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For my first Post this week I am choosing to focus on alternative dispute resolution (ADR), particularly, one type of ADR: arbitration. There is a common perception that the vast majority of civil and criminal cases never make it to trial but are instead settled out of court. That figure may vary anywhere from 43% to 95% depending on the type of case involved (human rights/civil rights, contracts/commercial cases, auto accident insurance claims), the court (federal or state) and a myriad of other reasons. See, for example:
http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=1202&context=facpub (Links to an external site.) ANDhttp://epstein.wustl.edu/research/courses.judpol.Galanter.pdf (Links to an external site.) ANDhttp://www.americanbar.org/content/dam/aba/publishing/litigation_journal/04winter_openingstatement.authcheckdam.pdf (Links to an external site.)
ADR is aimed at having the parties to a dispute embark on a path to resolution that is final in terms of adjudication as well as more time efficient and less costly than the process of going to trial; in short, an alternative to the “I’ll see you in court!” mentality of an overly litigious American populace. (See: http://press.princeton.edu/chapters/s9350.pdf (Links to an external site.) and J. Hector St. John de Crevecoeur, Letters From An American Farmer athttp://xroads.virginia.edu/~hyper/crev/letter03.html (Links to an external site.))
One of the underlying aspects of most arbitration proceedings is that the outcome of those proceedings is typically binding on both parties. The parties voluntarily choose by way of a contract clause or subsequent to a dispute arising, to go to arbitration instead of resorting to using the court system to resolve their dispute. Therefore, courts rarely overrule arbitrators’ decisions and do so only under very unusual circumstances such as whether a party to the arbitration has been denied a fundamentally fair hearing.
Just like a judge and a jury in a court of law, we expect those who will decide a case in arbitration to be fair and impartial. At what point would a reasonable person conclude that the judge or a jury member in civil court or an arbitrator in an arbitration hearing was “partial” to the other party in the arbitration? Would it be enough to say that the arbitrator(s) participated in a previous arbitration proceeding resulting in an award against your interests? How about if the arbitrator had a broker-client relationship with one of the claimants opposed to you in the arbitration? Or he/she stood to financially gain (even indirectly) from the outcome of the case?
Most often, we would say in such instances that a conflict of interest exists and that any arbitration award that went against you could be “vacated” or set aside. However, the exact opposite happened in the following case. (See Morgan Keegan & Co., Inc. v. Smythe, 2014 WL 2462853 (Tenn. Ct. App. May 29, 2014)http://www.tba.org/sites/default/files/smythem_052914.pdf (Links to an external site.) (opinion no longer accessible without TN Bar membership) and oral argument at: http://www.tsc.state.tn.us/courts/court-appeals/arguments/2014/01/23/morgan-keegan-company-inc-v-william-hamilton-smythe-iii-et (Links to an external site.).
The facts in the case seem to support the court of appeals’ ultimate decision. The accused arbitrator had served on numerous prior arbitration panels resulting in awards contrary to the appellant and those prior proceedings rested on much the same legal theories and similar facts. Yet, the appellant never objected to this arbitrator in these other eighteen cases.
Likewise, the broker-client relationship that the arbitrator had with one of the several claimants against the appellant in the arbitration failed to taint the arbitrator’s judgment as it was fully disclosed, factually minimized by closure of an account between the parties and related funds parsed off to a neutral third party. Finding an arbitrator in the securities industry with the degree of expertise necessary to rule in such a case and, one who would not have had any institutional connection to a client with a claim against the appellant in this matter would be next to impossible.
So, it is on the specific facts that this particular case results in the reversal of the trial court’s decision to vacate the arbitration award. In plain English, the Tennessee Appellate Court ruled that the arbitration award was valid—thus, no tainting by a “partial” arbitrator. What was most significant in this case though was the fact that the court maintained that the only way to prove an arbitrator’s bias is to have undisputed “direct [and] definite evidence of improper motives” on the part of the arbitrator. I think that having such concrete and direct evidence is a nearly insurmountable obstacle for most parties trying to stop unethical behavior on the part of an arbitrator. What do you think?
See: Alexander Berg, Arbitrator’s Prior Ruling Against Party Is Not Basis to Disqualify (June 16, 2014) http://hamiltoncountyherald.com/Story.aspx?id=2139&date=4%2F8%2F2011 (Links to an external site.) originally posted at: http://apps.americanbar.org/litigation/committees/adr/news.html (Links to an external site.) (Morgan Keegan & Co., Inc. v. Smythe)
See also (background): http://www.forbes.com/2009/09/05/commentary-lipner-arbitration-intelligent-investing-rewards.html (Links to an external site.)