Alex Silverman

Section 10(a)(2) of the Federal Arbitration Act allows a court to vacate an arbitration award based on “evident partiality” in the arbitrators. Citing section 10(a)(2), the petitioner moved to vacate a JAMS arbitration award issued in favor of the respondent, claiming the arbitrator failed to timely disclose the full extent of her financial interest in JAMS, and because JAMS itself belatedly disclosed the number of proceedings it had conducted involving the respondent’s law firm. The information was first disclosed after post-hearing briefing and roughly one week before closing arguments.

Failure to disclose apparent interests and/or conflicts is not, in and of itself, a basis for vacating an arbitration award in the Third Circuit. Rather, the court explained, non-disclosure is relevant only to the extent that the non-disclosure reveals evident partiality, defined as “proof so powerfully suggestive of bias that a reasonable person would have to believe that the arbitrator was partial to Respondent.” Using a four-factor balancing test adopted from the Second and Fourth Circuits, the court held that the failures to disclose in this case were “blatant and indefensible” and thus weighed in favor of a finding of bias. Nevertheless, the court denied the petitioner’s motion to vacate, finding her “glaring” failure to raise the issue until several months later, and only after an award was issued against her, constituted a waiver of any otherwise valid objection.

Martin v. NTT Data, Inc., No. 2:20-cv-00686 (E.D. Pa. June 23, 2020).

The Fourth Circuit confirmed a foreign arbitration award issued in favor of third-party defendant Chongqing Rato Power Co. Ltd., a Chinese equipment manufacturer, against defendant Roger Leon. The parties negotiated and executed several contracts in China, each containing an arbitration clause requiring any disputes be resolved before a Chinese arbitral commission. Rato commenced arbitration when the relationship soured and the panel issued an award in Rato’s favor, which it sought to confirm in this action. Leon opposed the effort, claiming the contracts, and their arbitration clauses, were invalid because he was not represented by Chinese counsel when the contracts were signed. The district court disagreed and the Fourth Circuit affirmed, agreeing that there was no evidence of fraud, coercion, material misunderstanding, obvious unfairness, or any other situation that would invalidate the agreements.

The Fourth Circuit also affirmed the district court order confirming the award. Leon argued that the award was invalid because the Chinese arbitration proceedings were initiated while Rato’s motion to compel arbitration was still pending in a North Carolina state court. But the Fourth Circuit ruled that a party need not await a ruling on a motion to compel in order to initiate arbitration, whether pursuant to section 4 of the Federal Arbitration Act or otherwise. Leon asserted other defenses under article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, each of which was rejected. As such, the district court order was affirmed.

Denver Global Products, Inc. v. Leon, No. 18-1853 (4th Cir. Jun. 8, 2020).

The plaintiff-appellant filed suit in Oklahoma state court seeking to rescind a contract it entered into with the defendants, claiming the contract was procured by fraud. Citing an arbitration clause in the contract, the defendants moved to dismiss the suit and to compel arbitration. The question thus became whether the court or an arbitrator should determine a challenge of fraudulent inducement to the entirety of a contract containing an otherwise valid arbitration clause. The Supreme Court of Oklahoma held that state and federal law were aligned on the issue and required that the question be decided by the arbitrator. Specifically, the court concluded that Oklahoma law and the Federal Arbitration Act both adhere to the “separability doctrine.” The doctrine states that when parties agree to arbitrate, attacks on the validity of the contract – as distinct from the validity of the arbitration clause itself – are to be resolved by the arbitrator in the first instance. Because the allegations of fraud here were directed to the contract as a whole, not specifically to the arbitration clause, the court agreed with the lower court that the fraud issue must be referred to arbitration. As such, the court vacated an appellate court order and affirmed the lower court order granting the defendants’ motions to dismiss and to compel.

Signature Leasing LLC v. Buyer’s Group LLC, No. 115100 (Okla. June 9, 2020).

The Fifth Circuit Court of Appeals affirmed a district court order denying the plaintiff’s motion to compel arbitration against two non-signatories to the relevant contract. The plaintiff was issued a credit card by defendant Regions Bank. The credit card agreement contained an arbitration clause that the plaintiff relied on in seeking to compel arbitration of his claims against two of the three major credit bureaus, neither of which was a signatory to the credit card agreement. The district court denied the plaintiff’s motion and the Fifth Circuit affirmed. The court found that neither of the credit bureau defendants had claims against either of the parties to the arbitration agreement – the plaintiff and Regions Bank – and that the agreement did not contemplate the consolidation of third-party claims under present circumstances. Thus, applying Alabama law, the court held that the credit bureau defendants could not be compelled to arbitrate the plaintiff’s claims against them as they were neither expressly nor implicitly parties to the credit card agreement and were not otherwise third-party beneficiaries to it.

Patel v. Regions Bank, No. 19-30582 (5th Cir. Apr. 21, 2020).