Wednesday, January 24, 2007

The Next Supreme Court Arbitration Case?

Common law judges expressed a negative view toward arbitration, apparently based on a belief that such alternative dispute resolution ousted the court’s jurisdiction. In the United States, the legal landscape fundamentally changed with the passage in 1925 of the Federal Arbitration Act. The purpose of the FAA "was to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts." Motions to compel arbitration for a wide variety of claims arising under the Copyright Act are now routinely granted, so long as the dispute is encompassed by the agreement to arbitrate.

Motions to confirm arbitration awards are also routinely granted, mostly because the grounds for challenging them are so limited. Partiality is one such ground. The standard for determining when the arbitrator was impartial has divided the Fifth Circuit en banc in an 11-5 vote in a copyright dispute, Positive Software Solutions, Inc. v. New Century Mortgage Corp., 2007 WL 111343 (5th Cir. Jan. 18, 2007)(vacating the panel opinion),

The problem stems from the Supreme Court's opinion in Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968), and extends to whether Justice Black's opinion was a majority or plurality opinion. One might think the latter issue relatively straightforward, but apparently it is not, turning on the weight to be given to Justice White's concurrence and his statement that he was "glad to join" the Black opinion, thereby supplying the fifth vote. White's concurring opinion however sets forth a narrower ground for the decision, and because of this all circuit courts except the Ninth have concluded that Justice Black's represents only a plurality opinion. (Ses Schmitz v. Zilveti, 20 F.3d 1043 (9th Cir. 1994)). There is also widespread dissatisfaction among the lower courts with Commonwealth, plurality or not, see e.g., Judge Posner's early opinion in Merit Insurance Co. v. Leatherby Insurance Co., 714 F.2d 673, 680 (7th Cir. 1983).

The dispute turns on the meaning of "evident partiality" in 9 USC 10(a)(2): whether that term requires that an undisclosed relationship that the arbitrator had with a party, witness, or counsel (as in Positive Software Solutions) must be beyond a "trivial or insubstantial" prior relationship in order to justify vacating an award (as the majority of the Fifth Circuit en banc held), or whether the "very failure to disclose facts that might create a reasonable impression of the arbitrator's partiality" justifies vacating the award (as the panel opinion had held).

Given the importance of the issue and the split in the lower courts on even the nature of Justice Black's Commonwealth opinion, this might be a good candidate for the Supreme Court's tiny, tiny docket.

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