Originally from:

AAA Handbook on Arbitration Practice - Second Edition

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CHAPTER 36

MUST ARBITRATORS INVESTIGATE IN
CONNECTION WITH THEIR DISCLOSURES?
SOME COURTS OPEN THE DOOR TO EVIDENT
PARTIALITY ATTACKS

Bethany L. Appleby

I. Introduction

One of the selling points of arbitration under the Federal Arbitration
Act (FAA) is the relative finality of an award.1 Arbitration awards may
be vacated only under limited circumstances, including if an arbitrator
displays “evident partiality.”2 Although the FAA has not explicitly
defined this standard, most federal courts agree that arbitrators are
evidently partial if they have an “actual bias” towards a party or an
“inferred bias” because they failed to disclose a conflict of interest.3
Arbitrators can minimize the risk of an “evident partiality” finding
by making adequate disclosures to the parties. This chapter focuses on
two federal circuits that have heightened their disclosure requirements by
adding a “duty to investigate” in connection with arbitrator disclosures.4
In other words, arbitrators may have an obligation to discover conflicts
of which they may not even been fully aware.

In Applied Industrial Materials Corp. v. Ovalar Makine Ticaret Ve
Sanaya, A.S., the U.S. Court of Appeals for the Second Circuit imposed a
duty on arbitrators to either investigate known conflicts of interest or
inform parties that they did not investigate.5 The Ninth Circuit in Schmitz
v. Zilveti embraced a freestanding duty to investigate that is separate
from the duty to disclose potential conflicts.6 Although Schmitz limited
its holding to arbitrations before the National Association of Securities
Dealers, later Ninth Circuit opinions suggest an expansive, generalized
duty to investigate. Arbitrators should consider their potential duty to
investigate when preparing their disclosures to the parties.