Tagged ‘Arbitration‘

How Not to Prove an Arbitrator’s Partiality

The Eleventh Circuit has issued a stern reminder to parties who are unhappy with an arbitrator’s rulings:  direct, definite and demonstrable evidence is necessary in order to prove that an arbitrator is biased in favor of an opponent.

In Fowler v. Ritz-Carlton Hotel Co., 2014 U.S. App. LEXIS 15895 (11th Cir. 2014)(unpublished opinion), plaintiffs filed a complaint against their employer, Ritz-Carlton Hotel Company, LLC.  The arbitrator issued a scheduling order that required plaintiffs to submit an amended demand for arbitration by a certain date. Plaintiffs’ attorney did not comply with this deadline.  In fact, the attorney only got around to filing a motion for extension of time four months after the deadline had passed.  Despite this tardiness, the arbitrator granted the motion and set a deadline for discovery that specified that the parties could take up to ten depositions.  Testing their luck (and, likely, the patience of the arbitrator), plaintiffs moved to depose 40 witnesses.  Predictably, the arbitrator denied their request. When plaintiffs gave Ritz-Carlton less than 48 hours’ notice of their intention to depose four witnesses, the arbitrator granted Ritz-Carlton’s request to prevent the depositions.  Even at this stage in the proceedings, the arbitrator took pains to specify that plaintiffs could still take depositions at a later date with reasonable notice.

Plaintiffs then moved to disqualify the arbitrator on the grounds that she was biased in Ritz-Carlton’s favor and  had “utterly thwarted” plaintiffs’ ability to conduct discovery. After more wrangling (including an unsuccessful effort by plaintiffs to remove the case to federal court), the arbitrator ultimately issued an award in Ritz-Carlton’s favor. The arbitrator’s decision was confirmed by a federal magistrate judge, who chastised plaintiffs for filing inaccurate, farfetched and unpersuasive arguments.

Plaintiffs claimed that the arbitration award should be vacated due to the arbitrator’s evident partiality in favor of Ritz-Carlton. In particular, plaintiffs claimed that Ritz-Carlton’s parent company, Marriot, advertised on the website maintained by the arbitrator’s law firm.   In fact, the website listed a number of hotels, including a local Marriot, as possible accommodations for firm visitors.

Under the Federal Arbitration Act, an arbitration award may be vacated if the arbitrator actually has a conflict of interest or knows and fails to disclose information which would lead a reasonable person to believe a conflict existed. Noting that plaintiffs failed to allege, let alone provide evidence, that the arbitrator even knew of the reference to the Marriot hotel, the Eleventh Circuit agreed that plaintiffs’ allegations were “remote, uncertain and speculative.” Moreover, the Court reminded plaintiffs that an arbitrator’s failure to investigate a potential conflict of interest is not sufficient to establish partiality.

This case certainly does not suggest that arbitrators should not investigate potential conflicts of interest. Instead, the Eleventh Circuit reminds us that vacating an arbitrator’s decision on the grounds of evident partiality is a serious act that requires serious proof. In this case, plaintiffs’ allegations were dismissed by the lower courts and the Eleventh Circuit as “distorted,” “frivolous,” “irrelevant,” “meritless” and “omit[ting]…inconvenient facts.” It is difficult to imagine a more strongly worded rebuke or a more clearly worded reminder that federal law favors arbitration.

The D.R. Horton Saga Continues

The D.R. Horton Saga Continues: The Federal Arbitration Act, the National Labor Relations Act and Class Action Arbitrations. D. R. Horton, Inc. v. National Labor Relations Board, 737 F.3d 344 (5th Cir. 2013).
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The Background. Home builder D.R. Horton required employees to sign a “Mutual Arbitration Agreement” (MAA) as a condition of employment. The MAA provided that all disputes and claims between Horton and its employees (including claims for wages, benefits and other compensation) would be determined by final and binding arbitration. In addition, the MAA provided that arbitrators would not “have the authority to consolidate the claims of other employees,” conduct an arbitration as a class action, or award relief to a group of employees in a single arbitration proceeding.

Several years later, a group of Horton employees became concerned that Horton had misclassified them as exempt employees in violation of the Fair Labor Standards Act. Horton argued that the MAA prohibited them from bringing these claims to arbitration as a group. Read More →

Dewan v. Walia: Arbitration Award Vacated for Manifest Disregard of the Law

Dewan v. Walia, 2013 U.S. App. LEXIS 21970 (4th Cir. 2013) (unpublished).
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The Background. In 2003, Dewan, a certified public accountant and proprietor of his own accounting firm, entered into a three-year employment agreement with Walia, a Canadian accountant. The agreement contained non-solicitation and non-competition clauses, as well as an arbitration clause. In 2006, the agreement was renewed for another three-year period. Although the parties differed over whether the employment agreement continued beyond its expiration in early 2009, it is clear that Walia continued to work for the firm through August 2009. In November 2009, Walia signed a release agreement in exchange for consideration in the amount of $7,000. The release agreement expressly discharged Dewan and related parties from liability for claims relating to Walia’s employment.

Several months later, Dewan began arbitration proceedings against Walia. At issue were Dewan’s claims that Walia (i) breached the non-solicitation and non-competition clauses of his employment agreement and (ii) breached the release agreement by bringing claims against Dewan. Walia, in turn, asserted that Dewan had underpaid him, breached the profit-sharing terms of the employment agreement and fraudulently attempted to withdraw his authorization to work in the United States. A four-day arbitration hearing concluded with an award of $457,108.20 in Walia’s favor. Read More →