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In affirming vacatur of an arbitration award that was procured by "undue means," the Minnesota Court of Appeals rejected a narrow interpretation of "undue means" that would have required some evidence of an improper relationship between the arbitrator and the prevailing party.
In In re Arbitration of Cincinnati Insurance Co. v. Tyco Fire Products, No. A06-1264, 2007 WL 1248173 (Minn. Ct. App. May 1, 2007), Cincinnati brought a subrogation action against Tyco. The parties agreed to submit the dispute to arbitration by Arbitration Forums (AF).
Under the AF arbitration rules, an arbitration proceeding is initiated when the parties submit a completed "P-Form." The P-Form contains several check boxes regarding various issues, including notice of the hearing.
Cincinnati and Tyco both submitted a P-Form. However, the check boxes on Tyco's form were marked by hand, while the check boxes on Cincinnati's form were left unmarked. Also, Tyco did not provide Cincinnati with a copy of its submissions to the arbitrators.
Despite the unmarked check boxes on Cincinnati's P-Form, AF proceeded with the arbitration without giving notice of the hearing to Cincinnati. Following the hearing, where only Tyco was represented, the arbitration panel issued an award in Tyco's favor. AF did not mail a copy of the award to Cincinnati. As such, Cincinnati only learned of the award when it contacted AF several days after the hearing.
Cincinnati filed a motion to vacate the award, arguing that the award was procured by "undue means." The trial court granted the motion and vacated the award pursuant to Minn. Stat. § 572.19, subd. 1(1).
On appeal, Tyco cited West v. Heart of the Lakes Construction, Inc., No. C5-01-1823, 2002 WL 1013529 (Minn. Ct. App. May 21, 2002) for the proposition that "undue means" requires some evidence of an improper relationship between the arbitrator and prevailing party. The Court rejected this argument because the authorities cited in West merely establish that an improper relationship is but one instance of "undue means."
Having rejected Tyco's narrow interpretation of "undue means," the Court affirmed the trial court's finding of undue means. Specifically, the Court reasoned that the award was procured by undue means because (1) Cincinnati was effectively denied an opportunity to participate in the proceedings and (2) Tyco's failure to provide Cincinnati with a copy of its submissions resulted in ex parte communications with the arbitrators.
Finally, the Court cited the "due process requirements" of Minn. Stat. § 572.12 as an alternate basis for vacatur. Under this statute, arbitrators must give notice of a hearing (by personal service or by certified mail) unless the parties agree otherwise.
The Court described Tyco's failure to provide Cincinnati with its arbitration submissions as "[t]he ex parte presentation of [] evidence." However, the AF rules did not require Tyco to provide Cincinnati with copies of the evidence that it submitted. See Rule 2-3 of AF's Property Subrogation Arbitration Rules (requiring respondent to provide AF and all other parties with a copy of its P-Form and Contentions Sheet but allowing respondent to submit "all other documents" only to AF).
To prevent ex parte communications, an arbitration administrator should have rules that expressly require parties to exchange evidence. For example, under the National Arbitration Forum Code of Procedure, parties must exchange evidence prior to a hearing. See Rule 28(A)-(B) (document hearings) and Rule 31(A)-(B) (participatory hearings).
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