In a recent decision, the Second Circuit Court of Appeals clarified the “evident partiality” test that a district court should use in evaluating an arbitration award.Scandinavian Reinsurance Company Limited v. St. Paul Fire and Marine Insurance Company, et. al., Docket No. 10—0910-cv. Specifically, the Second Circuit held that where an undisclosed matter is not suggestive of bias, vacatur based upon that nondisclosure is not warranted under an evident-partiality theory.
In Scandinavian, the United States District Court for the Southern District of New York granted a petition to vacate an arbitration award, under the Federal Arbitration Act on the basis of “evident partiality.” 9 U.S.C. § 10(a)(2). Specifically, District Court Judge Shira A. Scheindlin concluded that vacatur was warranted because two of the three members of the arbitral panel failed to disclose their concurrent service in another proceeding in which a common witness, similar legal issues, and a related party were involved and that these factors indicated that their simultaneous service as arbitrators in both proceedings constituted a material conflict of interest. The arbitration stemmed from a dispute between the parties regarding the proper interpretation of a reinsurance
contract, specifically a stop-loss retrocessional agreement.
The Second Circuit reversed and remanded with instructions to confirm the arbitral award. The Court concluded that the failure of the two arbitrators to disclose their concurrent service as arbitrators in another, arguably similar, arbitration did not constitute “evident partiality” within the meaning of the Federal Arbitration Act, 9 U.S.C. § 10(a)(2). The Court explained that “evident partiality” may be found only where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration. Further, the overlapping service of the two arbitrators did not, in itself, suggest the two arbitrators were predisposed to rule in any particular way in the arbitration, thus, their failure to disclose that concurrent service was not indicative of evident partiality.