Scandinavian Reinsurance Co. Ltd. v. St. Paul Fire & Marine Insurance Co.
(U.S.D.C., S.D.N.Y. February 23, 2010)
A reinsurance company petitioned the federal district court to vacate an arbitration award on the basis that two of the arbitrators failed to disclose their simultaneous involvement in another arbitration and thereby exhibited evident partiality. The other arbitration involved a pivotal common witness, similar disputed contract terms and issues, and a company that succeeded to the business of the defendant in this arbitration. During the selection process, the arbitrators submitted a completed questionnaire and made supplemental disclosures regarding their current and previous service as arbitrators and experiences with affiliates and subsidiaries of the parties. However, at no time did the two of the arbitrators disclose that they were chosen as arbitrators in the other proceeding or that the matters involved the same pivotal witness.
The reinsurer contended that, had it known of the arbitrators’ involvement in the other proceeding, they would have objected to their service and sought their recusal if they refused to voluntarily resign. Applying the Second Circuit test of “evident partiality”, the court noted that “an arbitrator who knows of a material relationship with a party and fails to disclose it meets Moralite’s ‘evident partiality’ standard: A reasonable person would have to conclude that an arbitrator who failed to disclose under such circumstances was partial to one side.” The court held that the undisclosed relationship to the other arbitration constituted a material conflict of interest since the arbitrators placed themselves in a position where they could receive ex parte information about the kind of reinsurance business at issue, be influenced by recent credibility determinations in the common witness’s testimony, and influence the other arbitrator’s thinking on issues relevant to the arbitration. By failing to disclose their participation in the other arbitration, the conflicted arbitrators deprived the reinsurer of an opportunity to object to their service or to adjust their arbitration strategy. As such, the nondisclosure was material and exhibited “evident partiality.”
A copy of the decison is attached here
Bryan Richmond and Dan Gerber