Uhl v. Komatsu Forklift Co. ( 2008 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 08a0010p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
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DONNA UHL, Individually and as Personal
Plaintiff - Appellee, -
Representative of the Estate of Lynn Uhl,
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No. 07-1044
,
PACIFIC EMPLOYER’S INSURANCE COMPANY, >
Intervenor-Plaintiff-Appellee, -
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-
-
v.
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KOMATSU FORKLIFT COMPANY, LTD.; KOMATSU
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FORKLIFT, U.S.A., INC.,
Defendants - Appellants. -
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N
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 04-10148—David M. Lawson, District Judge.
Argued: November 2, 2007
Decided and Filed: January 9, 2008
Before: SILER, MOORE, and GILMAN, Circuit Judges.
_________________
COUNSEL
ARGUED: Fred J. Fresard, BOWMAN & BROOKE, Troy, Michigan, for Appellants. David R.
Skinner, SKINNER PROFESSIONAL LAW CORP., Bay City, Michigan, for Appellee.
ON BRIEF: Fred J. Fresard, BOWMAN & BROOKE, Troy, Michigan, for Appellants. David R.
Skinner, SKINNER PROFESSIONAL LAW CORP., Bay City, Michigan, for Appellee.
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OPINION
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KAREN NELSON MOORE, Circuit Judge. In this case, the appellants challenge the
validity of an arbitration award where one of the party-selected arbitrators had previously and
occasionally served as co-counsel with the attorney representing the intervening plaintiff in the
instant case. Because we conclude that this relationship did not violate the arbitration agreement
or rise to the level of evident partiality, we AFFIRM the district court’s judgment.
1
No. 07-1044 Uhl v. Komatsu Forklift Co., et al. Page 2
I. BACKGROUND
On December 17, 2001, Lynn Uhl was using a forklift manufactured by the Komatsu Forklift
Company1 (“Komatsu”) when the forklift allegedly “malfunctioned and failed resulting in severe
injuries . . . which ultimately resulted in his death.” Joint Appendix (“J.A.”) at 16 (Compl. ¶ 4).
This case is largely one of procedure and not substance; thus, the circumstances of, and Komatsu’s
influence on, the events that caused Lynn Uhl’s death are not at issue in this appeal. Instead, this
appeal concerns the fairness and equity of the legal wrangling that followed.
On June 21, 2004, Donna Uhl (“Uhl”), individually and as personal representative of the
estate of Lynn Uhl, filed a tort action against Komatsu in the U.S. District Court for the Eastern
District of Michigan. Shortly thereafter, the parties stipulated to Pacific Employer’s Insurance
Company’s (“Pacific”) intervention as a plaintiff. Attorney Roy Johnson (“Johnson”) represented
Pacific.2
After nearly a year of discovery, on November 8, 2005, the parties agreed to binding
arbitration. As part of the parties’ stipulation, they set a deadline of January 31, 2006, for the
conclusion of the arbitration. Concurrent with the stipulation to use binding arbitration, the district
court dismissed the case, although the district court retained jurisdiction until February 28, 2006,
“to review and enforce or vacate any arbitral award.” J.A. at 57-58 (Nov. 14, 2005, Order of
Dismissal).
The parties, however, were unable to agree on an arbitration agreement that would govern
the proposed arbitration, and each side blames the other for the failure. Regardless of the causes,
by March 30, 2006, well after the deadline for arbitration, there was still no arbitration agreement
among the parties, and Uhl and Pacific filed a motion to compel arbitration. In response, Komatsu
argued that the district court no longer had jurisdiction over the case because the district court
retained jurisdiction over the arbitration for only a limited (and expired) time frame, and for only
a limited set of issues. The district court denied Uhl and Pacific’s motion to compel arbitration, but
reinstated the case to the active docket. On appeal the parties do not contest this ruling.
Discovery continued during the course of this protracted debate. On December 16, 2005,
the parties deposed Peter Barroso (“Barroso”). Barroso later testified that, during his deposition,
Fred Fresard (“Fresard”), counsel for Komatsu, noted to Johnson that he was aware that the plaintiffs
were going to nominate Martin Stein (“Stein”) as their party-selected arbitrator. Barroso also claims
that Fresard indicated his awareness that Stein and Johnson had worked together on prior cases.
Fresard does not dispute Barroso’s statement but claims that Johnson told him only “that he had
represented the intervening plaintiff in one or two cases in which Martin Stein represented the
plaintiff.” J.A. at 237 (Fresard Aff. ¶ 6). Fresard claims that Johnson never told him that Johnson
and Stein had ever acted as co-counsel. J.A. at 238 (Fresard ¶ 7).
Only ten days after the district court reinstated the case to the active docket, the parties
signed an arbitration agreement. The agreement provided for three arbitrators; each party would
nominate one and the party-selected arbitrators would pick a third, neutral arbitrator. The agreement
required that the party-selected arbitrators be “practicing attorney[s] possessing experience in
1
Komatsu Forklift Company, a Japanese company, and Komatsu Forklift U.S.A., collectively the appellants,
are both wholly-owned subsidiaries of Komatsu, Ltd. As such, we will treat them as one party.
2
When Pacific first intervened, it was listed as “Liberty Mutual Insurance.” However, for reasons unstated, it
was subsequently listed as “Pacific Employer’s Insurance Co.” At all times Johnson was the intervening plaintiff’s
counsel.
No. 07-1044 Uhl v. Komatsu Forklift Co., et al. Page 3
judicial litigation, a substantial portion of which experience shall involve product liability matters.”
J.A. at 110 (Agreement ¶ 1). The agreement also imposed ethical constraints on the arbitrators:
2. Ethical Requirements. The Arbitrators shall have no financial or personal
interest in the result of this Arbitration. Prior to selecting the neutral arbitrator,
the party-selected arbitrators shall disclose to all parties any referral agreements,
financial dealings, or other relationships with any of the parties or parties’
attorneys that could in any way be construed as a possible conflict of interest.
After such disclosure, either party may demand that the conflicted arbitrator
recuse him/herself, and a new arbitrator will be selected by the party who
originally selected the recused arbitrator.
J.A. at 110 (Agreement ¶ 2).
The arbitration agreement also imposed limits on the parties’ post-award rights. The
agreement stated that “[t]here can be no appeal from any decision made by the arbitrators except a
claim of fraud or that the arbitrators, parties or their attorneys violated one of the provisions of this
Agreement.” J.A. at 111 (Agreement ¶ 7). Similarly, the agreement stated that “[t]he award shall
be exclusive, final, and binding to all issues and claims that were raised or could have been raised
in Plaintiff’s and Defendants’ respective pleadings,” J.A. at 113 (Agreement ¶ 28), and that “the
Arbitrators’ award will be exclusive, final, and binding,” J.A. at 114 (Agreement ¶ 33).
In mid-August 2006, the arbitration hearing began. Komatsu subsequently alleged that there
were several incidents during the hearing that indicated bias on the part of Stein. First, Komatsu
claims that a paralegal at the hearing overheard Stein tell the other arbitrators “[t]hat Fresard is a
prick.” J.A. at 252-53 (Dec. 7, 2007, Mot. to Enf. Award Hr’g Tr. at 12:23-13:5). Second, Komatsu
claims that Stein closed his eyes during Komatsu’s arguments and did not pay attention to its
attorneys. Third, Komatsu claimed that Stein did not inspect the forklift with the other arbitrators
until Komatsu’s attorneys found him in the hotel. Fourth, Komatsu claimed that several evidentiary
decisions by the panel of arbitrators were suspect and that Stein “always argued for the Plaintiffs’
motion.” J.A. at 256 (Hr’g at 16:2-23). Komatsu, however, did not object to any of these alleged
events during the arbitration hearing.
After the hearing, while the parties waited for the arbitrators’ decision, the parties stipulated
to dismiss the tort-action lawsuit. In response, the district court dismissed the case with prejudice
but once again retained jurisdiction “to review and enforce or vacate the arbitral award.” J.A. at
121-22 (Aug. 30, 2006, Order of Dismissal).
On September 12, 2006, the arbitrators announced an award of $1.9 million for Uhl and
Pacific. Komatsu claims that the size of the award provoked its suspicions, and it soon discovered
that Stein and Johnson had a professional relationship that included at least two occasions when
Stein and Johnson served together as co-counsel. On September 27, 2006, Komatsu filed a motion
to vacate the arbitration award. Komatsu claimed, as it does here, that Stein’s decision not to
disclose his prior relationship with Johnson entitled Komatsu to rescission of the arbitration
agreement. Komatsu also argued, as it does here, that Stein’s decision not to disclose his prior
relationship with Johnson was a violation of the Federal Arbitration Act (“FAA”), requiring the
district court to vacate the award.
At a hearing to evaluate the motion to vacate, the district court questioned Johnson about the
extent of his relationship with Stein. Johnson told the court that he never had a financial relationship
with Stein, a referral fee with Stein, or used Stein as an arbitrator before the instant case. J.A. at 270
(Hr’g at 30:7-24).
No. 07-1044 Uhl v. Komatsu Forklift Co., et al. Page 4
On December 8, 2006, the district court confirmed the arbitration award and denied
Komatsu’s motion to vacate. The district court evaluated Stein’s obligations under the FAA and
concluded that Stein did not violate the FAA’s provisions. In evaluating Stein’s actions under the
FAA, the district court applied a reasonable-person standard to conclude that there was no conflict
of interest between Stein and Johnson. The district court further believed that Komatsu waived this
argument by waiting until after the arbitration award was announced to object to Stein’s alleged bias.
The district court also evaluated the FAA provisions regarding fraud, procedural fairness, and the
scope of the arbitrator’s authority. The district court concluded that Komatsu failed to establish a
violation under any of the FAA’s provisions. On the same day, Komatsu appealed to this court.
Uhl and Pacific asked a motions panel of this court to dismiss Komatsu’s appeal on the
grounds that this court lacks jurisdiction. According to Uhl and Pacific, the arbitration agreement
did not provide for review by the Sixth Circuit, and therefore, there is no jurisdiction to hear this
appeal. The motions panel referred the matter to the hearing panel because “[t]he arguments raised
in the motion to dismiss and the response in opposition go to the heart of the appeal.” Uhl v.
Komatsu Forklift Co., No. 07-1044 (6th Cir. Mar. 12, 2007) (Order).
II. JURISDICTION
It is incumbent upon us first to address the issue of whether we have jurisdiction to rule on
this matter. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 95 (1998). Uhl and Pacific
contend that the arbitration agreement makes this case nonappealable beyond the district court. In
particular, they point to the sections of the arbitration agreement that state that “[t]he award shall
be exclusive, final, and binding to all issues and claims,” J.A. at 113 (Agreement ¶ 28), and that
“[t]he parties shall be deemed to have consented to the Arbitrators’ judgment upon the receipt of the
arbitration decision,” J.A. at 114 (Agreement ¶ 30).
The question is whether that language is enough to strip this court of jurisdiction. Uhl and
Pacific claim that MACTEC, Inc. v. Gorelick, 427 F.3d 821 (10th Cir. 2005), cert. denied, 547 U.S.
1040 (2006), interprets similar language as a waiver of appealability. MACTEC says nothing of the
sort. In MACTEC, the Tenth Circuit demanded that any waiver of judicial review be “clear and
unequivocal.” Id. at 828 (internal quotation marks omitted). The MACTEC court specifically held
that the “use of the term ‘final’ would not, by itself, be enough to convey an intent to eliminate
appellate rights, [but] inclusion of the term ‘nonappealable’ serves this purpose.” Id. at 830 (citation
omitted).
Despite what Uhl and Pacific suggest, MACTEC supports our conclusion that we properly
have jurisdiction. Nowhere in the arbitration agreement do the parties express the intent that the
award will be nonappealable. Instead, the parties state that the award will be “final,” and just as that
was not enough for the Tenth Circuit, “final” without express language of nonappealability is not
enough for this court either. We have previously found jurisdiction to hear an appeal of a district
court’s review of an arbitrator’s decision when the arbitration agreement used very similar language
that stated that “[t]he award of the arbitrator shall be considered final and binding.” Green v.
Ameritech Corp., 200 F.3d 967, 970-974 (6th Cir. 2000). Furthermore, we have previously held in
the context of a federal labor dispute that language that a decision was “final and binding on the
parties, and further rights of appeal are hereby waived except that all articles must be in
conformance with law and Executive Order” did not deprive us of jurisdiction because it preserved
some appealability. Dep’t of the Air Force v. Fed. Labor Relations Auth., 775 F.2d 727, 733 (6th
Cir. 1985). Our precedent, therefore, sets a high bar for the waiver of appealability.
We conclude that the arbitration agreement in the case at hand did not waive appealability.
Not only does the arbitration agreement say nothing that expresses a desire to waive appealability,
but even the language that made the award “final” was tempered by a commitment to future judicial
No. 07-1044 Uhl v. Komatsu Forklift Co., et al. Page 5
intervention. The agreement stated that the district court “shall retain jurisdiction of this matter for
the purpose of . . . enforcing any award entered by the Arbitrators.” J.A. at 114 (Agreement ¶ 36).
Uhl and Pacific’s brief concedes that this language provides a basis for judicial review for “a claim
of fraud or a violation of the arbitration agreement.” Appellees Br. at 5. Furthermore, the parties’
own actions suggest that they accepted a greater judicial role than Uhl and Pacific now admit; after
the arbitration was complete, the parties filed a stipulation for dismissal that directed the district
court to “retain jurisdiction to settle any dispute between the parties regarding the enforcement of
the Arbitration Award.” J.A. 119-20 (Stip. to Dismiss) (emphasis added). In response to the
stipulation, the district court retained jurisdiction “to review and enforce or vacate the arbitral
award.” J.A. at 121-22 (Dismissal). Thus, the language of finality is tempered by an active role for
the district court and, in the absence of language that would limit appeals to no higher than the
district court, we cannot say that this was a clear waiver of appealability.
Given that there was no waiver of appealability, we apply the usual rule that arbitration
agreements are generally appealable. See 9 U.S.C. § 16; MICH. CT. RULE 3.602(N) (“Appeals may
be taken as from order[s] or judgments in other civil actions.”). Accordingly, we conclude that we
have jurisdiction to hear the appeal under 28 U.S.C. § 1291 as a standard appeal from the final
decision of a district court.
III. GOVERNING LAW
Before addressing the merits of this case, we must determine the law that governs our review.
On appeal, Komatsu presents two different types of arguments: (1) a Michigan contract-law
argument and (2) an argument based on the FAA. These two arguments are governed by two
different sets of law.
When considering Komatsu’s contract-law argument, “[b]ecause we are sitting in diversity,
we apply the law, including the choice of law rules, of the forum state.” Himmel v. Ford Motor Co.,
342 F.3d 593, 598 (6th Cir. 2003) (footnote and citation omitted). In this case, the forum state is
Michigan, so we must apply the law that Michigan would apply when interpreting the arbitration
agreement.
“The predominant view in Michigan has been that a contract is to be construed according
to the law of the place where the contract was entered into.” Chrysler Corp. v. Skyline Indus. Servs.,
Inc., 528 N.W.2d 698, 702 (Mich. 1995) (footnote omitted). However, that rule changed when the
Michigan Supreme Court noted that “[t]he trend in this Court has been to move away from
traditional choice-of-law conceptions toward a more policy-centered approach.” Id. (footnote
omitted). In Chrysler, the Michigan Supreme Court endorsed the approach found in the Restatement
(Second) of Conflict of Laws; therefore, Michigan courts “balance the expectations of the parties
to a contract with the interests of the states involved to determine which state’s law to apply.” Mill’s
Pride, Inc. v. Cont’l Ins. Co., 300 F.3d 701, 705 (6th Cir. 2002) (quotation marks omitted) (quoting
Equitable Life Assurance Soc’y of the U.S. v. Poe, 143 F.3d 1013, 1016 (6th Cir.1998)). According
to the Restatement approach:
In the absence of an effective choice of law by the parties . . . , the contacts to be
taken into account . . . to determine the law applicable to an issue include:
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance,
(d) the location of the subject matter of the contract, and
(e) the domicil, residence, nationality, place of incorporation and place of
business of the parties.
No. 07-1044 Uhl v. Komatsu Forklift Co., et al. Page 6
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188(2) (1971).
In the case at hand, the arbitration agreement does not contain a choice-of-law provision to
select the law that governs interpretation of the arbitration agreement. Thus, we apply the
Restatement approach and we conclude that all five of the Restatement elements point toward
Michigan law, so we will apply Michigan contract law when interpreting the arbitration agreement.
Although the agreement does not contain a choice-of-law provision, the agreement does
contain a provision that establishes the default rules governing the arbitration itself: “The
proceeding under this Agreement shall be deemed an arbitration proceeding subject to the Michigan
Arbitration Act, MCL 600.5001 et seq., the Federal Arbitration Act, 9 USC 1 et seq., and MCR
3.602.” J.A. at 114 (Agreement ¶ 29). Typically, the FAA would not apply to this arbitration
agreement. “While the FAA applies to a broad scope of cases in federal courts, it does not apply to
all. The FAA applies only to written arbitration provisions in ‘contract[s] evidencing a transaction
involving commerce’ and ‘maritime transactions.’” Brown v. Hyatt Corp., 128 F. Supp. 2d 697, 700
(D. Haw. 2000) (quoting 9 U.S.C. § 2) (holding that an arbitration agreement entered into after a tort
occurred is not governed by the FAA). However, because the parties invoked the FAA in the
arbitration agreement and rely heavily upon cases applying the FAA, we also will construe the
parties’ obligations with respect to the FAA. In addition, although the clause in the arbitration
agreement also mentions Michigan law, Michigan’s arbitration law is almost identical to the FAA
in all relevant respects. Compare MICH. CT. RULE 3.602(J)(1)(b), with 9 U.S.C. § 10. Thus, we will
consider Komatsu’s FAA claims and the parties’ default obligations with respect to our caselaw
interpreting the FAA.
IV. ARBITRATOR STEIN’S OBLIGATIONS
A. Contract-Law Argument
1. Standard of Review
“When reviewing a district court’s decision to confirm or vacate an arbitration award, we
review factual findings for clear error and questions of law de novo.” Green, 200 F.3d at 974; see
also Nationwide Mut. Ins. Co. v. Home Ins. Co., 429 F.3d 640, 643 (6th Cir. 2005) (“Nationwide
IV”); Int’l Bhd. of Teamsters, Local 519 v. United Parcel Serv., Inc., 335 F.3d 497, 503 (6th Cir.
2003).
2. Overview
The first of Komatsu’s arguments is that the arbitration agreement itself was violated when
Stein failed to disclose his prior relationship with Johnson. The exact provision of the agreement
in question reads:
2. Ethical Requirements. The Arbitrators shall have no financial or personal
interest in the result of this Arbitration. Prior to selecting the neutral arbitrator,
the party-selected arbitrators shall disclose to all parties any referral agreements,
financial dealings, or other relationships with any of the parties or parties’
attorneys that could in any way be construed as a possible conflict of interest.
After such disclosure, either party may demand that the conflicted arbitrator
recuse him/herself, and a new arbitrator will be selected by the party who
originally selected the recused arbitrator.
J.A. at 110 (Agreement ¶ 2) (emphases added). According to Komatsu, this provision gives the
arbitrator no choice as to whether to disclose past relationships; the arbitrator must disclose anything
that could be construed as a conflict of interest. In contrast, Uhl and Pacific appear to believe that
No. 07-1044 Uhl v. Komatsu Forklift Co., et al. Page 7
the first sentence of the paragraph serves to limit the scope of rest of the paragraph, thus requiring
disclosures only of those things that would suggest a financial or personal interest in the result of
the arbitration.
According to Komatsu, when Stein failed to disclose his relationship with Johnson, Komatsu
was entitled to rescission of the entire arbitration agreement on the basis of fraud in the inducement.
Komatsu made this same argument to the district court in Komatsu’s motion to vacate, but the
district court did not explicitly address it. In the course of addressing Komatsu’s FAA argument,
however, the district court stated that “there was no obligation on Stein’s part to make the
disclosures suggested by the defendants under the plain language of the arbitration agreement.” J.A.
at 37 (Op. at 13). It is therefore apparent that the district court sided with Uhl and Pacific in
interpreting this provision of the arbitration agreement.
A party must typically request vacation under the FAA, rather than try to attack an arbitration
agreement through breach-of-contract claims. Decker v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 205 F.3d 906, 908 (6th Cir. 2000) (calling a breach-of-contract claim an impermissible
collateral attack and stating that “the FAA provides the exclusive remedy for challenging acts that
taint an arbitration award”); Corey v. New York Stock Exch., 691 F.2d 1205, 1211-12 (6th Cir. 1982).
However, a litigant can attack the contract itself if “there was any defect in the underlying agreement
to arbitrate the dispute.” Corey, 691 F.2d at 1212. Komatsu alleges that Stein’s failure to disclose
his relationship with Johnson was such a defect and that Komtasu is therefore entitled to challenge
the validity of the arbitration agreement. Although we agree that Komatsu can challenge the
arbitration agreement, we conclude that Komatsu’s challenge falls short.
3. Rescission and Fraud in the Inducement
We need not resolve the parties’ dispute regarding the correct interpretation of Paragraph 2
of the arbitration agreement because we conclude that Komatsu is requesting a form of relief to
which it is not entitled even if its interpretation is correct. According to Michigan law, an arbitration
agreement “shall be valid, enforceable and irrevocable save upon such grounds as exist at law or in
equity for the rescission or revocation of any contract.” MICH. COMP. LAWS § 600.5001(2).
Komatsu claims that it is entitled to rescission on the ground of fraud in the inducement. Parties are
entitled to bring a fraud-in-the-inducement action when they are induced into entering an agreement
on the basis of false representations. See Rood v. Midwest Matrix Mart, Inc., 87 N.W.2d 186, 190
(Mich. 1957) (distinguishing between fraud in the inducement and fraud in the execution). To
establish successfully a claim for fraud in the inducement, Komatsu would need to establish six
things:
(1) the defendant made a material representation; (2) the representation was false; (3)
when the defendant made the representation, the defendant knew that it was false, or
made it recklessly, without knowledge of its truth and as a positive assertion; (4) the
defendant made the representation with the intention that the plaintiff would act upon
it; (5) the plaintiff acted in reliance upon it; and (6) the plaintiff suffered damage.
Custom Data Solutions, Inc. v. Preferred Capital, Inc., 733 N.W.2d 102, 105 (Mich. Ct. App. 2006)
(internal quotation marks omitted).
We conclude that Komatsu cannot establish fraud in the inducement. The Michigan Court
of Appeals has emphasized that fraud in the inducement is not available for a breach of a contract’s
terms, lest fraud in the inducement claims swallow all breach-of-contract claims: “[A] claim of
fraud in the inducement, by definition, redresses misrepresentations that induce the buyer to enter
into a contract but that do not in themselves constitute contract or warranty terms subsequently
breached by the seller.” Huron Tool and Eng’g Co. v. Precision Consulting Servs., Inc., 532
No. 07-1044 Uhl v. Komatsu Forklift Co., et al. Page 8
N.W.2d 541, 546 (Mich. Ct. App. 1995) (emphasis added). Komatsu claims that the arbitration
agreement required a disclosure that Stein did not make, and Komatsu is, therefore, asking us to find
fraud in the inducement where a party simply failed to uphold its side of the bargain. We cannot
hold that this constitutes fraud in the inducement without turning every breach-of-contract claim into
a claim for fraud in the inducement, because every party enters into an agreement with the
expectation that all parties will abide by the agreement’s terms. This is, therefore, a compelling
reason to deny Komatsu eligibility for rescission.
Furthermore, even if Komatsu’s argument did not swallow all breach-of-contract claims in
contravention of Michigan precedent, it would still be hard to see how the agreement was a
misrepresentation that could trigger rescission. As Custom Data Solutions states, a valid fraud-in-
the-inducement claim requires a “representation.” 733 N.W.2d at 105. While the arbitration
agreement states that the arbitrators will disclose conflicts of interest, it does not warrant or represent
that any one arbitrator is free of conflicts. While perhaps Komatsu might have been able to sustain
a breach-of-contract claim,3 it most certainly cannot now claim that it was induced by the simple
fact that an agreement existed.
B. FAA Argument
1. Standard of Review
As before, “[w]hen reviewing a district court’s decision to confirm or vacate an arbitration
award, we review factual findings for clear error and questions of law de novo.” Green, 200 F.3d
at 974. In addition, in the context of the FAA, our ability to reverse judgments is restricted even
further: “The Federal Arbitration Act (“FAA”) expresses a presumption that arbitration awards will
be confirmed.” Nationwide IV, 429 F.3d at 643. “‘When courts are called on to review an
arbitrator’s decision, the review is very narrow; [it is] one of the narrowest standards of judicial
review in all of American jurisprudence.’” Id. (quoting Lattimer-Stevens Co. v. United
Steelworkers, 913 F.2d 1166, 1169 (6th Cir.1990)).
2. Evident Partiality
In addition to its contract-law claim, Komatsu argues that we should vacate the arbitration
award because Stein’s relationship with Johnson was “evident partiality” in violation of the FAA.
“A federal court may set aside an arbitration award under the FAA only upon a finding that certain
statutory or judicial grounds are present.” The Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308,
328 (6th Cir. 1998). Those statutory grounds are:
(a) In any of the following cases the United States court in and for the district
wherein the award was made may make an order vacating the award upon the
application of any party to the arbitration—
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either
of them;
3
We are skeptical that Komatsu could prevail even in a breach-of-contract action given that it is uncontroverted
that Komatsu knew before it signed the agreement that Uhl and Pacific were going to choose Stein and that Johnson and
Stein had previously worked together. Furthermore, at any point Komatsu could have requested that the arbitrators
disclose conflicts in accordance with the agreement. Thus, Komatsu was aware of the basic facts of the potential conflict
and had it within its power to avoid any harm from a breach of contract. See Carter v. State Farm Mut. Auto. Ins. Co.,
87 N.W.2d 105, 109 (Mich. 1957) (noting Michigan’s requirement that a party take action to mitigate potential losses
from a breach of contract).
No. 07-1044 Uhl v. Komatsu Forklift Co., et al. Page 9
(3) where the arbitrators were guilty of misconduct in refusing to postpone the
hearing, upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; or of any other misbehavior by
which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed
them that a mutual, final, and definite award upon the subject matter
submitted was not made.
9 U.S.C. § 10. Although there are four statutory grounds for vacating an award, and although the
district court addressed all four, Komatsu now raises claims only with respect to evident partiality.
See Appellants Br. at 31 (“[T]he arbitration award should have been vacated pursuant to 9 U.S.C.
§ 10(a)(2).”); id. at 26-28 (criticizing the district court for applying § 10(a)(4) when Komatsu had
never raised § 10(a)(4) as grounds for vacating). We therefore consider only whether Stein’s
relationship with Johnson constituted evident partiality in violation of the FAA, and we do not
consider any other statutory factors.
Komatsu, in arguing that Stein’s relationship with Johnson constituted evident partiality,
relies heavily upon Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145
(1968), wherein Justice Black wrote that arbitrators “must avoid even the appearance of bias.” Id.
at 150. Komatsu’s reliance on this case, however, is misplaced. Although Justice Black’s meaning
can hardly be questioned, that was not the standard that prevailed in this circuit. Instead, it was
Justice White’s narrower concurring opinion that gained traction. Justice White did not consider
all conflicts created equal; he separated those disclosures that were important from those that were
insignificant. Justice White wrote that “arbitrators are not automatically disqualified by a business
relationship with the parties before them if both parties are informed of the relationship in advance,
or if they are unaware of the facts but the relationship is trivial.” Id. (White, J., concurring)
(agreeing with the majority that the neutral arbitrator’s relationship should have been disclosed).
As the Fifth Circuit recently described, Justice White’s “opinion fully envisions upholding awards
when arbitrators fail to disclose insubstantial relationships.” Positive Software Solutions, Inc. v.
New Century Mortgage Corp., 476 F.3d 278, 281-82 (5th Cir.), cert. denied, ___ U.S. ___, 127 S.
Ct. 2943 (2007).
We have adopted Justice White’s more nuanced view that not every nondisclosure violates
the FAA. We have held that “the challenging party must show that ‘a reasonable person would have
to conclude that an arbitrator was partial’ to the other party to the arbitration.” Apperson v. Fleet
Carrier Corp., 879 F.2d 1344, 1358 (6th Cir. 1989) (quoting Morelite Const. Corp. v. New York City
Dist. Council Carpenters Benefit Fund, 748 F.2d 79, 84 (2d Cir.1984)), cert. denied, 495 U.S. 947
(1990); see also Nationwide IV, 429 F.3d at 645; Nationwide Mut. Ins. Co. v. Home Ins. Co., 278
F.3d 621, 626 (6th Cir. 2002) (“Nationwide II”). In order to sustain that burden, “the party asserting
evident partiality must establish specific facts that indicate improper motives on the part of the
arbitrator.” Andersons, 166 F.3d at 329 (internal quotation marks omitted) (quoting Consolidation
Coal Co. v. Local 1643, United Mine Workers, 48 F.3d 125, 129 (4th Cir.1995)). It is not enough
to demonstrate “an amorphous institutional predisposition toward the other side,” because that
would simply be the appearance-of-bias standard that we have previously rejected. Id.
Thus, the question is whether Komatsu has sustained its burden to establish “specific facts
that indicate improper motives on the part of the arbitrator.” Id. We conclude that it has not. What
Komatsu has established is that several years earlier Stein and Johnson were co-counsel on two
cases and that on six other cases Stein represented the plaintiff while Johnson represented the
intervening plaintiff. While we cannot say that such a relationship would never give rise to evident
partiality, the facts in the record before us indicate that a reasonable person would not be forced to
conclude that Stein was partial toward Uhl and Pacific.
No. 07-1044 Uhl v. Komatsu Forklift Co., et al. Page 10
There are several reasons why Komatsu has failed to establish evident partiality. First,
despite Komatsu’s repeated assertions that there must have been a financial arrangement between
Johnson and Stein, Johnson denied that in court and Komatsu has provided no evidence of a
financial agreement. Second, despite Komatsu’s repeated assertions that there is an ongoing
relationship between Johnson and Stein, Komatsu has adduced no probative evidence. Lastly, this
court and others have declined to vacate under similar circumstances. For instance, when an
arbitrator adjudicated a case that involved his former law partners (whose practice he had left two-
and-a-half years earlier), we declined to vacate in the absence of evidence of a personal interest in
the arbitration or prior knowledge of the substance of the arbitration. See Apperson, 879 F.2d at
1360. More recently, we held that a reasonable person would not be required to conclude that the
arbitrator was partial when the arbitrator disclosed that he had served as an arbitrator for one
defendant six times and as an arbitrator for another defendant over twenty times. See Nationwide
IV, 429 F.3d at 647-48. Most analogous to the instant case, the Fifth Circuit called it a “trivial
former business relationship” when an arbitrator had previously acted as co-counsel in another
matter with one of the attorneys representing a party to the arbitration. Positive Software Solutions,
476 F.3d at 283-84.
Of course, Komatsu alleged more than simply the relationship itself; Komatsu also claims
to have evidence of Stein’s antagonistic behavior during the hearing. Komatsu, however, did not
object during the hearing to the alleged behavior, so it is difficult to accord any weight to Komatsu’s
uncorroborated claims. Thus, we conclude on the basis of the facts before us that the relationship
between Stein and Johnson was not significant enough to rise to the level of evident partiality.
In its briefs, Komatsu attempts to distinguish Nationwide IV from the instant case, but these
arguments are unavailing. Komatsu claims that two important facts distinguish Nationwide IV: first,
in Nationwide IV, the arbitrator disclosed his relationships; and second, Nationwide IV did not
involve a contractual disclosure provision. The fact that Nationwide IV involved disclosure, whereas
this case involved nondisclosure, is not a significant difference; according to Justice White and our
own precedent, there is no duty to disclose if the relationship is trivial. The above discussion
establishes that the relationship between Stein and Johnson was insignificant; therefore, whether
Stein disclosed the relationship or not, he was under no obligation to do so. Similarly, the fact that
the case at hand involves a contractual provision is equally unimportant. The contractual provision
provides separate and independent obligations that we have already addressed, while the FAA
regulates disclosure on its own terms. Thus, the contractual provision does not alter the parties’
rights and obligations as they are dictated by the FAA.
We will not rush to conclude that an arbitrator is evidently partial. Arbitrators are often
chosen for their expertise and community involvement, Nationwide IV, 429 F.3d at 646, so “[t]o
disqualify any arbitrator who had professional dealings with one of the parties (to say nothing of a
social acquaintanceship) would make it impossible, in some circumstances, to find a qualified
arbitrator at all.” Id. at 647 (internal quotation marks omitted) (quoting Morelite Const. Corp., 748
F.2d at 83). In this case, the parties specifically contracted for arbitrators with experience in
products liability actions, J.A. at 110 (Agreement ¶ 1), and while we cannot say how large that pool
of arbitrators would be, if a relationship as insignificant as the one in this case were enough to
trigger evident partiality, it would make it much harder to find arbitrators with the relevant and
necessary expertise. For these reasons, we conclude that Komatsu has not established evident
partiality.
V. DISCOVERY AND SANCTIONS
A. Additional Discovery
Komatsu asks us to reverse the district court’s denial of Komatsu’s request for additional
No. 07-1044 Uhl v. Komatsu Forklift Co., et al. Page 11
discovery if we deny its other claims. In Nationwide II, the defendant requested additional discovery
in order to depose two of the arbitrators so that the defendant could uncover evidence of arbitral
bias. We reviewed the district court’s denial under an abuse-of-discretion standard. Nationwide II,
278 F.3d at 628. In Nationwide II, we were ambiguous as to whether the party seeking additional
discovery must offer clear evidence of improper conduct or simply establish that a reasonable person
would have to conclude that an arbitrator was partial, but we concluded that under either standard
no additional discovery was warranted. Id.
Here too, Komatsu does not merit additional time for discovery under either standard.
Komatsu has provided no evidence either of improper conduct or that a reasonable person would
have to conclude that Stein was partial. Furthermore, it would be excessive to grant additional
discovery when Komatsu first identified the relationship between Stein and Johnson at the end of
August 2006, and now, more than a year later, has still not provided any additional information that
would establish an improper relationship. We therefore deny any additional time for discovery.
B. Sanctions
Uhl and Pacific have requested sanctions for a frivolous appeal under Federal Rule of
Appellate Procedure 38. Their request was properly made in a separately filed motion. See FED.
R. APP. P. 38; Appellees Mot. for Dismissal at 19. We have held that an appeal may be frivolous
where “it is obviously without merit and is prosecuted for delay, harassment, or other improper
purposes.” Barney v. Holzer Clinic, Ltd., 110 F.3d 1207, 1212 (6th Cir. 1997) (internal quotation
marks omitted) (quoting NLRB v. Cincinnati Bronze, Inc., 829 F.2d 585, 591 (6th Cir. 1987)).
In Barney, we denied sanctions because there was no evidence of “some improper purpose,
such as harassment or delay, behind the appeal.” Id. Similarly, we decline to impose sanctions here.
While Komatsu’s case may indeed be quite weak, neither Uhl nor Pacific have presented any
evidence that there was some improper purpose. Given the lack of any evidence establishing an
improper purpose and in light of the arbitration agreement’s possible ambiguities, we decline to
impose sanctions in this case.
VI. CONCLUSION
For the foregoing reasons, we DENY Uhl and Pacific’s motion to dismiss, DENY Uhl and
Pacific’s motion for sanctions, AFFIRM the district court’s confirmation of the arbitration award,
and AFFIRM the district court’s denial of Komatsu’s motion to vacate the arbitration award.