Article Law360

Challenging An Arbitrator Ab Initio: A Primer

08 February 2016

After an arbitration has concluded and there is a prevailing party and a losing party, the latter may identify an issue or perceived conflict with one or more of the arbitrators and move to vacate the arbitration award on that basis. At that point, the award has already been issued, and the time and expense of the arbitration has been incurred. What about a perceived conflict that is identified at the time of the appointment of the arbitrator, however? Usually, courts will not entertain challenges to arbitrators until the arbitrators have issued a decision. Accordingly, where a perceived conflict is identified early in the process, a party may consider asking the arbitral forum that is overseeing the arbitration, like the American Arbitration Association (“AAA”), JAMS or Financial Industry Regulatory Authority (“FINRA”), to consider the conflict and determine whether it is appropriate for the arbitrator to serve on the arbitration panel.

Each of these arbitral fora have rules to address challenges to arbitrators. For example, the Commercial Arbitration Rules of the AAA provide that any “arbitrator shall be impartial and independent and shall perform his or her duties with diligence and in good faith, and shall be subject to disqualification for: (i) partiality or lack of independence, (ii) inability or refusal to perform his or her duties with diligence and in good faith, and (iii) any grounds for disqualification provided by applicable law.” (AAA Commercial Rule 18(a)); see also FINRA Rule 12407(a)(1) (an arbitrator may be removed if he or she “is biased, lacks impartiality, or has a direct or indirect interest in the outcome of the arbitration. The interest or bias must be definite and capable of reasonable demonstration, rather than remote or speculative. Close questions regarding challenges to an arbitrator by a customer under this rule will be resolved in favor of the customer.”); JAMS Rule 15(i) (a determination “shall take into account the materiality of the facts and any prejudice to the Parties.”).

The rules of the arbitral fora provide broad parameters for challenges, but provide limited guidance to parties considering challenges based on a specific situation. Indeed, although these arbitral fora oversee thousands of arbitrations every year, decisions regarding arbitrator challenges are not typically made publicly available. Further, the arbitral fora may decide the arbitrator challenge in a single line without much in the way of explanation.
Despite the potential opacity of these kinds of decisions, discussions with practitioners and experience suggest that challenges to arbitrators can arise from the following situations:

The arbitrator has been appointed as a party-appointed arbitrator repeatedly by the same party. Repeated appointments might give rise to assertions that the arbitrator is too closely linked to the appointing party, is economically reliant on the appointing party or, if the subject matter of the current arbitration and another arbitration is the same, that the arbitrator will inappropriately use information from one arbitration in another arbitration.
The arbitrator is or has been affiliated with the appointing party or its counsel. Affiliations between an arbitrator and the appointing party/counsel may involve active representation of the party by the arbitrator, the arbitrator being a former consultant for, or employee of, the party, or acting as co-counsel with the counsel for the appointing party on a matter. There are also other types of affiliations that may be considered, like whether the arbitrator and the appointing party belong to any of the same professional organizations or are affiliated with one or more of the same non-profit organizations.
The arbitrator has expressed a view on an issue to be decided in the case. This kind of statement can arise in a number of ways, including in a decision in another arbitration, or a law review article or similar legal writing.
The arbitrator has failed to disclose a potential conflict.

The list above is not exhaustive, nor is it meant to suggest that the existence of any of the above factors is necessarily sufficient to justify removal of an arbitrator in any particular situation.

There are other considerations to take into account before proceeding with a challenge. For example, although arbitral forums decide the challenges and usually do not inform the challenged-arbitrator that there has been a challenge, an arbitrator may infer that there has been a challenge if he or she is asked for further information regarding a matter, or is aware of a delay in confirming the arbitrator’s appointment to the arbitration panel. If the arbitrator does learn of the challenge, and the challenge is not successful, then the arbitrator might have a bias against the party that had asserted the challenge. Pursuing a challenge before the arbitral fora may affect a party’s ability to challenge an arbitrator after an award has been issued. All of these considerations ought to be taken into account in determining whether to proceed with an arbitrator challenge.

[1] The AAA handles 150,000 arbitrations per year. JAMS and FINRA oversee 12,000 and 4,000 arbitrations per year, respectively.

Matthew Solum, P.C.

Practices