chevron-down Created with Sketch Beta.
July 30, 2015 Articles

Ninth Circuit Reverses Mid-Arbitration Removal of Arbitrator

By Sheila J. Carpenter

In In re Sussex, 781 F.3d 1065 (9th Cir. 2015), the U.S. Court of Appeals for the Ninth Circuit issued a writ of mandamus directing the district court to vacate its order removing the arbitrator in Sussex v. Turnberry/MGM Grand Towers, LLC, No. 2:08-cv-00773-MMD-PAL (D. Nev. Dec. 31, 2013), discussed in the Summer 2014 article "Pre-Award Removal of an Arbitrator." The district court complied with the writ on April 8, 2015, reinstating the arbitrator more than five years after his initial appointment.

Sussex involved claims by hundreds of purchasers against a condominium developer and related entities. At the defendants' request, the district court disqualified the single arbitrator due to his undisclosed involvement in a litigation financing business, finding that the arbitrator was disqualified under 9 U.S.C. § 10(a)(2) due to "evident partiality." The plaintiffs sought a writ of mandamus from the Ninth Circuit ordering the district court to vacate its disqualification order.

In granting the writ, the Ninth Circuit discussed at length its opinion in Aerojet-General Corp. v. American Arbitration Ass'n, 478 F.2d 248 (9th Cir. 1973), in which it reversed a district court's grant of mid-arbitration relief as to venue. However, the Aerojet-General court, unlike many sister circuits, declined to rule that such relief could never be available:

Extreme cases can be imagined in which the choice of locale for arbitration is not made in good faith and severe irreparable injury is inflicted on one or more of the parties. In such case the courts should be free to prevent a manifest injustice. For this reason we decline to hold that immediate judicial review of a ruling setting the place for arbitration is never justified. Only an extreme case could warrant such judicial review, and this is emphatically not such a case.

478 F.2d at 251. In Sussex, the Ninth Circuit noted that while Aerojet-General does not adopt a rule precluding mid-arbitration interference, it came "quite close" to a flat preclusion, and that it had not approved such interference in the more than 40 years since Aerojet-General.

The Sussex district court had found that the arbitrator's alleged conflict presented the "extreme case" imagined in Aerojet-General, in part because it was convinced that any award would be vacated on grounds of evident partiality, thus wasting time and resources for all. The circuit court held that the lower court erred in its conclusions that (1) the arbitrator suffered from "evident partiality" sufficient to overturn an award, and (2) the case was an "extreme case" justifying judicial intervention prior to a final award.

On the first point, the court reiterated that the standard for "evident partiality" in the Ninth Circuit is a "reasonable impression of partiality," requiring that arbitrators disclose facts showing they "might reasonably be thought biased against one litigant and favorable to another." Sussex, 781 F.3d at 1074 (emphasis added) (citations omitted). Such facts could include a "direct financial connection" between a party and the arbitrator or "a concrete possibility" of such connections. The Sussex arbitrator's effort to start a litigation financing company was not such a direct connection, and the argument that he might favor the plaintiffs in the arbitration in order to attract litigation financing business was speculative. (Not all circuits require that the impression of partiality be "reasonable.")

On the second rationale for the district court's ruling, the Ninth Circuit held that the cost and delay caused by an award likely to be vacated were insufficient support for judicial intervention; financial harm is not the sort of severe irreparable injury or manifest injustice that could justify such interference. The questions about the arbitrator did not make Sussex the kind of "extreme case," "if one exists," warranting judicial intervention.

In deciding whether to grant the writ, the court was influenced by the fact that the district court's "mistaken application of Aerojet-General in a published order may cause confusion, encourage similar erroneous approaches, and leave district courts to wonder whether and when to intervene." Sussex, 781 F.3d at 1076. As it did in Aerojet-General, the court made plain that the district courts are to interfere with the arbitral process only in the most extenuating circumstances, and perhaps never.

A petition for certiorari was filed on June 25, 2015, and will not be considered by the Supreme Court until fall 2015.

Keywords: litigation, ADR, mandamus, arbitration, disqualification, evident partiality, Aerojet-General