Today we have an interesting case focusing on one of the business aspects of arbitration – overlapping memberships on and appointments to tribunals. In other matters, there’s discussion of the challenges raised by the interface between panel expertise and the post-appointment amendment of claims; some SCOTUS updates; and a list of good, recent articles on arbitration and mediation.
“Small World” conflicts
Because the world of arbitration – particularly international arbitration – is comparatively small, it is inevitable that busy arbitrators will share panels on more than one occasion. Grupo Unidos Por El Canal, S.A. v. Autoridad del Canal de Panama, 2021 U.S. Dist. LEXIS 236109 (S.D. Fla. December 9, 2021), addresses the disclosure and conflict problems that these interconnections can cause.
The dispute arose out of a series of arbitrations related to a $3.3 billion contract for the construction of new locks on the Panama Canal and related channel work. Petitioner is a consortium which won the contract; respondent is the authority which operates the Canal. A panel of three arbitrators issued two awards which are relevant to this challenge; two of those panel members also heard an earlier proceeding related to the construction. According to the court’s opinion, at the time of their appointment only one of the tribunal members disclosed that he had sat on that earlier panel; another stated that he was “not aware of any facts that could ‘call into question my independence’ or otherwise ‘give rise to reasonable doubts as to my impartiality;’” the third “disclosed that there were no facts that could call his independence into question, although he noted that he had a general ‘professional relationship with both law firms.’” About five years later, after the entry of a Partial Award, but before the Final Award, the consortium asked the Tribunal to update their disclosures. One member disclosed that, since his appointment, another panel member had appointed him in an ongoing, unrelated arbitration and that he now sat on a tribunal in an unrelated matter with a member of the earlier panel. The arbitrator who made the referenced appointment disclosed that, since his initial disclosures, he had been appointed to sit in an unrelated arbitration by one of the Respondent’s counsel in the instant case. The arbitrators did not disclose any of these matters when that they took place. A panel member reaffirmed that he did not extend his disclosures to potential conflicts within his barristers’ chambers. The construction consortium, the petitioner here, submitted a challenge to the ICC Court against all three members “based on their alleged failure to make timely and appropriate disclosures.” The ICC Court rejected the challenge. Here, the consortium moves to vacate the awards under the provisions of the New York Convention, while the Authority seeks to confirm.
In support of its motion to vacate, the Petitioner sought relief under public policy and procedural defenses of the New York Convention. The court, Scola, J., first addresses the conflict issue. Rather than phrasing the question as whether the members of the Tribunal “should, but did not, disclose certain information,” the court holds that the issue is a narrower one – “whether the arbitrators’ failure to disclose certain facts constitutes a ground for vacatur provided under the Convention.” The court recognizes that there is a public policy requiring that the panel be impartial, but finds that the facts here do not demonstrate any requisite bias. Movants argued that Member A’s appointment by another panel, “due in part to [Member B] was the “’most egregious’ example of evident partiality.” In rejecting the challenge, the court holds that “it is an exemplar of an accusation that is ‘remote, uncertain, and speculative.’” “The fact that [Member A] was appointed by [Member B] and a second arbitrator . . . in an unrelated arbitration is likely a testimony to [Member A’s] experience and expertise.” As the court opines, “Arbitrators are appointed every day, and often times the same arbitrators, particularly in matters concerning subjects that are highly specialized, will sit together.” Such a joint sitting “does not constitute a ‘direct, definite and capable of demonstration’ allegation of partiality.” Judge Scola, then, spins out the numerous assumptions needed to show any prejudice by either Member A or Member B. In an opinion that may be driven by the unique independence of members of a barrister’s chambers, the court further holds that a failure by one of the arbitrators to inquire as to potential conflicts due to clients being served by others in his chambers raises no issue. A different result might occur in the U.S., where a conflict by one lawyer are imputed throughout the firm.
Judge Scola rejects the consortium’s argument that the Awards demonstrate that the arbitrators refused to consider some of the arguments which it advanced – a failure which the consortium attributes to actual bias. Rather, the court finds that the tribunal simply did not give credence thereto. “[T]his is not an argument that the Movants were ‘unable’ to present their case, only that the Tribunal did not satisfactorily consider their evidence. . . . To the extent that the Movants argue that the Tribunal did not engage enough with their evidence, the Movants essentially ask the Court to improperly wade into the substantive reasoning of the Awards.” (Emphasis in original).
The court denies the motion to vacate and confirms the Awards. In light of the size of the challenged damages, an appeal will probably ensue. While the court’s decision correctly recognizes the business reality that the world of arbitrators for high-stakes construction cases is limited and that those few arbitrators will inevitably interact, one has to wonder how the expense of these post-award challenges might have been reduced had there been more on-going disclosure.
Allowing additional claims
Trividia Health, Inc. v. Nipro Corp. 2021 U.S. Dist. LEXIS 237028 (S.D.N.Y. December 10, 2021)(Caproni, J.), considers panel expertise from another direction. The subject arbitration began as a request for declaratory relief as to whether Trividia’s remedies in the event that Nipro breached the parties’ contract were limited to termination of the agreement. A three-member panel was formed to resolve that dispute under the ICC rules. Approximately five months before the scheduled hearing, the panel allowed Trividia, over Nipro’s objection, to a amend its claims by adding an allegation of trademark infringement and a new breach of contract claim. Based on the claims as amended, the panel awarded Trividia damages, including interest, of approximately $22 Million. This is an action to confirm the award; Nipro opposed confirmation.
Nipro argued that allowing the additional claims was improper for two reasons. First, it maintained that the panel consisted of “three panelists with expertise in contract law,” who were now required to consider “newly-asserted claims, which were ‘rooted in principles of tort law and highly technical federal and state statutes.’” Judge Caproni rejects the argument out-of-hand. “Nipro offers only conclusory arguments why the panelists were unfit to hear these claims and does not persuasively connect the nature of the new claims to an infringement of its due process rights. The new issues were not ‘wholly unrelated’. . . but were a natural outgrowth of the existing dispute over the requirements of the [International Distribution Agreement].” It is impossible to determine from the opinion the degree to which the trademark claims were, in fact, “highly technical.” However, even if not reached in this case, there must be some point at which the ability of an arbitrator is outrun by the technical nature of the dispute, and his or her continued service is inappropriate. After all, one of the purported advantages of arbitration over litigation is the ability to have a subject matter expert, rather than a generalist judge, decide an issue.
The court rejects Nipro’s assertion that it had an unreasonably limited time for to prepare for the new claims with a bit of snark. In a footnote, Judge Caproni opines, “While not entirely unsympathetic, the Court notes that Nipro was represented during the arbitration (and now)” by a firm which “[a]ccording to the American Lawyer, . . . has more than 1500 attorneys and is among the 50 largest law firms in the United States.” (Emphasis added). As someone who practiced with a larger firm, albeit one far smaller than that which the court references, I always bristled at a court arguing that we could simply substitute another lawyer seamlessly into an on-going case, as if counsel are merely fungible commodities.
At Friday’s conference, the Supreme Court granted cert. in three arbitration-related cases. Two now-consolidated cases, AlixPartners, Inc. v. Fund for Protection of Investor Rights in Foreign States, Dkt. No. 21- 158, and ZF Automotive US, Inc. v. Luxshare, Ltd., Dkt. No. 20-401, act as replacements for Servotronics and provide the Court a new opportunity to consider whether foreign, private arbitrations are “tribunals” for purposes of obtaining discovery under the provisions of 28 U.S.C. § 1782. Southwest Airlines Co. v. Saxon, Dkt. No. 21-309, will decide whether the “interstate commerce worker” exception to the FAA extends to a ramp worker who only occasionally actually handled baggage. The Justices’ denial of cert. in First Auto Loans, Inc. v. Maldonado, Dkt. No. 21-31, is relevant to California counsel following PAGA cases and to others looking to see where the court will draw lines on state laws that arguably interfere with contracts to arbitrate. However, Viking River Cruises, Inc., Dkt. No. 20-1573, which raises many of the same issues, is still pending in conference.
There are interesting articles in recent ABA Section publications. Although the world is reopening (maybe?), virtual mediation is here to stay. The Fall issue of the Litigation Section’s magazine has tips on handling such matters efficiently, Esposito, IWitness: Practical Advice for Virtual Mediation, 48 Litigation 12 (Fall 2021). Even if the Supreme Court decides that Section 1782 does not apply to international, private arbitrations, there will still be cases in which the parties will seek or oppose discovery for use in other foreign tribunals. Ferguson, Global Litigator: U.S. Discovery for Use in Foreign Proceedings; Navigating Cross-Border Discovery under 28 U.S.C. § 1782, 48 Litigation 15 (Fall 2021), explores issues raised whenever the section is invoked. Sugiyama, Asymmetrical Conservatorship Litigation¸ 35 Probate & Property 22 (November/December 2021), is a broad discussion of the benefits of early mediation or neutral evaluation in conservatorship matters and how such procedures address the often-disparate power and resources of the parties.
I have added initials after my name below. Last week, the Chartered Institute of Arbitrators accepted me as a Fellow. I look forward to using the knowledge acquired during that acceptance process and through the fellowship to benefit the parties who appear before me in my arbitration practice.
See you Friday.
David A. Reif, FCIArb