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Court Finds No Arbitrator Bias in Denying Motion to Vacate Arbitration Award

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  • Posted on: Jul 8 2020

The Federal Rules of Civil Procedure and the Civil Practice Law and Rules set forth the grounds upon which an arbitration award can be vacated. [Ed. Note: this Blog has written about the grounds upon which an arbitration award may be vacated here, here and here.] One of the grounds for vacatur is arbitrator bias. In today’s article, we look at Carter v. Royal Alliance Assoc., Inc., 2020 N.Y. Slip Op. 32086(U) (Sup. Ct., N.Y. County June 30, 2020) (here), a case involving a motion to vacate an arbitral award due to alleged arbitrator bias. 

Carter involved an arbitration award (“Award”), issued on January 15, 2019, by the Financial Industry Regulatory Authority (“FINRA”). The Award, which was issued unanimously by a three-person panel (“Panel”), granted petitioner, Cathy Carter (“Carter”), $2,113,665.00 in compensatory damages, $15,277.55 in costs, and $500,000.00 in attorneys’ fees.

The issues before the Court were twofold: (1) whether the award of attorney’s fees was proper; and (2) whether the Award was tainted by the non-disclosure of possible bias by the chair of the Panel. Slip Op. at *2.

Attorney’s Fees

The propriety of the attorney’s fees award centered on a settlement offer, captioned “Offer of Judgment”, that respondent, Royal Alliance Associates, Inc. (“Royal”), sent to Carter. Carter accepted the offer but did so “without waiver to any of her rights at law, including her right to pursue costs as well as attorneys’ fees as a prevailing party.” Id. Simultaneously with accepting the offer, Carter advised Royal that she was “filing a motion for a hearing on costs and attorney’s fees as prevailing party.” Id.

The Court found the foregoing language dispositive, opining that “[i]t is hard to imagine a clearer statement that Carter’s acceptance of the sum offered to her would not bar her from seeking attorneys’ fees in addition, and that she intended to do so in the then-pending arbitration proceeding.” Id.  

In so holding, the Court rejected Royal’s argument that Carter gave up the right to seek attorney’s fees once she “granted a full release of all claims.” Id. The Court noted, however, that the parties did not execute a settlement agreement in which a release was given. Id. at *2-*3. 

Moreover, the Court found that “[w]hether intended as a settlement offer, or as a formal offer of judgment [under Fed. R. Civ. P. 68], neither Royal’s [offer] letter, nor Carter’s response to it, bar[red] her claim for attorneys’ fees:

Carter’s initial submission to FINRA specified that she was acting, inter alia, pursuant to the Racketeer Influenced & Corrupt Organizations Act (RICO), 18 USC 1961, et seq. To the extent that Royal’s offer was what its heading denoted, and its first sentence stated, it was invalid as a bar to seeking attorneys’ fees, because it failed explicitly to mention costs, including attorney’s fees, although such costs are provided for by RICO. See, e.g. Sanchez v Prudential Pizza, Inc. 709 F3d 689, 691 (7th Cir 2013) (remanding for determination of costs and fees, where offer of judgment was silent as to costs provided for by statute); see also Steiner v Lewmor, Inc., 816 F3d 26, 34-35 (2d Cir 2016) (holding that the plaintiff was not precluded from seeking attorneys’ fees pursuant to the Connecticut Unfair Trade Practices Act, where Rule 68 offer did not unambiguously bar such recovery). To the extent that Royal’s offer was not what its heading implied and its first sentence said that it was, Carter’s letter, reserving a right that was not mentioned in the offer, constituted a counteroffer. See e.g. Brown v Cerberus Capital Mgt., L.P., 173 AD3d 513, 513 (1st Dept 2019). 

Slip Op. at *3-*4.

“Accordingly,” said the Court, “this court need not resolve the ambiguity in Royal’s position. Whether Royal’s offer was, or was not, an offer of judgment, Carter was not barred from seeking attorneys’ fees.” Id. at *4.

Arbitrator Bias

The non-disclosure about which Royal complained was that, more than ten years before the Award, the Chair of the Panel, who was then in private practice, had represented an elderly woman, whose savings had been stolen by her financial advisor. Upon learning of this representation, Royal’s attorneys wrote to FINRA, which, at Royal’s request, referred the inquiry to the Chair. The Chair responded that he did not believe his long-ago representation biased him in the pending arbitration.

“For tactical reasons,” Royal did nothing further; it did not raise the issue at arbitration. Id. The Court held that “[h]aving remained silent at the arbitration, Royal may not, now, claim bias on the part of the Chair.” Id. (citing Matter of Goldstein v. 12 Broadway Realty, LLC, 105 A.D.3d 506, 506 (1st Dept 2013), citing Matter of J.P. Stevens & Co. v. Rytex Corp., 34 N.Y.2d 123, 129 (1974)).

The Court also rejected Royal’s argument that the conduct of the arbitration, with regard to attorney’s fees, was flawed and showed arbitrator bias. Id. at *5. 

Takeaway

A court will vacate or modify an arbitral award when the arbitrator was biased or maintained an undisclosed personal relationship to one of the parties, resulting in a prejudiced decision. E.g., J.P. Stevens & Co. v. Rytex, 34 N.Y.2d 123, 129-130 (1974). Peripheral, superficial and insignificant contacts or relationships will not subject an arbitral award to vacatur or modification. In the Matter of Cross Props., Inc. v. Gimbel Bros., Inc., 15 A.D.2d 913 (1st Dept. 1962). The relationship must be material. Id. See also J.P. Stevens, 34 N.Y.2d at 129. Mere inferences of impartiality are insufficient to warrant interference with the arbitrator’s award; the evidence must be stronger; it must be clear and convincing. Matter of Provenzano, 28 A.D.2d 528 (1st Dept. 1967), aff’d, J.D.H. Rest. Inc. v. New York State Liquor Auth., 21 N.Y.2d 846 (1968).

In Carter, the alleged bias was, by dint of time, immaterial. As a result, the Court found that Royal failed to satisfy its burden of showing bias to warrant vacatur of the Award.

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