Sharon Bailey v. American General Life & Accident Insurance Company ( 2005 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
Assigned on Briefs August 22, 2005
SHARON BAILEY v. AMERICAN GENERAL LIFE AND ACCIDENT
INSURANCE COMPANY, ET AL.
Appeal from the Chancery Court for Davidson County
No. 00-3455-II Carol McCoy, Chancellor
No. M2003-01666-COA-R3-CV - Filed December 29, 2005
An unsuccessful party to an arbitration proceeding appeals the trial court’s confirmation of the
arbitration decision. The challenge is based on alleged ambiguities in the agreement to arbitrate and
alleged failure by the arbitrator to disclose potential conflicts. We affirm the trial court’s
confirmation.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed
PATRICIA J. COTTRELL, J., delivered the opinion of the court, in which WILLIAM B. CAIN , and FRANK
G. CLEMENT , JR., JJ., joined.
Peter T. Skeie, Nashville, Tennessee, for the appellant, Sharon Bailey.
Vanessa Griffith, Houston, Texas; Eric Stevens, Nashville, Tennessee, for the appellee, American
General Life and Accident Insurance Company.
OPINION
Ms. Bailey appeals on two grounds the trial court’s failure to vacate an arbitrator’s decision
that found no merit to her claims against America General Life and Accident Insurance Company
(“AGLA”). First, Ms. Bailey argues that the arbitrator’s decision is of no effect since there was not
an enforceable agreement to arbitrate between the parties. Second, she argues that even if the parties
were required to arbitrate, the decision should be vacated because the arbitrator failed to adequately
disclose potential conflicts of interest. We agree with the trial court that Ms. Bailey has not provided
sufficient grounds to disturb the arbitrator’s decision.
I. FACTS
The material facts of this case are not in dispute. During the application process and upon
her employment, Ms. Bailey agreed to resolve disputes with AGLA through its dispute resolution
process. Ms. Bailey acknowledges agreement with several documents from AGLA that describe the
parameters of the dispute resolution process, which includes an obligation to arbitrate.
First, in September of 1999, Ms. Bailey signed an application for employment
(“Application”) with AGLA that discusses dispute resolution and arbitration in the following
provision:
EMPLOYEE DISPUTE RESOLUTION PROGRAM:
Notwithstanding any provisions disclaiming the existence of a contractual
relationship, an Employee Dispute Resolution Program is in place at American
General. The program requires resolution of any employee dispute through informal
and formal means, including binding arbitration. These means are exclusive means
of resolving disputes. No right of court action exists. The details of the program,
including any limitations or exclusions, are furnished to each employee upon hire and
can be obtained by applicants upon written request, and are herein incorporated into
this agreement by reference. I hereby acknowledge by signing this application,
that all legal disputes arising under federal, state or local law regarding this
application for employment (including, but not limited to, claims of
discrimination) will be resolved through the Employee Dispute Resolution
Program, and that I hereby waive the right to proceed in court. I further
acknowledge that if I am hired, a term and condition of employment with
American General is that both American General and I agree to resolve all
employment related disputes through informal and formal means, including
binding arbitration, through the Employee Dispute Resolution Program and
that both parties waive their right to proceed in court pursuant to the Program.
(emphasis in original).
Second, Ms. Bailey acknowledges receipt of the Employee Dispute Resolution Program
referenced in the Application which describes the methods available to employees to resolve disputes
including both informal intervention and formal mediation or arbitration.1 First, employees are
1
Each employee, including M s. B ailey, was given a letter from the President of AGLA and a copy of the
Employee Dispute Resolution Program. The letter from the President provides in pertinent part:
It is important for you to know that employees will not be waiving any substantive legal rights
under this new Program. Rather, the Program provides that any substantive legal issues you may have
will be resolved in mediation or before a neutral arbitrator, whose decision will be final and binding
on you and the company. This does mean, however, that under the Program you waive any
(continued...)
2
encouraged to speak with their supervisors to resolve problems. If the problem is not resolved or
pertains to the supervisor, the employee may go to an Employee Relations Conference with a
dispute. If neither of these options satisfies the employee, then mediation and arbitration are
available. The Program contains the following language:
The AGLA Employee Dispute Resolution Program is the sole means of resolving
employment-related disputes between you and the company or you and another
employee, including disputes for legally protected rights such as freedom from
discrimination, retaliation, or harassment.
You are still free to consult or file a complaint with any appropriate state or
federal agency, such as the EEOC, regarding your legally protected rights.
However, this Program must be used instead of a trial if you are not satisfied
with the results of the government agency process.
Seeking, accepting, or continuing employment with AGLA means that you agree
to resolve employment-related claims against the company or another employee
through this process instead of through the court system. This program does
not alter AGLA’s at will employment policy. (emphasis in original).
When Ms. Bailey was hired later that month, on September 20, 1999, she signed a third
document entitled the Employee Acknowledgment Concerning American General Life and Accident
Insurance Company’s Employee Dispute Resolution Program (“Acknowledgment”). The
Acknowledgment provided that Ms. Bailey acknowledged receipt of the Employee Dispute
Resolution Plan (“Resolution Plan”). The final paragraph of the Acknowledgment provides as
follows:
By my signature below, I acknowledge and understand that I am required to adhere
to the Employee Dispute Resolution Plan and its requirement for submission of
employment disputes to a four option process which may include mediation and/or
1
(...continued)
procedural rights you have to bring a court action and to a jury trial concerning any employment
dispute you may have with the Company, including claims of discrimination based on race, national
origin, gender, religion, age, or disability under any federal or state civil rights statute. Such claims
are among those that must be submitted to arbitration once the Dispute Resolution Program becomes
effective.
A copy of the new Employee Dispute Resolution Program is enclosed. Every individual who
works for American General is subject to the new Program, including the binding arbitration provision,
even if an employee does not sign the Acknowledgment Form. Your continued employment after the
date you receive the enclosed documents will constitute your acceptance of the Program.
W hile the letter is not a part of any agreement with AGLA, it does reflect AGLA’s efforts to explain to its employees
the requirement of arbitration and its consequences.
3
arbitration. I further understand that my employment or continued employment with
the Company constitutes my acceptance of the terms of this provision as a condition
of my employment or continued employment.
The Resolution Plan referenced in the Acknowledgment is the fourth document provided Ms.
Bailey that describes the parties’ obligation to arbitrate. The Resolution Plan makes clear that it
applies to virtually all disputes between AGLA and its employees including “all claims amounting
to a common law tort . . . and all claims under any federal, state, or local human rights or
employment rights statute . . . including, but not limited to Title VII of the 1964 Civil Rights Act
. . . and any similar state statute.” Provisions of the Resolution Plan provided Ms. Bailey that are
pertinent to this case are as follows:
4. Resolution of Disputes
All Disputes not otherwise settled by the Parties by mutual agreement
shall be finally and conclusively resolved under this Plan and the
[AGLA Dispute Resolution Rules, “Rules”] which shall provide the
sole and exclusive means for resolution of such disputes.
8. Applicable Law
A. The [Federal Arbitration Act, 9 U.S.C. § 1 et. seq., “Act”] shall
apply to this Plan, the Rules, and any proceedings under the Plan or
the Rules, including any actions to compel, enforce, vacate or confirm
proceedings, awards, orders of a Referee, or settlements under the
Plan or the Rules.
10. Exclusive Remedy
Proceedings under the Plan shall be the exclusive, final and binding
method by which disputes are resolved. Consequently, the institution
of a proceeding under this Plan shall be a condition precedent to the
initiation of any lawsuit by the Employee against the Company or any
lawsuit by the Company against the Employee arising out of the
employment of an Employee by the Company and any such lawsuits
shall be limited to those under the Act.
15. Consent
Employment or continued employment after the Effective Date
of this Plan constitutes consent by both the Employee and the
Company to be bound by this Plan, both during the employment
and after termination of employment. (emphasis original).
4
In the event the parties are unable to resolve a dispute informally, the fifth document AGLA
provided to Ms. Bailey, the Rules referenced in Section 4 of the Resolution Plan, provide the
procedural framework for the formal dispute resolution alternatives of mediation and arbitration.
Whether mediation or arbitration is applicable is determined as follows:
If the Parties agree on a procedure, [the American Arbitration Association] will
implement this agreement to the extent consistent with AAA’s rules upon payment
of any applicable fee. If the Parties cannot agree, or if the Parties have previously
attempted and failed to resolve the Dispute by mediation or another non-binding
mechanism, the Dispute shall be arbitrated under these Rules.
The Rules provide the mechanism for selecting an arbitrator by the AAA including a
requirement that before accepting an appointment a prospective arbitrator “shall disclose any
circumstances likely to . . . create a presumption of bias.” If there is such a disclosure, the AAA
“will either replace that person or communicate the information to the parties for comment.
Thereafter, AAA may disqualify that person and its decision shall be conclusive.” Like the
Resolution Plan, the Rules provide that judicial review of the arbitration proceeding shall be
governed by the Federal Arbitration Act.
In proceedings before the trial court, Ms. Bailey acknowledged that the Application,
Resolution Program, Acknowledgment, Resolution Plan, Resolution Rules, together with the AGLA
Legal Consultation Plan2 are the documents that “constitute, together or in combination,” a possible
contract.
On November 6, 2000, Ms. Bailey filed suit against AGLA in chancery court for violation
of the Tennessee Human Rights Act, Tenn. Code Ann. § 4-21-401, relating to a hostile work
environment, and for the commission of various torts including negligent infliction of emotional
distress and outrageous conduct.3 On February 1, 2001, AGLA filed a Motion to Compel Arbitration
and Stay Proceedings based upon Ms. Bailey’s agreement to arbitrate.
On August 15, 2001, the trial court ordered Ms. Bailey to arbitrate her claims against AGLA
and stayed the trial court’s proceedings pending arbitration. Ms. Bailey did not seek interlocutory
appeal of this order.
The parties then proceeded with the arbitrator selection process described in the Plan and
Rules administered by AAA. Through this process Barbara Moss, a partner with the law firm of
Wyatt, Tarrant and Combs, was conditionally selected by the AAA. On January 11, 2001, AAA
notified the parties by letter of this conditional selection and provided them Ms. Moss’s disclosure
2
The provisions of the AGLA Legal Consultation Plan do not have a bearing on this appeal.
3
The complaint alleges Ms. Bailey was raped at her home by Mr. Smith, a defendant in this lawsuit, who was
an employee of a temporary personnel agency, Staffing Solutions, which had contracted with AGLA to supply full time
temporary workers. The allegations against AGLA relate to its actions after notice of the alleged rape.
5
statement. This letter to counsel for Ms. Bailey and AGLA from AAA directed the parties as
follows:
Any objections to the continued service of the arbitrator based on the above
disclosure should be filed with this office, copying all other parties, on or before
January 16, 2002. The AAA will make a determination on any objections raised,
after receiving comments from the parties, in accordance with the rules. (emphasis
original).
The disclosure provided by Ms. Moss and forwarded to the parties provided as follows:
In checking with my firm members, I find that we are currently representing
American General in one matter in Louisville and another matter in Lexington,
Kentucky. Here in Nashville, a former member of the firm, Nancy Vincent, also
represented American General from time to time. I assume that the claimant will not
consent to this conflict, but let me know.
After receiving this disclosure, counsel for Ms. Bailey did not object to the appointment of
Ms. Moss and did not ask for further elaboration. Therefore, Ms. Moss was selected by AAA and
the arbitration process proceeded.
The arbitration hearing occurred on August 20, 2002, and on October 22, 2002 the arbitrator
issued her decision finding in AGLA’s favor. Two weeks after the arbitrator rendered her decision,
Ms. Bailey filed a Motion to Vacate the Arbitration because the arbitrator allegedly failed to disclose
actual and apparent conflicts of interest. On April 3, 2003, the trial court issued its order denying
Ms. Bailey’s request to vacate the arbitration. The trial court found as follows:
The Arbitrator disclosed to the parties both an existing relationship between
her firm and American General and a prior relationship of representation between the
same. The purpose of arbitration is to bring closure to disputes submitted to this
forum of alternative dispute resolution. Both federal and state law limit the
circumstances in which a Court may intervene following submission of a controversy
to arbitration.
It is the opinion of this Court that the Plaintiff has not presented sufficient
proof to justify the Court to intervene in this arbitration. In the last sentence of her
disclosure, the Arbitrator states “I assume that the claimant will not consent to this
conflict, . . .” It is clear that the Arbitrator believed she had disclosed a sufficient
relationship to put the Plaintiff on notice not only of a conflict but also of a reason
to select another Arbitrator. This Court does not find the disclosure to be misleading.
The Arbitrator’s disclosure was sufficient to meet the requirements of both the
Federal Arbitration Act and the Tennessee Uniform Arbitration Act. It is the opinion
of this Court that a reasonably prudent person would be placed on notice to make
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further inquiry as to any objectionable relationship by virtue of the January 11, 2002
disclosure. By selecting the Arbitrator after receiving her subject disclosure, the
Plaintiff waived any objection she may have had as to the Arbitrator’s independence.
Finding the Plaintiff’s Motion to Discovery to be without merit, the Court
now turns to the Plaintiff’s Motion to Vacate the Arbitrator’s Award. For the same
reasons stated above in denying additional discovery, and viewing all of the evidence
regarding the relationship between the Arbitrator, the Arbitrator’s firm and American
General, in the light most favorable to the Plaintiff, this Court finds there is
insufficient evidence to support vacatur of the Arbitrator’s award under either the
Federal Arbitration Act or the Tennessee Uniform Arbitration Act.
The trial court then confirmed the arbitrator’s award pursuant to the Tennessee Uniform Arbitration
Act. Tenn. Code Ann. § 29-5-312.
Thereafter, on April 25, 2003, Ms. Bailey asked the court to alter or amend its order. The
trial court denied the request on June 25, 2003 finding as follows:
Waiver of the Right to Object to the Arbitrator
The Court has carefully considered the arguments raised by Plaintiff that she
did not waive her right to challenge the arbitrator’s partiality notwithstanding the
arbitrator’s disclosures at the outset of the arbitration. In connection with this
analysis, the Court has considered and reviewed all of the cases cited by the parties
and many others not cited by the parties. After reviewing these cases, the Court finds
that the Plaintiff did waive her right to challenge the award based on alleged non-
disclosure by the arbitrator. The cases consistently hold that a party who is on notice
that the arbitrator has a conflict of interest or may have a conflict of interest is
obligated to inquire further. Failure to do so constitutes a waiver of that conflict.
To hold otherwise would run afoul of one of the most valuable benefits of
arbitration which is expedient and inexpensive dispute resolution. To hold otherwise
would also encourage parties to delay in acting upon disclosures in hopes of a
positive result while maintaining the ability to challenge an adverse result. See e.g.,
Kiernan v. Piper Jaffray Companies, Inc., 137 F.3d 588, 593 (8th Cir. 1998) (holding
that parties to an arbitration waived their evident partiality claim “by weighing their
options at the time of [the arbitrator’s] amended disclosures and deciding to go
forward with her on the panel”); Gotwald v. Gotwald, 768 S.W.2d 689, 694 (Tenn.
Ct. App. 1988) (requiring that a party must complain and seek relief immediately
after the occurrence of a prejudicial event and “may not silently preserve the event
as an ‘ace in the hole’ to be used in the event of an adverse decision”).
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It is this Court’s opinion that the arbitrator’s disclosure would lead a
reasonable person to assume a bias or conflict of interest exists, or at the very least
to put a reasonable person on notice of the potential partiality of the arbitrator. The
Plaintiff had adequate time to object to the arbitrator before arbitration commenced.
To allow the Plaintiff to object after arbitration has been completed would undermine
the very essence of the arbitration process, which is intended to expedite resolution
and avoid unnecessary judicial entanglement with resolution of the dispute.
Sufficiency of the Arbitrator’s Disclosure
Plaintiff contends that the arbitrator’s disclosure lacked sufficient detail and,
therefore, demonstrates evident partiality by the Arbitrator. To succeed on this
argument, Plaintiff must adduce proof that the alleged partiality was “direct, definite,
and capable of demonstration.” Nationwide Mut. Ins. Co. v. Home Ins. Co., 278 F.3d
621, 626 (6th Cir. 2002). In addition, the challenging party must establish “specific
facts that indicate improper motives on the part of the arbitrator.” Id.
Again, in reviewing the information disclosed by the arbitrator, no such
inference is possible. Indeed, the fact that the arbitrator affirmatively disclosed that
there was a potential conflict given her firm’s representation of American General
precludes a finding that the arbitrator had improper motives in making this
disclosure. Moreover, not only did the arbitrator disclose her belief that a conflict
might exist, she specifically named an attorney who had been involved in the prior
representation - Nancy Vincent, a former partner. Given the arbitrator’s efforts to put
the parties on notice of her firm’s connection to American General, there is no
indication that the arbitrator sought to act improperly.
Ms. Bailey then appealed the trial court’s orders to compel arbitration and failure to vacate
the arbitration on two (2) separate grounds. First, Ms. Bailey argues the trial court should not have
compelled arbitration because the documents comprising her agreements with AGLA did not contain
an enforceable obligation to arbitrate. Second, Ms. Bailey argues that the trial court should have
vacated the arbitrator’s decision because of the arbitrator’s failure to disclose potential conflicts or,
alternatively, the trial court should have at least allowed Ms. Bailey to conduct discovery into
potential conflicts.
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II. AGREEMENT TO ARBITRATE
Ms. Bailey first appeals the trial court’s original decision to compel arbitration. She argues
that AGLA has failed to prove the existence of an enforceable agreement to arbitrate because the
terms of the documents are too indefinite and ambiguous. As part of this argument, Ms. Bailey
claims that the contracts are ones of adhesion and should thus be strictly construed against AGLA.4
Ms. Bailey does not deny that she agreed to the Application, Acknowledgment, Resolution Plan and
Rules. Her primary argument focuses on whether those documents contain an obligation to arbitrate.
Under both the Federal Arbitration Act (“FAA”) and the Tennessee Uniform Arbitration Act
(“TAA”),5 parties cannot be compelled to arbitrate any dispute that he or she has not expressly
agreed to arbitrate. Frizzell Construction Company, Inc. v. Gatlinburg, L.L.C., 9 S.W.3d 79, 84
(Tenn. 1999). In deciding whether the parties agreed to arbitrate a certain matter, courts generally
should “apply ordinary state-law principles that govern the formation of contracts.” First Options
of Chicago v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 1924 (1995); T.R. Mills Contractors, Inc.
v. WRH Enterprises, LLC, 93 S.W.3d 861, 866-70 (Tenn. Ct. App. 2002) (enforceability of contract
containing arbitration provision governed by state contract law). As a general rule, agreements to
arbitrate under both the FAA and the TAA are “valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract.” Pyburn v. Bill Heard
Chevrolet, 63 S.W.3d 351, 356-360 (Tenn. Ct. App. 2001) (quoting the FAA and holding that the
question of whether grounds exist to revocate is determined by state contract law); see also Tenn.
Code Ann. § 29-5-302. Therefore, Tennessee contract law governs whether the agreement to
arbitrate is too vague and indefinite to be enforceable.6 That is a question of law that this court
reviews de novo.
The “central tenet” of contract construction in Tennessee is that the intent of the contracting
parties when the agreement is executed governs. Planters Gin Company v Federal Compress &
Warehouse Company, Inc., 78 S.W.3d 885, 890 (Tenn. 2002). The parties intent is “presumed” to
4
She does not claim they are unconscionable and unenforceable on that basis. See Cooper v. MRM Investment
Company, 367 F.2d 493, 499-505 (6th Cir. 2004) (discussing Tennessee law on adhesion contracts, the unconscionability
and enforcement thereof, and the proof required to establish a contract of adhesion and unconscionability in the context
of an employment agreement with an arbitration clause).
5
The FAA applies to contracts “involving” interstate commerce. See Frizell Construction Co., Inc. v.
Gatlinburg, L.L.C., 9 S.W .3d 79, 83-84 (Tenn. 1999) (discussing the interstate commerce requirement). There is no
evidence in this record about the issue of interstate commerce, and the issue was not raised. The Dispute Resolution Plan
states that the FAA shall apply to the Plan and any proceedings thereunder, including actions to compel, vacate or
confirm orders resulting from the arbitration. In their briefs, the parties cite at various times to both the FAA and the
TAA. W hether the FAA or the TAA governs the specific issues raised in this appeal is of no practical significance
because the problems the FAA was intended to cure have been virtually eliminated by the enactment in Tennessee and
other states of the Uniform Arbitration Act. The U AA and FAA have similar or identical provisions on the relevant
issues. No question of pre-emption is presented herein. See Frizzell, 9 S.W .3d at 84 (discussing pre-emption of FAA).
6
The parties made no other choice of substantive law in the documents. The documents were executed in
Tennessee, and the work was performed here. Consequently, Tennessee law applies. The parties agree.
9
be in the words of the contract. Id. If the terms are clear and unambiguous, then “the literal meaning
of the language controls the outcome.” Id. It is accurate that a contract must be sufficiently definite
to be enforced and that indefiniteness on an essential term may prevent creation of an enforceable
contract. Doe v. HCA Health Services of Tennessee, Inc., 46 S.W.3d 191, 196 (Tenn. 2001).
However, a contract is ambiguous only when it is of “uncertain meaning and may fairly be
understood in more ways than one.” Id.
Even if we strictly construe the terms against AGLA, it is still clear that Ms. Bailey agreed
to binding arbitration. The Application, signed by Ms. Bailey, has three provisions wherein Ms.
Bailey agrees that she waives any right she may have to proceed in court. When Ms. Bailey accepted
employment with AGLA in September of 1999, she signed the Acknowledgment agreeing to comply
with the Resolution Plan which incorporates the Rules. The Acknowledgment evidenced Ms.
Bailey’s agreement to be bound by the dispute resolution process in the Plan, which may include
arbitration. The Resolution Plan clearly included within its coverage the tort claims and state human
rights claims raised by Ms. Bailey. The Rules provided that if the dispute was not informally
resolved to both parties’ satisfaction, then the parties agreed to arbitrate the matter. The previously
quoted Resolution Plan and Rules clearly require that AGLA and Ms. Bailey submit employment
disputes to binding arbitration. There are no vague or ambiguous provisions in the Application,
Acknowledgment, Resolution Plan or Rules regarding the obligation to arbitrate. It is also clear that
agreeing to arbitration is a waiver of the right to pursue relief in the courts. The terms of these
documents are crystal clear and in no way of “uncertain meaning” or ambiguous.
Ms. Bailey attempts to argue that since the Acknowledgment referenced the Program in its
title (“Employee Acknowledgment Concerning American General Life and Accident Insurance
Company’s Employee Dispute Resolution Program”) yet discusses the Plan in its text, then an
ambiguity is thereby created. We disagree. Ms. Bailey’s Application references the Program, which
discusses the dispute resolution process generally, including informal intervention and formal
arbitration. When hired, Ms. Bailey then signed the Acknowledgment which discusses the Plan, the
document that, together with the Rules, provides the details about the arbitration process. Reading
their documents together, there is no ambiguity. Ms. Bailey maintains that reference to a “four
option process” in the Acknowledgment creates confusion about the necessity of arbitration. It is
likewise clear that the “four option process which may include . . . arbitration” simply means that
if a dispute is not resolved earlier then it goes to arbitration. If a dispute is resolved informally then
arbitration is not required. Ms. Bailey’s argument that the first option in the four option program is
unclear is similarly without merit in this challenge to an arbitrator’s decision.
For these reasons, we agree with the trial court that Ms. Bailey was obligated to submit her
employment claims to binding arbitration.
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III. CONFLICT OF INTEREST DISCLOSURE
For her second ground of appeal, Ms. Bailey claims that the arbitrator’s failure to disclose
conflicts of interest requires that her decision be vacated. It is important to note that Ms. Bailey does
not claim that Ms. Moss failed to disclose any direct involvement she had with AGLA. The
disclosure made by Ms. Moss did not purport to list all matters handled by her firm for AGLA. It
put Ms. Bailey on notice that the arbitrator’s firm represented AGLA on unspecified present and past
matters. In effect, Ms. Bailey argues that the arbitrator’s disclosure should have provided more
details about the matters the arbitrator’s firm handled for AGLA.
The Rules governing arbitrator selection specifically required that any potential disclosed
conflict be provided to the parties “for comment.” The letter from AAA specified the parties had
until a date certain to object. As the trial court noted, the arbitrator even stated that Ms. Bailey
would probably object to her appointment based on the disclosure. At that juncture, Ms. Bailey was
entitled to object to the appointment or ask for further information. It is clear in the record that Ms.
Bailey took no action whatsoever.
The terms of the Resolution Plan and Rules provide that judicial review of an arbitrator’s
decision shall be pursuant to the Federal Arbitration Act.7 The FAA specifies four (4) grounds that
are available to vacate an arbitrator’s decision:
(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) 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(a).8
According to Ms. Bailey, the arbitrator’s failure to properly disclose potential conflicts
resulted in an arbitrator’s decision that was obtained by “undue means,” that was evidently partial,
7
The Tennessee Supreme Court has held that the Tennessee Uniform Arbitration Act governs the scope of
judicial review of arbitration. Arnold v. Morgan Keegan & Company, 914 S.W.2d 445, 447-48 (Tenn. 1996). That case
involved review of the arbitrator’s decision on the merits of the dispute. The issue before us involves matters outside
the decision of the arbitrator. In any event, the TAA and the FAA include virtually identical language establishing the
relevant grounds for vacating an arbitrator’s decision.
8
These grounds are virtually identical to those found in Tennessee’s codification of the Uniform Arbitration Act,
Tenn. Code Ann. § 29-5-313(a).
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and that was the result of arbitrator misconduct. Although different statutory grounds are alleged,
they are all based on the claim that the arbitrator did not disclose the full extent of her firm’s
relationship with AGLA or disclose with sufficient detail.
An arbitrator’s failure to disclose a material relationship with one of the parties can constitute
“evident partiality” requiring vacatur of the arbitrator’s award. Commonwealth Coatings Corp. v.
Continental Cas. Co., 393 U.S. 145, 147-48, 89 S. Ct. 337, 339 (1968). This case, however, is clearly
distinguishable from Commonwealth since Ms. Bailey was put on notice that the arbitrator’s firm
had present and past dealings with AGLA prior to the arbitration, had an opportunity to object or
seek clarification, and yet failed to act in the eight months between the AAA letter and the
arbitration.. In other words, Ms. Bailey chose, in effect, to remain ignorant.
It is well settled that a party to arbitration is not entitled to be aware of the possibility of
impartiality prior to the arbitration and then later raise it as a ground to vacate the arbitrator’s
decision. In Cook Industries Inc., v. C. Itoh & Co., 449 F.2d 106 (2d Cir. 1971), a party challenged
an arbitration decision on the ground that the employer of one of the arbitrators had substantial
business dealings with one of the parties to the arbitration. Id. at 107. The trial judge found that the
party challenging the arbitrator’s decision was aware of the relationship at the time of the arbitration.
Id.
Appellant cannot remain silent, raising no objection during the course of the
arbitration proceeding, and when an award adverse to him has been handed down
complain of a situation of which he had knowledge from the first. “Where a party
has knowledge of facts possibly indicating bias or partiality on the part of an
arbitrator he cannot remain silent and later object to the award of the arbitrators on
that ground. His silence constitutes a waiver of the objection. See San Carlo Opera
Co. v. Conley, D.C.S.D.N.Y. 1946, 72 F. Supp. 825, 833, affirmed 2 Cir., 1947, 163
F.2d 310.” Ilios Shipping & Trading Corp. S.A. v. American Anthracite &
Bituminous Coal Corp., 148 F. Supp. 698, 700 (S.D.N.Y.) aff’d per curiam, 245 F.2d
873 (2d Cir. 1957); see also Garfield & Co. v. Wiest, 432 F.2d 849 (2d Cir. 1970),
cert. denied, 401 U.S. 940, 91 S. Ct. 939, 28 L. Ed. 2d 220 (1971).
Cook Industries, Inc., 449 F.2d at 108.
In Lucent Technologies v. Tatung Co., 379 F.3d 24 (2d Cir. 2004), a party to the arbitration,
Tatung, sought to vacate an arbitrator’s decision because it claimed it never received a copy of the
arbitrator’s disclosure statement sent to the parties by AAA. Id. at 27-28. Tatung claimed that the
disclosure it did not receive strongly suggested partiality on the part of the arbitrator requiring
vacatur of the arbitrator’s decision. Id. at 27. Tatung argued that Commonwealth Coatings required
that an award be vacated when one party is not informed of a material relationship between the other
party and the arbitrator. The Second Circuit disagreed, stating:
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Tatung’s proposed rule . . . encourages parties to remain ignorant of potential
conflicts until after losing in arbitration . . .“[i]nstead of rewarding diligence at the beginning of
arbitration proceedings, such a result would ‘encourage the losing party to every arbitration to
conduct a background investigation of each of the arbitrators in an effort to uncover evidence of a
former relationship with the adversary.’” Lucent Techs., Inc., 269 F. Supp. 2d at 405 (quoting Merit
Ins. v. Leatherby Ins. Co., 714 F.2d 673, 683 (7th Cir. 1983)). Only after obtaining an unfavorable
result would a party search for relationships between an arbitrator and an opposing party in hopes
of finding a “pretext for invalidating the award,” Commonwealth Coatings, 393 U.S. at 151, 89 S. Ct.
337.
Lucent Technologies, 379 F.3d at 29. See Kiernan, 137 F.3d at 593 (declining to vacate award
“while [the party seeking vacatur of the arbitration decision] did not have full knowledge of all the
relationships to which they now object, they did have concerns about [arbitrator’s] impartiality and
yet chose to have her remain on the panel rather than spend time and money investigating further
until losing the arbitration.”)
We agree with the trial court that to allow Ms. Bailey to challenge the arbitrator after an
unfavorable award based on conflict of interest under these circumstances would afford Ms. Bailey
an unfair advantage and thwart the purposes of arbitration. The arbitrator’s disclosure did not
purport to be complete and clearly placed Ms. Bailey on notice that her firm had represented AGLA
both presently and in the past on unspecified matters. If we allow vacatur of the decision based on
these facts, then we will reap the consequences warned of in Lucent Technologies: namely, parties
might make strategic decisions not to challenge the selection of the arbitrator only to use the same
grounds to challenge the award later. Given the arbitrator’s disclosure about her firm’s
representation and her own skepticism that Ms. Bailey would accept her appointment, Ms. Bailey
was required to avail herself of the opportunity to challenge the appointment of Ms. Moss based on
this information rather than use it to later challenge the award.
IV. CONCLUSION
Therefore, for the foregoing reasons and those contained in the trial court’s orders, we affirm
the trial court’s denial of Ms. Bailey’s request to vacate the award or, alternatively, conduct
discovery. The judgment of the trial court is affirmed. Costs are assessed against the appellant,
Sharon Bailey, for which execution may issue if necessary.
____________________________________
PATRICIA J. COTTRELL, JUDGE
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