The Ninth Circuit Reverses California District Court’s Ruling Vacating Arbitration Award Based on Evident Partiality

The background of the case can be found here. In sum, in 2009, plaintiffs American Brokerage Network and its owner Cung Thai (collectively, “ABN”) and American General Life and Accident Insurance Company (“AGLA”), a subsidiary of American International Group, Inc. (“AIG”), entered into a master general agent agreement, which was terminated in 2013. In 2015, ABN brought an arbitration under the rules of the American Arbitration Association (the “AAA”) against AGLA, AIG and later American General Life Insurance Company, successor to AGLA (collectively, “American General”), asserting claims of intentional interference with business relationships, breach of contract and breach of the implied covenant of good faith and fair dealing in connection with the agreement. Defendants counterclaimed for breach of contract and contractual indemnity. The sole arbitrator in the case made disclosures of certain relationships of her law firm with defendants and their subsidiaries. ABN asked no questions about her disclosures and she was accepted as arbitrator. In June 2016, the arbitrator dismissed AIG from the case. Thereafter, in September 2016, after ten days of testimony and other evidence, the arbitrator issued a Final Award, denying both sides’ claims for relief. After receiving the Award, ABN learned, through public records, of alleged undisclosed relationships between the arbitrator’s law firm and defendants’ alleged subsidiaries. ABN then moved in the California district court to vacate the Final Award due to the alleged incomplete disclosures. In June 2017, the district court granted the motion to vacate, finding that the arbitrator breached her duties of disclosure and investigation, and that the nondisclosures created a reasonable impression of bias, and that ABN did not waive its right to challenge the arbitrator. Defendants appealed to the Ninth Circuit.

The Ninth Circuit overturned the California district court’s decision, noting that “[g]iven the arbitrator’s disclosure that AIG was a former client of her firm, ABN had some duty to inquire about the nature of that relationship.” But the Ninth Circuit further noted that “ABN asked no questions and proceeded with the hearing.” According to the Court, “the laborious efforts required to discover the undisclosed relationships give credence to the reasonableness of the arbitrator’s investigation.” Finally, the Court held that “the undisclosed relationships, considered in the light of those the arbitrator did disclose, are insufficient to create a ‘[r]easonable impression of partiality.’” Thus, the Ninth Circuit reversed the California district court’s decision and remanded the case to the district court with instructions to enter judgment confirming the arbitration award.

American Brokerage Network and Cung Thai v. American General Life Insurance Co., No. 3:16-cv-06952 (9th Cir. Nov. 30, 2018).