The Ninth Circuit recently decided a significant case concerning arbitrator disclosures. It basically held that parties have an obligation to ask questions about the disclosures an arbitrator makes, and if they fail to do so, parties may later not be successful in opposing confirmation of the award on the ground that the arbitrator’s disclosures were incomplete. American Brokerage Network and Cung Thai v. American General Life Insurance Co., No. 3:16-cv-06952 (9th Cir. Nov. 30, 2018).
In 2009, American Brokerage Network and its owner Cung Thai (collectively, ABN) and American General Life and Accident Insurance Company (American), a subsidiary of American International Group, Inc. (AIG), entered into a master general agent agreement, which was terminated in 2013. In 2015, ABN brought an arbitration against American, AIG, and others for various claims under and/or relating to the agreement, and respondents counterclaimed. The sole arbitrator disclosed certain relationships her law firm had with the respondents and their subsidiaries. ABN asked no questions about her disclosures, and she was accepted as the arbitrator.
In June 2016, the arbitrator dismissed AIG from the case. In September 2016, after the evidentiary hearing, the arbitrator issued a final award, denying both sides’ claims for relief. Thereafter, ABN learned, through public records, of alleged undisclosed relationships between the arbitrator’s law firm and the respondents’ subsidiaries. ABN moved in a California federal district court to vacate the final award due to the arbitrator’s alleged incomplete disclosures. The district court granted the motion to vacate, holding that the arbitrator breached her duties of disclosure and investigation, and that the nondisclosures created a reasonable impression of bias. It also held ABN did not waive its right to challenge the arbitrator. Respondents appealed to the Ninth Circuit which reversed.
The Ninth Circuit stated that “given the arbitrator’s disclosure that AIG was a former client of her firm, ABN had some duty to inquire about the nature of that relationship,” but instead “asked no questions and proceeded with the hearing.” According to the court, “the laborious efforts required to discover the undisclosed relationships give credence to the reasonableness of the arbitrator’s investigation.” Finally, the court held that “the undisclosed relationships, considered in the light of those the arbitrator did disclose, are insufficient to create a ‘[r]easonable impression of partiality.’” Thus, the Ninth Circuit reversed the California district court’s decision and remanded the case with instructions to enter judgment confirming the award.
Arbitrators have a duty to be complete in their disclosures, and their failure to do so can lead, as it did here, to expensive and time-consuming litigation. At the same time, however, this case demonstrates that the parties have an obligation of reasonable inquiry into the disclosures the arbitrator does make. A party’s failure to ask questions can doom its later effort to avoid confirmation of the award.