Originally from World Arbitration And Mediation Review (WAMR)

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THE FORUM CASE SUMMARIES

By Ryan Chandlee∗ & Kirk Knutson**

I. NONDISCLOSURE OF TRIVIAL RELATIONSHIPS IS NOT A
BASIS FOR VACATUR
In an en banc decision, an 11-5 majority of the Fifth Circuit Court of
Appeals held that an arbitrator’s nondisclosure of a trivial business
relationship between the arbitrator and a party to the proceeding is not a
proper basis for vacating an award.
In Positive Software Solutions, Inc. v. New Century Mortgage Corp.,
476 F.3d 278 (5th Cir. 2007), Positive Software Solutions (Positive
Software) and New Century Mortgage (New Century) submitted a software
licensing dispute to arbitration. Following a seven-day hearing, the
arbitrator, Peter Shurn, rendered an award in favor of New Century.
Positive Software subsequently investigated Shurn’s background and
discovered that several years earlier, Shurn and New Century’s attorney,
Ophelia Camiña, represented the same party in patent litigation involving
six different lawsuits and numerous attorneys. Though their names
appeared together on pleadings, Shurn and Camiña never appeared together
for meetings, conferences, or hearings. Based on that information, Positive
Software filed a motion to vacate the arbitration award. The district court
vacated the award on the ground that Shurn’s nondisclosure of “a significant
prior relationship with New Century’s counsel” created an appearance of
partiality. After a three-judge panel affirmed the district court’s ruling, the
court granted en banc review.
The issue before the court was whether Shurn’s nondisclosure of his
relationship with Camiña required vacatur on the ground of “evident
impartiality.” 9 U.S.C.A. § 10(a)(2). To resolve this issue, the court
examined the U.S. Supreme Court’s interpretation of that provision in
Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145
(1968). In Commonwealth Coatings, Justice Black’s plurality opinion held
that arbitrators must “disclose to the parties any dealings that might create
an impression of possible bias.” In a concurring opinion, Justice White
wrote that he was “glad to join” the plurality opinion but also expressed his
view that arbitrators are not “automatically disqualified by a business
relationship with the parties before them if [the parties] are unaware of the
facts but the relationship is trivial.”