A federal district court compelled arbitration and refused to disqualify a party’s selected arbitrator, notwithstanding that the arbitrator was a former employee and consultant of the objecting party’s parent company. Service Partners, LLC and American Home Assurance Co. entered into a payment agreement for insurance and risk management services that contained an arbitration clause providing that each party would select an arbitrator and the two selected arbitrators would choose a third. The clause prohibited the selection of an arbitrator under either party’s control and, further, provided that, if a party refused or neglected to select an arbitrator, either party could petition a New York state court to appoint one. American Home objected to Service Partners’ selected arbitrator and refused to arbitrate because the arbitrator was a former employee of American Home’s parent, and in the past had served as a party arbitrator for American Home, and as a consultant/expert witness for American Home’s parent. Thus, according to American Home, the arbitrator was not qualified because he knew American Home’s “playbook.”
Service Partners moved to compel arbitration, arguing that nothing in the parties’ agreement or federal law provided for the disqualification of an arbitrator before the entry of an award and, moreover, that the arbitrator was qualified. The federal district court granted the motion to compel. The court first determined that venue was proper–finding that the New York court could only be accessed where no arbitrator had been appointed, not where an arbitrator’s qualifications were in dispute. The court, moreover, held that the arbitrator was qualified under the parties’ agreement because, as a former employee of American Home’s parent, he was not currently under either party’s control. Further, the court held that, absent extraordinary circumstances that did not exist in the case, a challenge to an arbitrator’s qualifications or partiality should be made only after an award is rendered. Serv. Partners, LLC v. Am. Home Assurance Co., Case No. 11-01858 (USDC C.D. Cal. June 20, 2011).
This post written by Ben Seessel.