More on Arbitrator Ethics

Our anonymous attorney emailer has done some more digging, and sends the following:

Here is a very interesting article about how the American Arbitration Association/American Bar Association Code of Ethics for Arbitrators in Commercial Disputes applies to arbitration proceedings.

The article, entitled "The Revised Code of Ethics Takes Hold", was written by Eric P. Tuchmann, who is general counsel and corporate secretary of the American Arbitration Association. The article appeared in the Aug-Oct 2006 edition of the Dispute Resolution Journal.

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Tuchmann notes that

"[T]he Code of Ethics has served as the primary source of ethical guidance for arbitrators since 1977, when it was originally drafted. While the Code did not carry the force of law, it was cited with approval in dozens of court opinions."

He then addresses changes made to the Code of Ethics in 2004, the most significant of which is that party-appointed arbitrators are to be neutral:

"The 1977 version of the Code presumed that all party-appointed arbitrators were notneutral (i.e., they could be partial to the party that appointed them). Therefore, party-appointed arbitrators could not be challenged because of partiality toward the appointing party or attorney, or a conflict of interest, no matter how direct or substantial. The parties were free to agree that party-appointed arbitrators would act as neutral arbitrators, but in the absence of such an agreement, it was presumed that the parties desired non-neutral arbitrators."

The revised Code of Ethics changed this by reversing the presumption of neutrality so that party-appointed arbitrators were presumed to act as neutral arbitrators. Consequently, they became subject to challenge based on allegation regarding their partiality or lack of independence involving any party, attorney, or witness who participates in an arbitration.

The article cites two cases from 2006 where state Supreme Courts (Wisconsin and Rhode Island) vacated arbitration awards because of a close relationship between a party-appointed arbitrator and the party that appointed him: Borst v. Allstate Insurance Co., 717 N.W.2d 42 (Wis. 2006) and McGinity v. Pawtucket Mutual Insurance Co., 899 A.2d 504 (R.I. 2006). The Wisconsin Supreme Court favorably cited the Code of Ethics and "noted in its analysis that the 'most striking difference' between the 1977 and 2004 versions of the Code of Ethics is 'the application of neutrality to all arbitrators, including party-appointed arbitrators.'" The standard the court then applied to determine partiality was "if based on the evidence that is clear, plain, and apparent, a reasonable person would have serious doubts about the impartiality of the arbitrator." The Rhode Island Supreme Court also favorably cited the Code of Ethics and "considered the 2004 amendments to the Code of Ethics to be influential." The court noted in its opinion that it was "taking into account the revised Code of Ethics."

Tuchmann concludes by stating:

Parties and advocates should be on notice that they may no longer assume that party-appointed arbitrators will act as non-neutral arbitrators who are partial to the party that appointed them, unless they explicitly agree either in their arbitration agreement or after a dispute arises. Even so, all party-appointed arbitrators must disclose all relationships likely to affect impartiality or which might create an appearance of partiality, regardless of whether they will be acting in a neutral or non-neutral capacity. If arbitrators fail to abide by these principles, they may be subject to removal. Alternatively, party-appointed arbitrators who fail to make disclosures required under the Code of Ethics may find their awards vacated under state and federal arbitration laws where an arbitrator's evident partiality has been established.

Thanks to our emailer for the research and summary!