Mary Ann Sussex v. Usdc-Nvl ( 2015 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN RE MARY ANN SUSSEX; No. 14-70158
MITCHELL PAE; MALCOLM NICHOLL;
SANDY SCALISE; ERNESTO VALDEZ, D.C. No.
SR.; ERNESTO VALDEZ, JR.; JOHN 2:08-cv-00773-
HANSON; ELIZABETH HANSON, MMD-PAL
MARY ANN SUSSEX; MITCHELL PAE; ORDER AND
MALCOLM NICHOLL; SANDY AMENDED
SCALISE; ERNESTO VALDEZ, SR.; OPINION
ERNESTO VALDEZ, JR.; JOHN
HANSON; ELIZABETH HANSON,
Petitioners,
v.
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEVADA, LAS
VEGAS,
Respondent,
TURNBERRY/MGM GRAND TOWERS,
LLC; MGM GRAND INC., DOING
BUSINESS AS MGM MIRAGE;
TURNBERRY/HARMON AVE., LLC;
MGM GRAND CONDOMINIUMS,
LLC; SIGNATURE CONDOMINIUMS,
LLC; TURNBERRY WEST REALTY,
2 IN RE SUSSEX
INC.; MGM RESORTS
INTERNATIONAL,
Real Parties in Interest.
Petition for Writ of Mandamus
to the United States District Court for the District of
Nevada
Argued and Submitted
November 20, 2014—San Francisco, California
Filed January 27, 2015
Amended March 27, 2015
Before: Ferdinand F. Fernandez and Sandra S. Ikuta,
Circuit Judges, and William H. Albritton III, Senior
District Judge.*
Order;
Opinion by Judge Ikuta
*
The Honorable William H. Albritton III, Senior District Judge for the
U.S. District Court for the Middle District of Alabama, sitting by
designation.
IN RE SUSSEX 3
SUMMARY**
Writ of Mandamus / Arbitration
The panel granted a writ of mandamus, and directed the
district court to vacate its grant of a motion, while arbitration
was pending, to disqualify an arbitrator for evident partiality
under 9 U.S.C. § 10(a)(2).
Purchasers of condominium units in a luxury
condominium project brought civil actions against the
developer and seller of the project, and the parties agreed to
submit the disputes to arbitration. The district court
concluded that it had the authority to intervene in an ongoing
arbitration under Aerojet-General Corp. v. Am. Arbitration
Ass’n, 478 F.2d 248 (9th Cir. 1973), and granted the
developer’s motion to disqualify the arbitrator.
Bauman v. U.S. Dist. Court, 557 F.2d 650 (9th Cir. 1977),
sets forth five factors for determining whether a petitioner has
carried the burden of establishing a “clear and indisputable”
right to issuance of a writ of mandamus, including factor
three – whether the district court’s order was clear error.
The panel determined that the district court clearly erred
in holding that its decision to intervene mid-arbitration was
justified under Aerojet-General. Specifically, the panel held
that the district court erred in predicting that an award issued
by the arbitrator would likely be vacated because of his
“evident partiality” under 9 U.S.C. § 10(a)(2). The panel also
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4 IN RE SUSSEX
held that even if the arbitrator’s activities created a reasonable
impression of partiality, the district court’s equitable concern
that delays and expenses would result if an arbitration award
were vacated was manifestly inadequate to justify a
mid-arbitration intervention, regardless of the size and early
stage of the arbitration.
The panel applied the remaining factors set forth in
Bauman, and concluded that they weighed in favor of
granting the extraordinary remedy of mandamus relief.
COUNSEL
Norman B. Blumenthal (argued) and Kyle Nordrehaug,
Blumenthal, Nordrehaug & Bhowmik, La Jolla, California;
Robert Gerard, Gerard & Associates, Las Vegas, Nevada, for
Petitioners.
Steve Morris (argued), Akke Levin, and Jean-Paul Hendricks,
Morris Law Group, Las Vegas, Nevada; Alex Fugazzi and
Justin Carley, Snell & Wilmer LLP, Las Vegas, Nevada, for
Real Party in Interest Turnberry/MGM Grand Towers, LLC.
Yvette Ostolaza, Yolanda C. Garcia, and Robert Velevis,
Sidley Austin LLP, Dallas, Texas, for Real Party in Interest
MGM Resorts International.
No appearance for Respondent.
IN RE SUSSEX 5
ORDER
The opinion filed on January 27, 2015, and published at
776 F.3d 1092, is hereby amended as follows:
On page 1099, the first sentence of the final paragraph should
be deleted and replaced with the following:
The majority of our sister circuits expressly
preclude any mid-arbitration intervention.
On page 1100, the following should be added to the end of
the paragraph continued from page 1099:
However, we need not address the precise
scope of the Aerojet-General exception
because, as we discuss in the next section, this
is clearly not an “extreme case” in which mid-
arbitration intervention could be justified.
On page 1102, in the penultimate paragraph, the phrase
“Aerojet-General’s dicta” should be replaced with “Aerojet-
General”.
With these amendments, the petition for panel rehearing
is DENIED. Judge Ikuta voted to deny the petition for
rehearing en banc and Judge Fernandez and Judge Albritton
so recommended. The petition for rehearing en banc was
circulated to the judges of the court, and no judge requested
a vote for en banc consideration.
The petition for rehearing and the petition for rehearing
en banc are DENIED. No further petitions for rehearing or
rehearing en banc will be entertained.
6 IN RE SUSSEX
OPINION
IKUTA, Circuit Judge:
Sussex and other petitioners (collectively, “Sussex”) seek
a writ of mandamus directing a district court to vacate its
grant of a motion, while arbitration was pending, to disqualify
an arbitrator for evident partiality under 9 U.S.C. § 10(a)(2).
We have jurisdiction pursuant to the All Writs Act, 28 U.S.C.
§ 1651, and hold that mandamus is warranted under the
circumstances of this case. See Bauman v. U.S. Dist. Court,
557 F.2d 650 (9th Cir. 1977). We therefore grant the petition.
I
In the litigation giving rise to this petition for a writ of
mandamus, hundreds of purchasers of condominium units in
a luxury condominium project brought several different civil
actions against the developer and seller of the project,
Turnberry/MGM Grand Towers, LLC, and several affiliates
(collectively, “Turnberry”), raising a wide range of fraud and
other claims, and seeking rescission of their purchase
agreements or money damages. Two separate lawsuits
raising substantially identical claims, Sussex et al. v.
Turnberry/MGM Grand Towers, LLC et al., No. 2:08-cv-
0773, and Abraham et al. v. Turnberry/MGM Grand Towers,
LLC et al., No. 2:11-cv-01007, were filed in district court,
and were subsequently consolidated for purposes of the
motion at issue here. A third action raising similar claims
was filed in Nevada state court, KJH & RDA Investor Group,
LLC et al. v. Turnberry/MGM Grand Towers, LLC et al., No.
51159.
IN RE SUSSEX 7
All of the plaintiffs had entered into the same form
condominium purchase and sale agreement, in which they
agreed “to submit to arbitration any dispute” related to the
agreement and agreed that any arbitration would be
conducted under the rules of the American Arbitration
Association (AAA). Sussex and KJH were submitted to
arbitration in 2009.
In February 2010, the AAA appointed Brendan Hare, an
attorney in private practice, to serve as arbitrator for Sussex.
He would eventually become the arbitrator for all three cases
(Sussex, Abraham and KJH). The arbitration process in
Sussex commenced in February 2011. Around the same time,
Hare became involved in some business ventures to finance
litigation for investment purposes. He founded Bowdoin
Street Capital, a firm that “invests in high-value, high-
probability legal claims and litigations,” including “all
manner of meritorious claims,” and created a website to
attract investors to the firm. A few months later, Hare
participated as a panelist in the Litigation Finance and
Investment Summit in New York, on a panel entitled
“Perspectives on Investing in Litigation and Legal Finance
Companies” addressing “the drivers for investing in litigation
finance, including expected returns, assembling a portfolio,
and risk assessment/risk mitigation.” Hare participated in a
similar panel in March 2012. In February 2013, his online
LinkedIn profile stated that he had “recently refocused his
practice to concentrate on the emerging field of Litigation
Finance and Funding.” Hare filled out a new conflicts
disclosure form in February 2012, but did not disclose these
litigation financing activities.
After learning about Hare’s creation of Bowdoin and
efforts in the field of litigation financing, Turnberry made
8 IN RE SUSSEX
several requests to the AAA to disqualify Hare and stay the
arbitration. The AAA investigated Turnberry’s charge that
Hare’s involvement with Bowdoin created a conflict of
interest. In response to the AAA’s inquiry, Hare stated that
Bowdoin was “an entity I created to explore the possibility of
creating a fund to provide capital for litigation,” but stated
that he had “raised no money, and made no investments” and
“[e]xcept for a vestigial web presence” the company was
“completely dormant.” The AAA subsequently denied
Turnberry’s requests for Hare’s disqualification.
While the AAA was considering these objections,
Turnberry moved to disqualify Hare in the state case, KJH.
After some litigation in state courts, the KJH plaintiffs agreed
to proceed without Hare. In September 2013, Turnberry then
filed motions to disqualify Hare in the Sussex and Abraham
cases pending in district court. The district court granted an
emergency request to stay the arbitration in the two
consolidated cases.
In an order issued on December 31, 2013, the district
court granted Turnberry’s motion to disqualify Hare. The
district court ruled that it had the authority to intervene in the
ongoing arbitration, citing Aerojet-General Corp. v. Am.
Arbitration Ass’n, 478 F.2d 248 (9th Cir. 1973), for the
proposition that intervention in ongoing arbitration
proceedings was possible in “extreme cases.” The district
court then determined that intervention was warranted in this
case, in light of several factors. First, the consolidated
arbitrations were large, involving the claims of 385 plaintiffs.
Second, the proceedings were still in the early stages.
Discovery had not yet begun, and Hare had issued only
preliminary rulings. The district court also noted that the
state case, KJH, would be proceeding with a new arbitrator.
IN RE SUSSEX 9
Finally, the district court held that at the end of the
arbitration, Turnberry would be likely to prevail on a motion
to vacate any award Hare issued on the ground of “evident
partiality,” a basis for vacating an arbitration award under the
Federal Arbitration Act, 9 U.S.C. § 10(a)(2).1 The district
court reasoned that the undisclosed facts regarding Hare’s
litigation financing activities suggested he had a financial
interest in the outcome of the arbitration, because a victory
and large financial award for Sussex would help Hare
promote his company, which was designed to generate profits
from funding large, potentially profitable litigations.
According to the district court, Hare’s business venture would
create a reasonable impression of bias sufficient to meet the
§ 10(a)(2) standard. If the award were vacated, the parties
would have to repeat the arbitration process, which would
result in a waste of time and resources. Accordingly, the
district court entered an order removing Hare from the federal
cases. Sussex filed a timely petition for writ of mandamus.
II
“A writ of mandamus is an extraordinary or drastic
remedy, used only to confine an inferior court to a lawful
exercise of its prescribed jurisdiction or to compel it to
exercise its authority when it is its duty to do so.” DeGeorge
1
9 U.S.C. § 10(a)(2) provides:
(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— . . .
(2) where there was evident partiality or corruption in
the arbitrators, or either of them . . . .
10 IN RE SUSSEX
v. U.S. Dist. Court, 219 F.3d 930, 934 (9th Cir. 2000)
(citation and internal quotation marks omitted). A “judicial
readiness to issue the writ of mandamus in anything less than
an extraordinary situation” would defeat longstanding
Congressional policy against appellate review before final
judgment in the district court and would result in piecemeal
litigation. Kerr v. U.S. Dist. Court, 426 U.S. 394, 403 (1976).
A petitioner must therefore prove a right to issuance of the
writ that is “clear and indisputable.” DeGeorge, 219 F.3d at
934 (quoting Bankers Life & Cas. Co. v. Holland, 346 U.S.
379, 384 (1953)).
In determining whether a petitioner has carried the burden
of establishing a “clear and indisputable” right to issuance of
the writ, we examine the five factors set forth in Bauman v.
U.S. Dist. Court, 557 F.2d 650 (9th Cir. 1977):
(1) The party seeking the writ has no other
adequate means, such as a direct appeal, to
attain the relief he or she desires. (2) The
petitioner will be damaged or prejudiced in a
way not correctable on appeal. (This
guideline is closely related to the first.)
(3) The district court’s order is clearly
erroneous as a matter of law. (4) The district
court’s order is an oft-repeated error, or
manifests a persistent disregard of the federal
rules. (5) The district court’s order raises new
and important problems, or issues of law of
first impression.
Bauman, 557 F.2d at 654–55 (citations omitted). We weigh
these factors together to determine whether, on balance, they
justify the invocation of “this extraordinary remedy.” Id. at
IN RE SUSSEX 11
654–55 (internal quotation marks omitted). The factors are
not to be “mechanically applied”; we are neither compelled
to grant the writ when all five factors are present, nor
prohibited from doing so when fewer than five, or only one,
are present. Cole v. U.S. Dist. Court, 366 F.3d 813, 817 (9th
Cir. 2004). “[I]nstead, the decision whether to issue the writ
is within the discretion of the court.” Id. (citing Kerr, 426
U.S. at 403).
Because we have held that “the absence of factor
three—clear error as a matter of law—will always defeat a
petition for mandamus,” DeGeorge, 219 F.3d at 934 (internal
quotation marks omitted), we begin by determining whether
the district court committed clear error by intervening mid-
arbitration to remove Hare. Although the clear error standard
is “highly deferential,” In re Van Dusen, 654 F.3d 838, 841
(9th Cir. 2011), we have held that “a definite and firm
conviction that a mistake has been committed” weighs in
favor of granting the writ, Cohen v. U.S. Dist. Court,
586 F.3d 703, 708 (9th Cir. 2009) (internal quotation marks
omitted).
III
In order to address this question of clear error, we begin
by reviewing the usual, limited role of the district courts in
arbitration, and then we assess whether the district court
exceeded this role in a way that was clearly erroneous.
A
The Federal Arbitration Act provides that “an agreement
in writing to submit to arbitration an existing controversy
arising out of such a contract, transaction, or refusal, shall be
12 IN RE SUSSEX
valid, irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any contract.”
9 U.S.C. § 2. As we have interpreted the Act, a district
court’s authority is generally limited to decisions that
bookend the arbitration itself. Before arbitration begins, the
district court has the authority to determine whether there is
a valid arbitration agreement between the parties, and if so,
whether the current dispute is within its scope. See Chiron
Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130
(9th Cir. 2000). If the court determines that the arbitration
agreement is valid and “encompasses the dispute at issue,”
the Act requires the district court to enforce the agreement by
ordering the parties to arbitrate their dispute. Id.; 9 U.S.C.
§ 4. The district court’s involvement ordinarily stops at that
point; courts are authorized to act only in narrow
circumstances such as naming a replacement arbitrator or
compelling witnesses to testify at an arbitration hearing. See
9 U.S.C. §§ 5, 7. The statute does not suggest that a court
could otherwise intervene before a final award is made.2
After a final arbitration award, the parties may petition
the district court to affirm the award, id. § 9, or to vacate,
modify, or correct it, id. §§ 10–11. “The [Federal Arbitration
Act] gives federal courts only limited authority to review
arbitration decisions, because broad judicial review would
diminish the benefits of arbitration.” Lifescan, Inc. v.
Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir.
2004). Section 10(a) of the Act lists four narrow grounds for
2
An arbitrator’s interim decision that is final as to a distinct issue may
also be reviewable in some circumstances. See, e.g., Pac. Reinsurance
Mgmt. Corp. v. Ohio Reinsurance Corp., 935 F.2d 1019, 1022–23 (9th
Cir. 1991).
IN RE SUSSEX 13
vacating an arbitral award, including “evident partiality or
corruption in the arbitrators, or either of them.” Id. § 10(a).
The Supreme Court has made clear that courts have only
a limited role to play when the parties have agreed to
arbitration. Before the Federal Arbitration Act was passed,
the Court explained, “American courts were generally hostile
to arbitration” and “refused, with rare exceptions, to order
specific enforcement of executory agreements to arbitrate.”
Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 593
(2008) (Stevens, J., dissenting). Congress’s core purpose in
passing the Act was to curb this “judicial hostility towards
arbitration.” AT&T Mobility LLC v. Concepcion, 131 S. Ct.
1740, 1747 (2011). For this reason, in the context of
arbitrability determinations, the Court has adopted the view
that the Act, “both through its plain meaning and the strong
federal policy it reflects, requires courts to enforce the
bargain of the parties to arbitrate, and not substitute its own
views of economy and efficiency for those of Congress.”
Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985)
(internal quotation marks and alterations omitted). The Court
has also made clear that motions to vacate will be granted
“only in very unusual circumstances” to prevent arbitration
from becoming “merely a prelude to a more cumbersome and
time-consuming judicial review process.” Oxford Health
Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 (2013) (internal
quotation marks omitted).
We first addressed the question of authority to intervene
in an ongoing arbitration in Aerojet-General. In that case,
after a state court ordered two parties to proceed with
arbitration, one of the parties filed an action in district court
to object to the AAA’s chosen venue for the arbitration.
478 F.2d at 249–50. The district court enjoined the parties
14 IN RE SUSSEX
from proceeding with the arbitration pending a trial on the
question of whether the venue selection was reasonable. Id.
at 251. On appeal of the injunction, we addressed the
threshold question, “whether judicial scrutiny of arbitration
proceedings is ever appropriate prior to the rendition of a
final arbitration award.” Id. We concluded that “judicial
review prior to the rendition of a final arbitration award
should be indulged, if at all, only in the most extreme cases.”
Id. (emphasis added). We noted the considerations that
weighed heavily against a mid-arbitration intervention,
explaining that “[t]he basic purpose of arbitration is the
speedy disposition of disputes without the expense and delay
of extended court proceedings,” and that “[t]o permit what is
in effect an appeal of an interlocutory ruling of the arbitrator
would frustrate this purpose.” Id. In an abundance of
caution, we refrained from ruling “that immediate judicial
review of a ruling setting the place for arbitration is never
justified,” noting the remote possibility of an extreme case
that could cause “severe irreparable injury” from an error that
“cannot effectively be remedied on appeal from the final
judgment” and that would result in “manifest injustice.” Id.
Nevertheless, we held that the dispute over venue in Aerojet-
General was “emphatically not such a case.” Id.
While refraining from issuing a blanket rule precluding
intervention in an ongoing arbitration, we came quite close in
Aerojet-General, and never subsequently approved of such an
intervention. See, e.g., Orion Pictures Corp. v. Writers Guild
of Am., West, Inc., 946 F.2d 722, 725 n.2 (9th Cir. 1991)
(holding an arbitrator’s jurisdiction determination to be an
adverse preliminary ruling, not a final, reviewable order
under the Labor Management Relations Act, and declining to
apply Aerojet-General); cf. Pac. Reinsurance Mgmt.,
IN RE SUSSEX 15
935 F.2d at 1022–23 (holding that the order at issue was final
and reviewable, so Aerojet-General was not implicated).
The majority of our sister circuits expressly preclude any
mid-arbitration intervention. See Savers Prop. & Cas. Ins.
Co. v. Nat’l Union Fire Ins. Co., 748 F.3d 708, 717–18 (6th
Cir. 2014) (observing that although “the laws are largely
silent” on interlocutory review of arbitration decisions, “our
court and several of our sister circuits have interpreted that
silence . . . to preclude the interlocutory review of arbitration
proceedings and decisions,” and collecting cases from the
Second, Third, Fourth, Fifth, Sixth, Seventh and D.C.
Circuits); see also Smith v. Am. Arbitration Ass’n, 233 F.3d
502, 506 (7th Cir. 2000); Michaels v. Mariforum Shipping,
S.A., 624 F.2d 411, 414 n.4 (2d Cir. 1980). As the Seventh
Circuit has succinctly summarized the majority view,
“[r]eview [of an arbitration proceeding] comes at the
beginning or the end, but not in the middle.” Blue Cross Blue
Shield of Mass., Inc. v. BCS Ins. Co., 671 F.3d 635, 638 (7th
Cir. 2011). This rule applies with equal force to claims of
arbitrator partiality. See, e.g., Smith, 233 F.3d at 506 (“The
time to challenge an arbitration, on whatever grounds,
including bias, is when the arbitration is completed and an
award rendered.”). However, we need not address the precise
scope of the Aerojet-General exception because, as we
discuss in the next section, this is clearly not an “extreme
case” in which mid-arbitration intervention could be justified.
B
We now consider whether the district court clearly erred
by intervening in the ongoing arbitration. The district court
determined that intervention was warranted in this case
because the arbitrator’s award would likely be vacated at the
16 IN RE SUSSEX
conclusion of the arbitration, and such a result would lead to
further delays and expenses. We conclude that the district
court’s ruling was clearly erroneous as to the legal standard
for “evident partiality” and the nature of the equitable
concerns sufficient to justify a mid-arbitration intervention.
First, the district court erred in predicting that an award
issued by Hare would likely be vacated because of his
“evident partiality” under 9 U.S.C. § 10(a)(2). In the
foundational case of Commonwealth Coatings Corp. v.
Continental Cas. Co., the Supreme Court ruled that an
arbitrator’s failure to disclose the fact that he had been
involved in business dealings with one of the parties to the
arbitration over the prior five to six years created an
“impression of possible bias,” and therefore required the
vacatur of the arbitration award, even though there was no
evidence of actual bias. 393 U.S. 145, 146–49 (1968).
Holding that Commonwealth Coatings created a “reasonable
impression of partiality” standard, we clarified that its
standard differed from the strict standards applicable to
judges, because “arbitrators will nearly always, of necessity,
have numerous contacts within their field of expertise . . .
[and] have many more potential conflicts of interest than
judges.” Schmitz v. Zilveti, 20 F.3d 1043, 1046 (9th Cir.
1994); see also Commonwealth Coatings, 393 U.S. at 148
(observing that “arbitrators cannot sever all their ties with
the business world”). As Justice White recognized, “an
arbitrator’s business relationships may be diverse indeed,
involving more or less remote commercial connections with
great numbers of people. He cannot be expected to provide
the parties with his complete and unexpurgated business
biography.” Commonwealth Coatings, 393 U.S. at 151
(White, J., concurring).
IN RE SUSSEX 17
In applying this standard, we have held there was “evident
partiality” in cases that involved direct financial connections
between a party and an arbitrator or its law firm, or a concrete
possibility of such connections. See Schmitz, 20 F.3d at 1044,
1049; New Regency Prods., Inc. v. Nippon Herald Films, Inc.,
501 F.3d 1101, 1103 (9th Cir. 2007). In Schmitz, we held that
facts undisclosed by the arbitrator created a reasonable
impression of partiality because the arbitrator’s law firm had
represented a party’s parent company in at least 19 cases over
35 years; one case had ended only 21 months before the
arbitration. 20 F.3d at 1044. In New Regency, we held that
the undisclosed fact that the arbitrator was an executive of a
company that was negotiating with a party’s executive about
producing a significant film project was sufficient to create a
reasonable impression of partiality. 501 F.3d at 1103.
In contrast, we have recognized, courts have rejected
claims that undisclosed facts relating to “long past,
attenuated, or insubstantial connections between a party and
an arbitrator” created a reasonable impression of partiality.
New Regency, 501 F.3d at 1110. In Lagstein v. Certain
Underwriters at Lloyd’s, London, an arbitrator failed to
disclose that he had been involved in an ethics controversy
that had led to his appearing before one of his co-arbitrators
(then a judge), who had made several rulings in his favor.
607 F.3d 634, 639 (9th Cir. 2010). We held the non-
disclosure insufficient for vacatur, and explained that vacatur
could not be required “simply because an arbitrator failed to
disclose a matter of some interest to a party.” Id. at 646.
Rather, arbitrators must disclose facts showing they “might
reasonably be thought biased against one litigant and
favorable to another.” Id. (emphasis omitted) (quoting
Commonwealth Coatings, 393 U.S. at 150). The litigant’s
challenge to the arbitrator in Lagstein failed because it did not
18 IN RE SUSSEX
show any connection between the parties to the arbitration
and any of the arbitrator’s past ethical difficulties “that would
give rise to a reasonable impression of partiality” towards one
of the litigants. Id.
Under these precedents, the undisclosed facts regarding
Hare’s modest efforts to start a company to attract investors
for litigation financing do not give rise to a reasonable
impression that Hare would be partial toward either party.
Turnberry concedes that no relationship existed between Hare
and either party, and Hare’s potential ability to profit from a
large award to Sussex can best be described as “attenuated”
and “insubstantial.” New Regency, 501 F.3d at 1110. Such
a description is particularly apt given the dormant nature of
Hare’s business efforts and the speculative nature of
Turnberry’s theory that Hare could use Sussex’s success to
convince investors to give him their business. This alleged
financial interest is far less substantive than a longstanding
relationship between an arbitrator’s firm and a party’s parent
company, see Schmitz, 20 F.3d at 1044, 1049, or direct
negotiations between the arbitrator’s and a party’s companies
over a major project, see New Regency, 501 F.3d at 1103.
Viewed in light of our case law, the financial relationship in
this case is contingent, attenuated, and merely potential, see
id. at 1110; Schmitz, 20 F.3d at 1044, 1049, and would not
give a court grounds to vacate an award for evident partiality.
Second, even if Hare’s undisclosed activities did create a
reasonable impression of partiality, the district court’s
equitable concern that delays and expenses would result if an
arbitration award were vacated is manifestly inadequate to
justify a mid-arbitration intervention, regardless of the size
and early stage of the arbitration. We have repeatedly held
that financial harm is insufficient to justify collateral review;
IN RE SUSSEX 19
“mere cost and delay,” see DeGeorge, 219 F.3d at 935, is no
different from the injury a party wrongfully denied summary
judgment experiences when forced to go to trial, and we have
“consistently rejected . . . [the] position that the costs of
trying massive civil actions render review after final
judgment inadequate,” In re Cement Antitrust Litig. (MDL
No. 296), 688 F.2d 1297, 1303 (9th Cir. 1982) (internal
quotation marks omitted). The same rule applies in the
arbitration context. Moreover, even assuming that a mid-
arbitration intervention could be permissible under some
extreme circumstances, cost and delay alone do not constitute
the sort of “severe irreparable injury” or “manifest injustice”
that could justify such a step. See Aerojet-General, 478 F.2d
at 251. This case is “emphatically not” such an extreme case,
if one exists, that could cause us to diverge from our practice,
consistent with other circuits, of declining to intervene in an
ongoing arbitration. See id. Because we are left with “a
definite and firm conviction that a mistake has been
committed,” see Cohen, 586 F.3d at 708 (internal quotation
marks omitted), this factor favors granting the writ.
IV
Having determined that the district court’s decision to
intervene was clear error, we now turn to the remaining
Bauman factors, and conclude that they weigh in favor of
granting “this extraordinary remedy,” see Bauman, 557 F.2d
at 654 (internal quotation marks omitted), to prevent errors in
applying our circuit’s precedent regarding mid-arbitration
intervention.
Under the first two Bauman factors, we consider whether
Sussex lacked other adequate means of relief or would be
damaged or injured in a way not correctable on appeal. In re
20 IN RE SUSSEX
Cement, 688 F.2d at 1301. The injury at issue here is mid-
arbitration intervention and the removal and replacement of
an arbitrator, both of which have a disruptive effect on
proceedings that are supposed to be speedy and efficient.
Such an injury is not correctable on appeal; if we do not grant
the writ, the case will proceed to an award under a new
arbitrator. But the delay and disruption caused by the court’s
intervention is likely not significant enough to justify the
extraordinary remedy of mandate. Bauman, 557 F.2d at 657
(holding the “delay and the additional expenditure of judicial
and private resources” that would result when the class size
was reduced or the class action foreclosed following denial of
the writ would be insufficient to justify mandamus); but see
In re Cement, 688 F.2d at 1303 (holding that a judge’s
erroneous decision to recuse himself, causing petitioners to
incur additional cost and unreasonable delay, raised “a
substantial question as to whether petitioners have
demonstrated the kind of injury that would be necessary to
justify the invocation of our mandamus authority in a
traditional mandamus case”).
Nevertheless, even when the injury to the parties is
insufficient on its own, the balance may tip in favor of
granting the writ when the error at issue could also injure the
operation of the courts. See In re Cement, 688 F.2d at 1303.
Here, the district court’s interference in ongoing arbitration
proceedings raises the specter of such an injury, because the
district court’s mistaken application of Aerojet-General in a
published order may cause confusion, encourage similar
erroneous approaches, and leave district courts to wonder
whether and when to intervene. This concern also implicates
the fifth Bauman factor, which directs us to consider whether
the petition raises new and important problems or issues of
IN RE SUSSEX 21
law of first impression.3 Because no district court in our
circuit had previously interpreted Aerojet-General to allow
mid-arbitration intervention, and the potential impact of this
ruling raises substantial concerns, the fifth factor weighs in
favor of granting the writ.
We conclude that the third and fifth Bauman factors,
along with the first and second Bauman factors to a lesser
extent, weigh in favor of granting Sussex’s petition for
mandamus. Given the importance of this novel issue, we
conclude that this is one of those rare cases contemplated in
Bauman. We therefore grant the writ and direct the district
court to vacate its order removing Hare.
PETITION GRANTED.
3
The fourth factor, whether the district court’s order is an oft-repeated
error or shows a persistent disregard of federal rules, is not implicated
here. See DeGeorge, 219 F.3d at 934.