Volume 19, Number 6
BUSINESS AND COMMERCIAL LAW
CAN TRIPARTITE ARBITRATION PANELS REACH FAIR RESULTS?
By Stephen C. Rogers
Parties to arbitration agreements frequently require "tripartite" panels to resolve commercial disputes. This format means that each party unilaterally appoints one arbitrator, after which the appointees or the parties either agree on a third, neutral arbitrator or request an appointment through an agreed-upon institution such as a court or private dispute resolution firm. Absent an agreement between the parties, their selected arbitrators are normally assumed to be aligned with the side that appointed them and to lack the neutrality expected of the third member of the panel, who serves as the ultimate decision maker in the dispute.
Inherent tensions. Because of the tension inherent in the roles of judge and advocate, questions abound concerning party arbitrators. Is it realistic to expect that the same human being can honestly act as "an amalgam of judge and advocate" in a single proceeding? What guidance does the law provide for the conduct of party arbitrators and the activities they may undertake to advocate the positions of their appointing parties and at the same time judge the dispute?
The Federal Arbitration Act is a good starting point to consider these questions. Section 5 of the act requires that the method for selecting arbitrators contained in the parties' agreement "shall be followed." If the agreement allows each party to designate one arbitrator and places no limitations on who may be chosen, courts usually infer that partisans may be appointed. The rulings also typically interpret the act to prevent a court from overriding the arbitration agreement by requiring a party to appoint a neutral.
State law also respects the rights of parties to agree that each of them may appoint a partisan representative to an arbitration panel. Like the federal act, the Uniform Arbitration Act requires that the method for appointing arbitrators specified in the parties' agreement shall be followed. Moreover, both the Uniform Arbitration Act and its recent revision make "evident partiality" a ground for vacating an arbitration award only if the bias is exhibited by "an arbitrator appointed as a neutral."
In its influential decision in Astoria Medical Group v. Health Insurance Plan of Greater New York, New York's court of appeals emphasized the binding effect of the procedural structure chosen by the parties:
We enforce the tripartite arbitration clause before us because it is the one chosen by the parties, not because we favor it or regard it as ideal or even desirable. We are, in effect, mandated by the policy, no less than by the terms, of our statute to give life to the tribunal which the parties themselves create….If they choose to have their disputes resolved by a body consisting of two partisan arbitrators, and a third neutral arbitrator, that is their affair. We may not rewrite their contract.
Partisanship. One touchstone for locating the line between "honest" and "dishonest" partisanship is the Code of Ethics for Arbitrators in Commercial Disputes that the American Bar Association (ABA) and American Arbitration Association (AAA) adopted in 1977. Although the Code lacks the force of law, courts often consider it in measuring the propriety of an arbitrator's conduct if it has been called into question by a party challenging an award. (The ABA is considering proposed revisions to the Code that would modify the provisions applicable to party-appointed arbitrators.)
Canon VII of the Code supplies special rules applicable only to "nonneutral" party arbitrators. A key provision is that nonneutral arbitrators may be predisposed toward the party that appointed them but in all other respects are obligated to act in good faith and with integrity and fairness. Canon VII also relaxes rules regarding nonneutrals' conflicts of interest, disclosure of relationships with the parties or their representatives, and ex parte communications between party arbitrators and their appointing parties. Unless otherwise agreed, these communications are permitted so long as they are appropriately disclosed.
The Code does not, however, fully clarify the difference between conduct of a nonneutral arbitrator that is permissibly "predisposed" and conduct that is not. On the one hand, Canon VII says that apart from the predisposition in favor of the nonneutral's nominators, nonneutrals "in all other respects are obligated to act in good faith and with integrity and fairness," thereby setting a seemingly high ethical bar. It then arguably lowers that bar a good distance by the way it illustrates "good faith and...integrity and fairness." If nonneutrals are prohibited only from engaging in such bad faith conduct as delaying tactics, harassment, or knowingly misleading other arbitrators, a broad range of partisan behavior is still presumably permitted.
It should not be surprising, therefore, that the law is in conflict on some basic questions. For example, party arbitrators often participate in the preparation of the party's case, if only by acting as a sounding board for counsel. Is such activity permissible?
The Eighth Circuit has held that where an arbitration agreement contemplates the selection of partial party arbitrators, active participation by a party arbitrator in the development and presentation of the nominating party's case does not constitute grounds to vacate an award, absent a showing that the arbitrator misled the neutral, prevented the other party from fairly presenting its case, or otherwise prejudiced the outcome of the arbitration.
A matter of conscience. Although the parties or the neutral have some ability to regulate aspects of the behavior of party arbitrators, "to a large degree the policing of partisanship will be left to the conscience of the arbitrator." Only the arbitrator is presumed to know the extent of his or her attempt to be fair in evaluating the issues.
To eliminate uncertainty about the permissible scope of party arbitrator activities, the parties in a tripartite arbitration may want to reach agreement on the permissible roles and responsibilities of the arbitrators. Points to consider in such an agreement include whether party arbitrators are governed by the AAA/ABA Code of Ethics; the extent of disclosure by the arbitrators about relationships with the appointing parties; and at what point in the proceeding, if ever, the party arbitrators will terminate ex parte communications with their nominators.
The desirability of "bringing down the curtain" on ex parte communications early in a case can be a complicated decision. Doing so tends to promote but not guarantee a sense of independence and collegiality among panel members and a freer flow of communication with the neutral. Often, the neutral then develops more confidence that her views of the case as it proceeds are not being prematurely relayed to the parties by their arbitrators. However, if a party selects an arbitrator to assist in the preparation of the case, even if only to act as a sounding board, cutting off ex parte communications early on eliminates the ability of either side's arbitrator to render that assistance.
In the absence of agreement on the roles of party arbitrators, the neutral should clarify the parties' positions on these issues at the earliest opportunity. The neutral should know the extent of ongoing ex parte communication with other members of the panel and may adjust her comments accordingly. What the neutral learns about the relationships between party arbitrators and the parties also could be useful in evaluating points the arbitrators make during the case.
Tripartite arbitration is widely used, but if parties to an arbitration have effective counsel and the allegiances of the arbitrators leave the neutral as the real decision maker, do party arbitrators add anything to an arbitration other than expense? Under the right circumstances, a skillful party arbitrator can contribute constructively to the resolution of disputes. Assuming the neutral is willing to listen, a party arbitrator has the opportunity in executive session to engage in an open discourse about the case and to address the neutral's concerns in a free discussion that rarely occurs on the record. Although the party arbitrator cannot dictate the result, she can affect it by ensuring that the neutral, in deciding a case, understands and fully considers each party's positions.
Stephen C. Rogers is an attorney and arbitrator in Washington, D.C.
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This article is an abridged and edited version of one that originally appeared on page 27 of Dispute Resolution, Fall 2001 (8:1)