Court Soundly Rejects Attempt to Disqualify Arbitrators

On April 5, 2021, Justice Masley of the New York County Commercial Division issued a decision in Huntsman Intl., LLC v. Albemarle Corp., 2021 NY Slip Op. 31073(U), soundly rejecting an attempt to disqualify arbitrators. She wrote:

Under AAA rules, ARC decides conflict issues. Here, Albemarle fails to identify any AAA rule that barred Cavanaugh from speaking to the wing arbitrators about the conflict. In fact, AAA Rule 19(b), gives AAA discretion whether to share such information. Also, relevant here is AAA Construction Industry Arbitration Rule 22(c), which provides that, where one arbitrator has been replaced, the decision whether to rehear any prior rulings lies within the discretion of the new panel.

A preliminary injunction may be granted under CPLR article 63 when the party seeking such relief demonstrates: (1) a likelihood of ultimate success on the merits; (2) the prospect of irreparable injury if the provisional relief is withheld; and (3) a balance of equities tipping in the moving party's favor.

Albemarle has not established likelihood of success. While this court has jurisdiction to hear Albemarle's request for the extraordinary relief to intervene in an ongoing arbitration prior to a final award, Albemarle has not satisfied its burden under CPLR 6301. New York courts have inherent power to disqualify an arbitrator before an award has been rendered. Indeed, where a party to an arbitration proceeding becomes aware of the probable partiality of an arbitrator, there would appear to be no reason why the court should not exercise its equitable jurisdiction on the application of the party at any time during the proceeding, rather than require the party to wait for the award, and then move to vacate. The grounds for disqualification pursuant to the court's inherent power include the appearance of bias. That bias must be clearly apparent based upon established facts, not merely supported by unproved and disputed assertions. However, this court can find neither the appearance of bias nor probable partiality on this record.

New York courts disfavor collateral attacks on ongoing arbitrations where, as here, the parties have agreed to arbitrate their disputes and to be bound by AAA rules. Judicial review of interim determinations is generally unavailable. Here, the parties chose arbitration, including application of AAA rules regarding conflicts. AAA's disqualification decisions are binding because the AAA rules clearly outline that the AAA's determination of any partiality challenge shall be conclusive.

The fundamental premise of the parties' agreement to arbitrate here is that the parties are bound by the AAA's rules and procedures and cannot use the courts as some sort of interlocutory appellate court to challenge adverse rulings. Such a challenge undermines the inherent benefits of arbitration, speed and lower cost, and invites interference with the arbitration process.

Albemarle's reliance on Grendi for the proposition that the arbitrators placed Albemarle in an untenable situation by not following these rules, compelling pre-award disqualification, is misplaced. In Grendi, the petitioner refused to pay the respondents' share of required arbitrator fees, after respondents disclosed that they could no longer afford to do so. AAA informed the arbitrators of the petitioner's refusal, which the court believed created a potential for bias given that the petitioner's decision directly affected how much money went into the arbitrators' pockets. This court rejects Albemarle's conjecture that, via Cavanaugh's letter, Anderson and Duval were sending Albemarle a secret message to stand down-do not challenge Cavanaugh. The court will not speculate as to why Cavanaugh sought input from his co-panelists and will not assign the malevolent motive that Albemarle invites without any factual basis. Nevertheless, there is a clear difference between the cases relied upon by Albemarle involving arbitrator compensation and this case where Albemarle disagrees with the wing arbitrators' opinion.

Moreover, it was not the arbitrators, but rather Albemarle which created this "untenable" situation. When AAA disqualified Cavanaugh but denied disqualification of Anderson and Duval, the wing arbitrators were not copied on the email. But for filing this extraordinary motion, publicly without requesting a seal, Anderson and Duval would never have known about Albemarle's request to disqualify them and Albemarle could not assert their bias now. Albemarle cannot create the situation and complain about the resulting presumed bias.

Nevertheless, this court rejects Albemarle's premise that the arbitrators are now conflicted and predisposed to favor Huntsman. Implicit in Albemarle's argument, that prior rulings are tainted because Cavanaugh's conflict existed prior to his selection in 2019, is that (1) Cavanaugh knew about the conflict when he made decisions unfavorable to Albemarle; (2) Cavanaugh succeeded in convincing the other two arbitrators to join him in favoring K&E; and (3) facts and law were not the underpinning of the 28 arbitration decisions. This court has no reason to believe that these former federal judges cannot be impartial after declining a motion to recuse; this situation is no different.

Moreover, the parties here fashioned the complex arbitrator selection process. Presumably, the parties appreciate the expertise of federal judges developed over many years making decisions based on the law and the facts, including neutrality after recusal decisions.

This court also rejects Albemarle's argument that the remaining arbitrators have pre-judged whether prior rulings must be revisited. Under Albemarle's theory, any adverse decision in litigation or arbitration predetermines subsequent decisions. Arbitrators take an oath to be fair and just, and Albemarle fails to present any factual allegations that the remaining arbitrators here have somehow betrayed this oath. The fact that one party loses at arbitration does not, without more, tend to prove that an arbitrator's failure to disclose some perhaps disclosable information should be interpreted as showing bias against the losing party. We have repeatedly said that adverse rulings alone rarely evidence partiality, whether those adverse rulings are made by arbitrators or by judges.

Albemarle contends that it will suffer irreparable harm if it is forced to litigate this dispute before wing arbitrators who ought to be removed under New York law and before a new Chair is nominated by them. Albemarle is not without a remedy, and thus, it cannot establish irreparable harm at this juncture. It may make a post-award request to vacate the award.

Albemarle contends that it is precisely because arbitration awards are subject to such judicial deference, it is imperative that the integrity of the process, as opposed to the correctness of the individual decision, be zealously safeguarded. When, in a post-award challenge, one of the arbitrators who participated in the award is found to be conflicted, the conflict infects the award and requires it to be vacated. Again, such a significant decision is not to be made based on conjecture, and the court declines Albemarle's invitation to make unsubstantiated assumptions.

Finally, equities favor denial of the motion. The parties selected arbitration because it is supposed to be cheaper and faster. Arbitration serves the laudable objective of conserving the time and resources of the courts and the contracting parties. Arbitrators routinely use their expertise to orchestrate expeditious resolutions to complex legal problems in commercial disputes. The court's intervention at this time is premature and fair to no one.

(Internal quotations and citations omitted).

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.