with the knowledge of his son, but there is no precedent for such a theory to vacate an arbitration award where the father served as arbitrator. Accordingly, Abriola Senior's failure to make a disclosure after his winter 2003 conversation with Abriola Junior was neither an abdication of his duties as an arbitrator nor an omission that raises the appearance of bias.
V. Conclusion
As discussed above, Abriola Senior's failure to make a disclosure regarding Abriola Junior's connection to Norwood, either during the arbitrator selection process or after the winter 2003 conversation does not raise the appearance of bias and, thus, the Motion to Vacate will be denied.
An appropriate order follows.
ORDER
AND NOW, this day of August, 2004, it is hereby ORDERED that Norwood's Motion to Confirm Arbitration Award (04-CV-379, Doc No. 15) is GRANTED, Bennett's Motion to Vacate Arbitration Award (04-CV-379, Doc. No. 17) is DENIED, and Bennett's Motion to Vacate Arbitration Award (02-MC-046, Doc. No. 1) is DENIED.It is further ORDERED that:
1. The award of the arbitrators dated January 5, 2004 in the arbitration case The Norwood Company and Bennett Composites, Inc., docketed with the American Arbitration Association at Case No. 14 110 00425 01 is CONFIRMED;
2. Judgment is ENTERED in favor of The Norwood Company against Bennett Composites, Inc. in the amount of $1,643,746.18.
3. Judgment is ENTERED in favor of Norwood and against Bennett Composites on all claims and counterclaims asserted by Bennett in the arbitration case The Norwood Company and Bennett Composites, Inc., docketed with the American Arbitration Association at Case No. 14 110 00425 01.