Four times in the past 15 months the Supreme Court has struck down lower court attempts to limit the impact of the Federal Arbitration Act (FAA) by allowing recourse to the courts — on three of those occasions issuing per curiam orders vacating state court decisions for ignoring Supreme Court precedent. Nitro-Lift Techs. v. Howard, 133 S. Ct. 500 (2012) (Oklahoma); Marmet Health Care Ctr. v. Brown, 132 S. Ct. 1201 (2012) (West Virginia); KPMG LLP v. Cocchi, 132 S. Ct. 23 (2011) (Florida); see also CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012) (reversing Ninth Circuit).

In light of the Court’s expansive interpretation of the FAA, I elsewhere urge rulemakers to take the Court up on its invitation to amend Federal Rule of Civil Procedure 16 to create a mechanism for meaningful judicial review of arbitral awards. See Joseph, We Need to Do Something about Arbitration, 39 LITIGATION No. 3 at 9 (Summer 2013). This article addresses some practical issues under the FAA as it presently applies both to international and domestic arbitration. It begins, however, with an important decision construing 28 U.S.C. § 1782, to permit discovery in U.S. courts in aid of arbitrations abroad.

Evident Partiality. The four statutory grounds for overturning an arbitral award set forth in 9 U.S.C. § 10(a) apply both to domestic and international arbitrations. Scandinavian Reins. Co. v. St. Paul F&M Ins. Co., 668 F.3d 60 (2d Cir. 2012). One of the four is that “evident partiality or corruption in the arbitrators” (§ 10(a)(2)).

Both the Second and Third Circuits have issued opinions this year emphasizing that an arbitrator is evidently partial “only when a reasonable person, considering all of the circumstances, would have to conclude that an arbitrator was partial to one side.” NGC Network Asia v. PAC Pac. Grp., 2013 U.S. App. LEXIS 2802 (2d Cir. Feb. 11, 2013). “The conclusion of bias must be ineluctable, the favorable treatment unilateral.” Freeman v.
Pittsburgh Glass Works, 709 F.3d 240 (3d Cir. 2013).

Freeman, like Scandinavian before it, emphasized that this standard is stricter than the appearance-of-partiality test of 28 U.S.C. § 455 (the judicial recusal statute). Freeman held that “evident partiality” was not established by the undisclosed fact that an arbitrator had once received contributions from one party for an unsuccessful campaign. NGC concluded that an arbitrator’s disclosed relationship with a non-controlling shareholder of one of the parties was not enough. Scandinavian held that the failure of two arbitrators to disclose their concurrent service as arbitrators in another, arguably similar, arbitration also did not constitute “evident partiality.”

The quality of the arbitrator’s disclosure — and its compliance with any rules governing the arbitral proceeding — is key. Although non-disclosure was forgiven in two of these three cases, all three opinions rested, inter alia, on the disclosures actually made. Note that, in some circumstances, nondisclosure itself might be deemed “evidence of bias.” Lucent Techs. Inc. v. Tatung Co., 379 F.3d 24, 29 (2d Cir. 2004).

Arbitrating with Non-Signatories. Although “[a]rbitration is a matter of contract,” AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), there are circumstances in which a non-signatory may compel arbitration or be compelled to arbitrate. The Ninth Circuit ruled in January that, when the party moving to compel is a nonsignatory, it is for the court, not the arbitrator, to decide arbitrability — even if the arbitration clause provides that this is a question for the arbitrator — because the nonsignatory did not sign on to the arbitration clause. Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir. 2013). This reasoning would appear to apply a fortiori if the party against whom the motion to compel is brought is a nonsignatory.

One of the common grounds nonsignatories assert in motions to compel is the doctrine of equitable estoppel. Equitable estoppel may apply if a signatory alleges concerted misconduct by the nonsignatory and a signatory, and the misconduct is intimately connected with the contract. Kramer, 705 F.3d at 1129. The relationship between the allegations to be arbitrated and the contract is critical. A mere allegation of conspiracy between the nonsignatory and a signatory is insufficient — the claim must be intertwined with the contract containing the arbitration clause. King Cole Foods, Inc. v. SuperValu, Inc., 707 F.3d 917 (8th Cir. 2013). Accord Baldwin v. Cavett, 2012 U.S. App. LEXIS 22777, at *17-18 (5th Cir. Nov. 6, 2012).

Agency is another commonly-invoked ground for compelling arbitration with a nonsignatory. The Fifth Circuit ruled last fall that a non-signatory may not compel arbitration merely because it is an agent of a signatory, even if the arbitration clause expressly extends to agents, unless the claim itself arises out of (i) the agency relationship (Baldwin, 2012 U.S. App. LEXIS 22777, at *12), and (ii) an obligation created by the contract. Weingarten Realty Inv. v. Miller, 495 Fed. App’x 418 (5th Cir. 2012).

Gregory P. Joseph is a former President of the American College of Trial Lawyers and past Chair of the Section of Litigation of the American Bar Association. He can be reached at Gregory P. Joseph Law Offices LLC in New York and gjoseph@josephnyc.com.

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