|
Mere appearance that an arbitrator has an indirect financial interest in the outcome of the arbitration does not establish grounds to vacate the award for evident partiality, the United States District Court for the Southern District of New York held.
In Transportes Coal Sea de Venezuela v. SMT Shipmanagement & Transport Ltd., No. 05-CV-9029 (KMK), 2007 WL 62715 (S.D.N.Y. Jan. 9, 2007), Transportes Coal (TCS) and SMT disputed over liability for a sunken barge. The parties submitted the dispute to a panel of three arbitrators, which found in favor of SMT.
TCS asked the Court to vacate the award on the basis of evident partiality of Arbitrator Sheinbaum because his son was a partner in a law firm that represented SMT in a different arbitration.
TCS claimed that this relationship caused Arbitrator Sheinbaum to have an indirect financial interest in the arbitration because Arbitrator Sheinbaum posted $50,000 bail for his son in an unrelated criminal proceeding. According to TCS, this action gave Arbitrator Sheinbaum a financial interest in the arbitration proceeding because his son's law firm was representing SMT in a separate proceeding and was generating fees that could be used to pay his father back for the bail posting.
The Court rejected TCS's argument and confirmed the award in SMT's favor. The Court considered the United States Supreme Court's decision in Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968), where a plurality held that arbitrators should avoid even the appearance of bias or awards should be vacated.
However, this Court noted that the Second Circuit has not interpreted the Continental Casualty decision to stand for the proposition that any appearance of financial interest is sufficient to vacate an arbitration award. Although a direct financial interest is generally grounds for vacatur, indirect financial relationships do not justify vacatur.
This Court held that Arbitrator Sheinbaum's alleged financial interest was far too attenuated to warrant a finding of arbitration. First, Arbitrator Sheinbaum's connection to SMT through his son's law firm was very remote.
Second, the posting of bail did not constitute a loan that Arbitrator Sheinbaum's son was necessarily working to pay back. Bail money is returned to the party posting it, assuming that no bail violations occur. Therefore, TCS presented insufficient evidence to show that Arbitrator Sheinbaum had a financial interest in the arbitration proceeding.
Subscribe to a free weekly update on ADR case law and
legislation
|