Court Refuses to Vacate Arbitral Award for Arbitrator Bias

On November 28, 2018, Justice Masley of the New York County Commercial Division issued a decision in Matter of Sayre v. Madison Hawk Partner, LLC, 2018 NY Slip Op. 33030(U), refusing to vacate an arbitral award for arbitrator bias, explaining:

As an initial matter, petitioners' communication was not improper. Paragraph 19 of the Operating Agreement grants the arbitrator the power to award attorneys' fees of a party if the arbitrator expressly determines that the party against whom such award is entered has caused the dispute, controversy or claim to be submitted to arbitration as a dilatory tactic or in bad faith. Indeed, respondents requested that the arbitrator award it legal fees. This is not a case of a secret communication with the arbitrator.

Respondents have a heavy burden of establishing arbitrator bias by clear and convincing evidence. Contrary to respondents' argument, there is no per se rule that any communication with an arbitrator regarding payment of fees impairs the integrity of the arbitration process. Respondents' reliance on Ament v Schubert Piano Co, 172 AD 423 (1st Dept 1916), for this proposition is misplaced since it was decided before the Federal Arbitration Act was enacted in 1925 and long before the public's enthusiastic support for arbitration.

Courts have found an appearance of bias where there is evidence that a party was prejudiced or denied a fair hearing as a result of an arbitrator's knowledge that the party failed to pay its portion of the arbitration fees. For example, where the arbitrator barred a party from participating in five days of a seven day hearing, the court found fundamental unfairness and vacated the award. Further, this is not a case where a party could not afford to pay the arbitral fees and is penalized for penurious. Otherwise, respondents' reliance on cases involving improper arbitrator demands for payment is misplaced. There is no suggestion that respondents were denied a full and fair opportunity to be heard. Indeed, the decision is well drafted and well reasoned. The court declines respondents' invitation to infer bias or a conflict of interest without any evidence.

(Internal quotations and citations omitted).

Complex commercial litigation involves more than courts. Disputes often are--by agreement--decided by private arbitrators. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.