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The fact that an arbitrator's employing organization provides services to a bank that acquired a corporate party to a dispute before a final judgment was entered did not lead to culpable arbitrator bias, according to a California Court of Appeals.
In Hayden v. Robertson Stephens, Inc., Nos. A113878, A114188, 2007 WL 1228632 (Cal. Ct. App. Apr. 27, 2007), Hayden created an ISP company that went public in the late 1990s, made and lost a fortune in the dot-com bubble and burst, and ultimately defaulted on a $25 million loan from his brokerage firm, Robertson Stephens, Inc. (RSI).
Hayden and RSI agreed to arbitrate a dispute resulting from the default, and selected Richard Chernick of Judicial Arbitration & Mediations Services (JAMS) as arbitrator. Chernick heard the case, and issued an interim award in favor of RSI. However, before the award became final, RSI was acquired by Bank of America (BOA), an organization for which JAMS provides arbitration services.
Hayden argued that, as a result of the acquisition, Chernick should be disqualified, and the award vacated, since BOA was now "a party" to the dispute. The Court disagreed, finding that the plain language of the disclosure statute did not make BOA a party.
Specifically, the Court found the definition of a "party to the proceeding" to include only those affiliates that were involved in "the transaction, contract, or facts that gave rise to the issues subject to the proceeding." BOA was not involved in such a manner, so could not be considered a party to the dispute; the disclosure requirement did not apply.
Finally, the Court noted that because the interim award favoring RSI was announced before the acquisition, no reasonable concern of bias could be raised.
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