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In ordering parties to arbitrate a loan dispute, a federal district court in West Virginia found that the National Arbitration Forum (FORUM) rules chosen by the parties ensured the selection of a neutral arbitrator. The FORUM rules involve both parties in the selection process, provide them with background information about the arbitrators, and allow them to remove or challenge arbitrators.
In Miller v. Equifirst Corp. of WV, No. 2:00-0335, 2006 WL 2571634 (S.D.W. Va. Sep. 5, 2006), Equifirst issued a mortgage loan to the Millers. As part of the loan transaction, Equifirst and the Millers entered into an arbitration agreement that provided for arbitration in accordance with the FORUM Code of Procedure.
The Millers later sued Equifirst, alleging several causes of action premised on fraud and nondisclosure. Equifirst moved to compel arbitration. In opposing the motion, the Millers also argued that the FORUM was a biased arbitral forum.
Rejecting the Millers’ allegations, the court distinguished the case from Hooters of America, Inc. v. Phillips, 173 F.3d 933 (4th Cir. 1999), in which the court invalidated an arbitration agreement because the party who drafted the arbitration agreement was able to name the prospective arbitrators.
Moreover, as the Court observed, the United States Supreme Court has explicitly rejected “the presumption that the parties and arbitral body conducting a proceeding will be unable or unwilling to retain competent, conscientious and impartial arbitrators.” See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 30-31 (1991). In Gilmer, the Supreme Court explained that the arbitration rules ensured the selection of a neutral arbitrator by providing the parties with background information on prospective arbitrators and by giving each party one peremptory challenge and unlimited challenges for cause.
The Court found that the FORUM Code of Procedure affords similar safeguards against arbitrator bias by requiring the disclosure of each arbitrator’s background information and allowing each party one peremptory challenge and unlimited challenges for cause. Given these safeguards, the Court concluded that the Millers’ “speculative arguments” about the FORUM being biased “represent little more than ‘general antipathy to arbitration’ which both the United States Supreme Court and the Fourth Circuit have rejected.”
In answer to the Millers’ vague assertions of bias, the Court affirmatively concluded that “there are adequate mechanisms in place under the [FORUM]’s Code of Procedure to ensure that the parties will ultimately select a neutral arbitrator,” and found that the FORUM arbitration selection process was consistent with “neutrality and fundamental fairness.”
As the Court pointed out, a number of other courts have “summarily dismissed” similar allegations of bias. See Hutcherson v. Sears, Roebuck & Co., 793 N.E.2d 886, 898 (Ill.2003) (finding the parties failed to show “how the [FORUM] selection process favors one side more than the other”); Bank One, N.A. v. Coates, 125 F.Supp.2d 819, 835 (S.D. Miss. 2001), aff’d, 2002 WL 663804 (5th Cir.2002) (“the rules governing the conduct of [FORUM] arbitrations belie defendant’s speculation that suspected bias by the [FORUM] has any realistic potential for affecting decisions of arbitrators in [FORUM] arbitrations”); Marsh v. First USA Bank, N.A., 103 F.Supp.2d 909, 926 (N.D. Tex. 2000) (“The Court is satisfied that [the FORUM] will provide a reasonable, fair, and impartial forum within which Plaintiffs may seek redress for their grievances.”).
The Court ordered the parties to arbitrate their claims before the FORUM no later than February 15, 2007.
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