Rebecca A. Beers
In Alabama, seeking and obtaining vacatur of an arbitration award just got a little easier. In April 2015, the Alabama Supreme Court broke with the Eleventh Circuit Court of Appeals and joined what the court termed as the “majority” view in setting the standard for what a litigant must establish to meet the “evident partiality” standard under the Federal Arbitration Act and to obtain vacatur in cases where arbitrators have failed to disclose potential ties or relationships with parties to the arbitration and/or their lawyers. While this standard in Alabama was a bit unclear prior to April, in Municipal Workers Compensation Fund v. Morgan Keegan, et al.,1 the Alabama Supreme Court made it clear that, where the forum’s rules require it, arbitrators must undertake a thorough conflict check and disclose all conflicts and relationships with the parties and their counsel or the award rendered will be subject to vacatur in post-arbitration proceedings if an undisclosed conflict gives rise to a reasonable impression of partiality, regardless of whether or not the arbitrator had knowledge of the conflict. A litigant in Alabama no longer bears the burden of having to prove that an arbitrator was actually biased or that the arbitrator’s failure to disclose a conflict or relationship was knowing and intentional. The burden has shifted to the arbitrator to make a full and fair disclosure of all conflicts and relationships with the litigants and their lawyers.
This article will briefly explain the background of the “evident partiality” standard and an arbitrator’s disclosure duties, the competing standards related to conflict non-disclosure cases, the standard that the Alabama Supreme Court set out in Municipal Workers and, going forward, what that standard means for arbitrators and litigants in arbitrations in Alabama.
Evident Partiality and The Arbitrator’s Duty to Disclose
The Federal Arbitration Act2 provides four grounds for vacatur of an arbitration award, and the second of those four grounds requires an arbitration award to be vacated “where there was evident partiality or corruption in the arbitrators . . . .”3 What constitutes “evident partiality” has been the subject of frequent litigation. In 2003, in Waverlee Homes, Inc. v. McMichael, the Alabama Supreme Court adopted the “reasonable impression of partiality” standard, stating that to rise to the level of evident partiality, a litigant must establish, through credible, admissible evidence, facts which give “rise to an impression of bias that is direct, definite, and capable of demonstration” rather than a “mere appearance of bias that is remote, uncertain, and speculative.”4 Courts–including Alabama courts– have found that a reasonable impression of an arbitrator’s partiality can arise in two contexts: through the arbitrator’s conduct and statements (an “actual bias” case) and through the arbitrator’s failure to disclose conflicts and relationships with the parties and their counsel (a “nondisclosure” case).
The seminal case discussing an arbitrator’s inherent duty to disclose is the United States Supreme Court’s opinion in Commonwealth Coatings Corp. v. Continental Casualty Co., in which Justice Hugo Black delivered the majority opinion discussing the balance between preserving the streamlined and cost-effective nature of the arbitration forum and affording the arbitrating litigants the “elementary requirements of impartiality taken for granted in every judicial proceeding.” In Commonwealth Coatings, the Court reversed the trial court’s affirmance of the arbitration award in which the relationship between a litigant and an arbitrator was not disclosed, and the Court observed, “[w]e can perceive no way in which the effectiveness of the arbitration process will be hampered by the simple requirement that arbitrators disclose to the parties any dealings that might create an impression of possible bias.”6 This requirement is founded in the principle that arbitration litigants should be able to select their arbitrators intelligently, which requires full and fair disclosure from the arbitrators.7 While Commonwealth Coatings appears to recognize an independent duty on the part of arbitrators to disclose actual or perceived conflicts to litigants that likely arises out of the Federal Arbitration Act,8 the Supreme Court and other federal and state courts have also recognized that private arbitration forums have set out their own rules which require arbitrators to discover and disclose actual or perceived conflicts or relationships with litigants and their counsel.9
The Duty to Disclose and The Duty to Investigate
It is a well-accepted proposition that, where an arbitrator knows of a conflict or a material relationship with a party or that party’s counsel and fails to disclose it, a reasonable person would conclude that that arbitrator was evidently partial and any award rendered would be subject to vacatur. Therefore, while most federal and state courts have recognized that arbitrators bear the burden of disclosing relationships and conflicts that may give rise to an impression of partiality to litigants and their counsel, distinct differences of opinion arise regarding the relationships and conflicts that must be disclosed. Is an arbitrator required only to disclose known conflicts and relationships? Must the arbitrator undertake the equivalent of a lawyer's "conflict check" to discern relationships that may give rise to an impression of bias of which the arbitrator herself is unaware?
The majority of courts to address situations in which arbitrators have failed to disclose these relationships and potential conflicts have generally determined that the arbitrator's failure to disclose these facts alone-where the facts are non-trivial-may be sufficient, in and of itself, to establish evident partiality warranting vacatur under the Federal Arbitration Act. These cases do not require a litigant to establish that an arbitrator knew of these non-trivial facts and failed to disclose them. Rather, the act of failing to disclose these conflicts and relationships alone may be sufficient-that is, the arbitrator's failure to undertake a reasonable investigation to determine the existence of and then disclose conflicts and relationships may be sufficient to establish evident partiality on its own. These undiscovered and undisclosed conflicts and relationships, however, cannot be trivial and must, on their own, give rise to a direct and definite impression of bias. The seminal opinion in this line of cases is the Ninth Circuit's opinion in Schmitz v. Zilveti, in which that court found that the arbitrator's failure to investigate and disclose a particular conflict (where arbitral forum required such an investigation) that gave a reasonable impression of bias constituted evident partiality because the arbitrator had constructive knowledge of the conflict due to the forum's duty to investigate.11
In contrast, the Eleventh Circuit has required actual knowledge of these conflicts and relationships in order to warrant vacatur for evident partiality. That is, even if there exists a direct conflict that clearly gives rise to a direct and definite impression of bias, evident partiality is not established and vacatur is not appropriate unless the arbitrator actually knew of this...