July 24, 2019 Practice Points

Petrobas Decision Rejects Allegations of Arbitrator Bias

The opinion continues trend of skeptical treatment by federal courts toward a losing party’s allegations that an arbitrator showed “evident partiality.”

By Mark Kantor and Mitchell Marinello

Recently, a district court denied a motion to vacate an award on grounds of evident partiality and bias by one of the three arbitrators. These allegations were motivated in part by a widely-publicized dissent from another member of the arbitration panel. The decision includes rulings that are of particular interest concerning a co-arbitrator’s prior relationship with counsel and conduct during the proceedings. Vantage Deepwater Company et al v. Petrobras Americas Inc. et al, Civ. Action No. 4:18-CV-02246 (S.D. Tex., May 17, 2019).

Petrobras, a Brazilian state enterprise, argued that vacatur was appropriate under the Federal Arbitration Act (FAA) because Judge Charles N. Brower, a party-appointed arbitrator on the three-person tribunal (1) had a friendly relationship with a former law clerk who was a partner in the law firm representing Vantage and (2) displayed actual bias during the hearing. The district court rejected these allegations.

Judge Brower had disclosed his relationship with his former clerk at the time of his appointment. Petrobras challenged his appointment on that basis, but its objection was rejected by the American Arbitration Association, acting through its International Centre for Dispute Resolution.

In court, Petrobras asserted that the relationship created an "appearance of bias." In response, the district court noted that the former law clerk had not been involved in the arbitration, which was staffed by other attorneys at the firm. The court then reviewed the standard for determining “evident partiality” and rejected Petrobas’ argument that the proper test was “appearance of bias.”

[T]he standard for assessing evident partiality is not the mere appearance of bias. See Positive Software Sols., 476 F.3d at 285 ("[T]he 'mere appearance' standard would make it easier for a losing party to challenge an arbitration award for nondisclosure than for actual bias . . ." and "hold arbitrators to a higher ethical standard than federal Article III judges"). "Evident partiality is a 'stern standard"' and requires "upholding arbitration awards unless bias is clearly evident in the decision makers." Id. at 281.

The court also stated that “the relationship between a judge and his former law clerk is not the type of relationship that would merit vacatur,” and that this would be true even if the former law clerk had been counsel in the arbitration, noting that “former law clerks regularly practice before judges for whom they once clerked. . . .”

The court then turned to Petrobras’ allegations that “Judge Brower displayed actual bias by ‘aggressively questioning’ Petrobras's witnesses, ‘displaying hostility toward Petrobras's counsel,’ being ‘inattentive and disengaged,’ adopting the ‘role of Vantage's advocate,’ and interrupting Chairman Park's ability to control the hearing.”

The court held that the record did not support Petrobas’ allegations. In particular, Petrobas argued that Judge Brower had aggressively questioned its witness Padilha “for over 90 minutes.” The court noted that all three arbitrators had questioned Padilha, Judge Brower specifically stated in advance his questioning would be lengthy, and Padilha had to be instructed to cease whispering to his counsel during the examination. Further, Petrobras had conceded that “arbitrators may ask probing questions of witnesses and test a witness's credibility.” In light of the fact that Padilha was Petrobras’ only witness on a bribery issue important to its defense, the court considered that “[i]t should not have been unexpected that the questioning of Petrobras's sole witness on the issue of bribery was lengthy and that his credibility would be an issue addressed by the arbitrator's questions.” The court concluded that “the record does not support Petrobras's characterization of Judge Brower's questioning of Petrobras's witnesses as improper or prejudicial.”

Petrobras also asserted that Judge Brower “continuously ma[de] inappropriate, off-the-record comments under his breath and laugh[ed] at Petrobras's counsel's questions. . . .” However, because Judge Brower allegedly made the comments “under his breath,” these alleged comments were not found in the transcript and could not be reviewed. In any event, citing precedent within and outside the Fifth Circuit, the court concluded that an arbitrator’s interruptions and favorable or hostile comments are “insufficient to show evident partiality.”

The court also commented on the dissent by Gaitis, the other party-appointed co-arbitrator on the arbitration panel, asserting failures of fundamental fairness and due process. It noted that

Mr. Gaitis provides no reasoning or factual support for his conclusions. Additionally, Petrobras does not point to a case, nor does the Court find one[,] where a dissenting opinion provides grounds for vacatur of the majority's arbitration award. The record does not support the position that Petrobras was denied a fair arbitration or that the Arbitration was fundamentally flawed. And the issuance of a dissent in and of itself does not make vacatur arguments more meritorious.

Accordingly, the court held that Petrobras had not met its burden to demonstrate that Judge Brower’s behavior amounted to evident partiality or bias, and it denied Petrobras's motion to vacate the Final Award.

Practice Pointer

The district court’s opinion continues a trend of skeptical treatment by federal courts toward allegations by a losing party that an arbitrator showed “evident partiality,” justifying vacatur of the award. Here, one of the noteworthy aspects of the opinion is the court’s conclusion that a friendly former judge-law clerk relationship would not support vacatur even if the former law clerk him- or her-self participated in the arbitration proceeding. The court’s determination that aggressive and hostile questioning would not justify vacatur is also worthy of attention.

Mark Kantor is a member of the College of Commercial Arbitrators in Washington, D.C., and Mitchell Marinello is a partner at Novack and Macey LLP in Chicago, Illinois.

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