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The Ninth Circuit Court of Appeals determined that an arbitrator’s failure to disclose his acceptance of a high-level job with a company related to a party in arbitration before him created a reasonable impression of evident partiality, which supported vacatur of the arbitration award.
In New Regency Productions, Inc. v. Nippon Herald Films, Inc., No. 05-55224, 2007 WL 2472467 (9th Cir. Sept. 4, 2007), New Regency and Nippon entered into an agreement for Nippon to distribute five films produced by New Regency.
A dispute between the parties arose when Nippon alleged that New Regency had violated the distribution agreement by failing to deliver one of the films and by refusing to pay Nippon certain money it claimed it was owed.
The parties agreed to arbitrate their claims through the American Film Marketing Association (AFMA), a motion picture trade organization with its own arbitrators and arbitration rules. The parties selected William Immerman from a list of potential arbitrators.
Immerman decided that Nippon was entitled to a refund of the fee it had paid for the undelivered film plus interest and an additional monetary award. New Regency moved in federal district court to confirm the arbitration award and Nippon cross-moved to vacate the award.
Nippon argued that Immerman had failed to disclose his new employment with Yari Film Group, which he accepted during the course of arbitration. Because Yari was negotiating with New Regency to finance and co-produce a film, Nippon argued Immerman created a reasonable impression of partiality. The district court agreed with Nippon’s argument and vacated the arbitration award.
On appeal, the Court noted that under the Federal Arbitration Act (FAA), evident partiality or corruption in the arbitrators is one of the four statutory bases that allow for vacatur of an arbitration award. An arbitrator’s failure to disclose to parties any dealings that may create an impression of possible bias is sufficient to support vacatur.
The Court also noted that evidence of an arbitrator’s actual knowledge of undisclosed facts is not always necessary to establish evident partiality. Nonetheless, arbitrators may have a duty to investigate independent of his duty to disclose.
The Court concluded that Immerman had a duty to investigate potential conflicts when he accepted a high-level executive position with Yari while the arbitration was going on. The negotiations between Yari and New Regency were ongoing during the time of the arbitration.
Immerman, as a high-level executive for Yari, had a substantial interest in Yari, which was closely connected to a party in the arbitration, and this created a reasonable impression of partiality sufficient to support vacatur. The Court held that the district court did not err in vacating the arbitration award on the ground of evident partiality.
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