As part of an arbitration agreement, parties might agree to allow ex parte communication with their own appointees to an arbitration panel. When, however, ex parte communication leads to the disclosure of confidential panel deliberations to only one party, that party’s counsel runs the risk of disqualification from the arbitration proceedings. In a recent case in the U.S. District Court for the Southern District of New York, Judge Shira A. Scheindlin disqualified a law firm from representing its client in an arbitration after its own appointed arbitrator forwarded to the firm 182 pages of emails that revealed the arbitration panel’s deliberations concerning pending matters in the arbitration.
Concerns over Alleged Bias
In Northwestern National Insurance Co. v. Insco Ltd., the issue of attorney disqualification arose during the course of an arbitration proceeding between Northwestern National Insurance Co. (NNIC) and Insco Ltd. (Insco) regarding disputes over Insco’s agreement to reinsure certain NNIC liabilities. The three-person arbitration panel, per the parties’ agreement, consisted of one arbitrator appointed by each party, and a neutral umpire. NNIC and Insco further agreed that each side could communicate with their “party appointeds,” but could not discuss issues relating to motions that were already fully briefed and pending before the panel.
Several months into the arbitration process, Insco’s party-appointed arbitrator expressed concern to Insco’s counsel, Freeborn & Peters LLP, about the close relationship between NNIC’s party-appointed arbitrator and NNIC’s counsel, Barger & Wolen LLP. Insco’s party-appointed arbitrator provided Freeborn with certain private email communications among the panel members, the contents of which led Insco to demand that all three arbitrators resign because of “evident partiality.” Only Insco’s arbitrator resigned, however, and after doing so, he turned over 182 pages of panel emails to the Freeborn firm. Freeborn attorneys personally reviewed all the information in those emails and shared them with Insco.
NNIC eventually became aware of the disclosure when Insco attached several of the panel emails as an exhibit to a declaration. When NNIC asked about the emails, Insco refused to provide any useful information. Insco eventually produced the emails and NNIC hired outside counsel (who had no prior involvement in the arbitration) to review them. The outside counsel produced content summaries of the disclosed emails that, according to NNIC, suggested that many related to issues that were still pending in the arbitration. Ultimately, NNIC moved in federal court to disqualify Freeborn from further representing Insco in the arbitration.
Attorney Disqualification Is an Issue for the Courts
As a preliminary matter, the district court held that NNIC’s motion for disqualification was properly determined by the court itself, and not the arbitration panel. Even though the policy behind the Federal Arbitration Act liberally favors arbitration, the court reasoned, attorney disqualification requires application of substantive state law regarding the legal profession. The court observed that arbitrators, on one hand, tend to be selected for their specialized industry expertise, not for their knowledge of the standards of professional conduct for attorneys, while the courts, on the other hand, possess the inherent authority and responsibility to decide issues of attorney discipline. The court further noted that even if the panel in the case were competent to rule on the motion for disqualification, the panel had expressly refused to do so.
Breaching Ethical Duties and Tainting the Proceedings
The court concluded that “Freeborn’s actions in obtaining and hiding panel deliberations in an ongoing arbitration constituted a serious violation of arbitral guidelines, as well as ethical rules,” including the American Arbitration Association’s (AAA) Code of Ethics for Arbitrators in Commercial Disputes, the ARIAS Code of Conduct and Ethics Guidelines, and the New York State Rules of Professional Conduct. In so holding, the court rejected Insco’s argument that the AAA or ARIAS guidelines did not govern the arbitration, noting that Insco had relied on the same guidelines frequently throughout the arbitration proceeding. Additionally, while recognizing that ex partefeedback from party-appointed arbitrators could help parties narrow the disputed issues, focus on important evidence and arguments, and reach a negotiated settlement, the court observed that the communication at issue in the case went “beyond the salutary purpose of expediting the arbitration[.]”
Disqualification is a “drastic measure” and parties seeking to disqualify opposing counsel face a high burden of proof, the court held, but disqualification is warranted where the alleged violations pose a “significant risk of trial taint.” The court found that the 182 pages of disclosed panel emails included, among other things, drafts of then-unissued panel orders as well as panel discussions of pending discovery and choice-of-law issues. This, the court determined, “tended to taint the [arbitration] proceedings.”
In light of the multiple ethical breaches and the compromised integrity of the arbitration proceedings, the court granted NNIC’s motion to disqualify Freeborn from representing Insco in the arbitration. The court concluded its opinion as follows:
In an age in which electronic communications play a central role in arbitrator deliberations, it is imperative that such communications remain as protected as all other forms of private panel interactions. Deliberate action to obtain such records is a disservice to the integrity of the adversarial process, and is strictly and unambiguously prohibited. Allowing parties to obtain confidential panel deliberations would provide an unfair advantage in the legal proceedings and have a chilling effect on the ability of arbitrators to communicate freely.
Thomas G. Wilkinson Jr. is cochair of the Conflicts of Interest Subcommittee of the Ethics and Professionalism Committee and a shareholder in Cozen O'Connor in Philadelphia, Pennsylvania, andMichael P. Zabel is an associate with the firm.
Keywords: litigation, ethics and professionalism, arbitration, NNIC, Insco
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