The Eleventh Circuit has a lesson for future litigants: the presence of a repeat player is not enough to show the evident partiality needed to vacate an arbitration award under the Federal Arbitration Act.

In  Johnson v. Directory Assistants, Inc., __ F.3d __, 2015 WL 4939578 (11th Cir. Aug. 20, 2015), an advertising company demanded arbitration against its client for breach of contract.  The arbitrator disclosed that he had arbitrated a dispute involving the advertising company five years earlier.  The client challenged the arbitrator and the arbitral forum (the Alternative Dispute Resolution Center, “ADRC”) denied the challenge.  Days before the hearing, the client requested and received a continuance.  A week before the rescheduled hearing, the client declared that because of “the current state of affairs” in its industry, it was “not able to continue with the arbitration.”  Therefore, the arbitrator proceeded with the hearing and allowed the advertising company to put on its case, despite the absence of the client.  The arbitrator awarded the advertising company roughly $100,000 in liquidated damages, late fees, and arbitration costs.

The client sought to vacate the award.  The federal district court granted the motion to vacate, finding that the arbitrator was biased.  The appellate court disagreed.  With respect to the client’s primary argument, that there was “evident partiality” because the arbitral forum refused to disclose how often the advertising company had used ADRC, the court noted that there was no record the client even asked how many times the advertising company had used the arbitral forum.  Furthermore, the court was “unconvinced that the failure to disclose that information would justify vacatur” because that fact alone would not “lead a reasonable person to suspect partiality.”

With respect to the client’s argument that vacatur was appropriate under Section 10(a)(3) because the arbitrator did not postpone the hearing a second time, the court had little sympathy.  “Under these circumstances, where a party participated in an arbitration proceeding only to withdraw a week before the hearing with little explanation and no request for extension, vacatur is inappropriate.”

While the client’s arguments for vacatur in this case were not strong, the Eleventh Circuit did more than it needed to dispose of them.  Its comment that evidence of repeat arbitrations before a single arbitrator or forum is not enough to show vacatur is important because many opponents of consumer arbitration point to the existence of repeat players as a critical flaw in the system.

Read Article—

By Liz Kramer

Liz Kramer is a shareholder at Leonard, Street and Deinard, one of the largest law firms in Minnesota, where she litigates complex business and construction disputes. Liz graduated from Yale Law School and is deeply knowledgeable on arbitration law. Website: www.arbitrationnation.com