Marie Anderson v. H & R Block

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 01-11864 September 13, 2002
THOMAS K. KAHN
D.C. Docket Nos. 99-01992CV-AR-S CLERK
and 99-013149 CV-AR-S
UNIVERSITY COMMONS-URBANA, LTD.,
CAPSTONE DEVELOPMENT CORP.,
Plaintiffs-Counter-
Defendants-Appellees,
versus
UNIVERSAL CONSTRUCTORS INC.,
RELIANCE INSURANCE COMPANY,
Defendants-Counter-
Claimants-Appellants.
UNIVERSAL CONSTRUCTORS INC.
RELIANCE INSURANCE COMPANY,
Plaintiffs-Appellants,
versus
UNIVERSITY COMMONS-URBANA
CAPSTONE DEVELOPMENT CORP., its General
Partner,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Alabama
(September 13, 2002)
Before TJOFLAT and BIRCH, Circuit Judges, and GOLDBERG*, Judge
TJOFLAT, Circuit Judge.
In this appeal, Universal Constructors, Inc. (“Universal”) and Reliance
Insurance Company (“Reliance”) challenge a district court order confirming an
arbitration award entered in favor of University Commons-Urbana, Ltd.
(“University Commons”) and Capstone Development Corporation (“Capstone
Development”). One of the grounds of appellants’ challenge is that a member of
the arbitration panel was not impartial. The district court rejected this ground on
its face, without holding an evidentiary hearing. We conclude that appellants’
allegations of partiality are sufficient to warrant an evidentiary hearing. We
therefore vacate the award and remand the case so that an evidentiary hearing may
be held and findings of fact and conclusions of law may be made concerning the
issue.
_________________________________________________
*Honorable Richard W. Goldberg, U.S. Court of International Trade Judge, sitting by
designation.
2
I.
University Commons is an Illinois-based limited partnership formed by
Capstone Development, a Birmingham-based developer that specializes in student-
oriented apartment projects for colleges and universities throughout the United
States. Some of Capstone’s projects are developed “on campus” in conjunction
with colleges and universities, while others are developed “off campus” through a
limited partnership. University Commons was just such a partnership, formed to
develop an off-campus apartment project (the “Project”) near the University of
Illinois, in Urbana.
In September 1997, University Commons contracted with Universal to build
these apartments. Specifically, the contract called for Universal to erect 132 four-
bedroom and 108 two-bedroom student apartment units, a club house, a swimming
pool, a maintenance building, and a duplex. Reliance acted as Universal’s surety
and issued a $13,218,664 performance bond guaranteeing Universal’s performance
of the Project.
The Project was scheduled for completion in August 1998. Universal did
not meet this deadline, however. On April 1, 1999, with the pool unfinished and
landscaping work still to be done, Capstone Development sent Universal a notice
terminating their contract on the ground that Universal’s failure to complete the job
3
on time constituted a material breach. Later that month, Capstone Development
hired Capstone Building Corporation (“Capstone Building”) to complete the job.
Capstone Building completed the project by July 31, 1999.
On June 14, 1999, University Commons filed a Demand for Arbitration with
the American Arbitration Association (“AAA”), alleging breach of contract against
Universal. University Commons sought $3,649,669.98 in damages from Reliance
under the Performance Bond, including $286,899 for deductive change orders,
$555,285.34 for the cost of repairing, replacing, or completing Universal’s work,
and $3,307,485.64 for the damage allegedly caused by Universal’s failure to
complete the project on schedule. The bulk of this $3,307,485.64 that Universal
sought as compensation for the delay was lost rental income, specifically
$1,099,464 for the 1998-1999 school year and $1,989,700 for the 1999-2000
school year.
University Commons and Capstone Development presented these same
claims and sought these same damages in a law suit they brought in the United
States District Court for the Northern District of Alabama on July 30, 1999. The
court stayed prosecution of the case on December 7, 1999, after the parties
mutually consented to submit the case to arbitration.
In August 1999, the AAA provided the parties with a list of fifteen possible
4
arbitrators and their resumes. Each party had the right to strike five of the
arbitrators on a peremptory basis and rank the remaining names on the list in order
of preference. The AAA would then fashion a tribunal based on the parties’
preferences. In the arbitration in this case, styled University Commons-Urbana,
Ltd. c/o Capstone Development Corp. and Universal Constructors, Inc., and
Reliance Insurance Company, the AAA ultimately named a panel comprised of
three arbitrators, including Edward P. Meyerson, an experienced construction
attorney.
The arbitration itself ran from April to June 2000 and was conducted in three
parts. During the first set of hearings, from April 17 to April 25, 2000, University
Commons set forth its case-in-chief. Then, from June 1 until June 8, 2000, the
hearings continued into a second session as Universal and Reliance presented their
case-in chief. Finally, the hearings resumed for a third time from July 10 to July
12, 2000, for the parties’ rebuttals and closing arguments.
Prior to the arbitration hearings, the parties held several telephone
conference calls with the arbitrators to discuss scheduling and the depositions that
needed to be taken. During none of these calls, the first of which occurred on
November 11, 1999, did Meyerson disclose any involvement with the parties, their
witnesses, or their counsel – Bradley Arant Rose & White LLP (“Bradley Arant”),
5
counsel for University Commons, and Smith, Currie & Hancock LLP, counsel for
Universal. In fact, Meyerson never made any written disclosure of any kind
indicating that he had a financial or personal interest which might affect his
partiality.
At the start of the arbitration hearings on April 17, 2000, Meyerson
indicated, however, that he knew and had worked with and against the attorneys
and law firms who represented both sides in the arbitration. This would not be
Meyerson’s last disclosure: During the course of the arbitration hearings, he also
would reveal other previous contacts with people who had interests in the
arbitration. For instance, at some point during the arbitration process, Meyerson
informed the parties that he had met with a representative from Capstone Building
to discuss possible legal representation.1 In addition, at the end of the hearings,
when Jeff Schattinger, Capstone Development’s construction manager, appeared to
testify, Meyerson acknowledged that he had met Schattinger previously. Despite
these disclosures, there is no evidence in the record that Universal or Reliance
objected to Meyerson’s role as an arbitrator during any stage of the arbitration
1
The parties contest when Meyerson made this disclosure: Meyerson and
University Commons insist that Meyerson revealed his contact with Capstone
Building at the initial arbitration hearing; whereas, Ronald Robey, an attorney for
Universal, insists that Meyerson made no mention of it until the second series of
arbitration hearings.
6
hearings.
On August 17, 2000, the arbitrators rendered their decision, awarding
$2,248,648 to University Commons along with 12% interest per annum accruing
from August 15, 2000. Universal and Reliance received nothing on their
counterclaims. The arbitrators did not otherwise itemize the award of damages,
though. Consequently, they gave no indication as to what portions of the
$3,649,669.98, which University Commons originally sought in damages, they
thought had merit.
Little time passed, however, before the award was challenged. On August
30, 2000, Universal and Reliance filed a petition to vacate the award in the United
States District Court for the Northern District of Georgia. University Commons
countered and filed a motion to confirm the award in the still pending litigation
(which had been stayed) in the Northern District of Alabama. On October 23,
2000, the district court in Georgia issued an order sua sponte transferring its case to
the Northern District of Alabama, and the district court there consolidated the two
cases the following month.
On December 15, 2000, the parties met in accordance with Rule 26(f) of the
7
Federal Rules of Civil Procedure,2 and the district court ordered them to proceed
with limited discovery, to be completed by March 5, 2001. On January 9, 2001,
Universal served University Commons with a set of discovery materials, including
a First Request for Admissions, First Interrogatories, and a First Request for
Production of Documents.3 Arguing that “the Federal Arbitration Act does not
2
Rule 26(f) provides:
Except in categories of proceedings exempted from initial disclosure under Rule
26(a)(1)(E) or when otherwise ordered, the parties must, as soon as practicable and
in any event at least 21 days before a scheduling conference is held or a scheduling
order is due under Rule 16(b), confer to consider the nature and basis of their
claims and defenses and the possibilities for a prompt settlement or resolution of
the case, to make or arrange for the disclosures required by Rule 26(a)(1), and to
develop a proposed discovery plan that indicates the parties' views and proposals
concerning:
(1) what changes should be made in the timing, form, or
requirement for disclosures under Rule 26(a), including a statement as
to when disclosures under Rule 26(a)(1) were made or will be made;
(2) the subjects on which discovery may be needed, when discovery
should be completed, and whether discovery should be conducted in
phases or be limited to or focused upon particular issues;
(3) what changes should be made in the limitations on discovery
imposed under these rules or by local rule, and what other limitations
should be imposed; and
(4) any other orders that should be entered by the court under Rule
26(c) or under Rule 16(b) and (c).
Fed. R. Civ. P. 26(f).
3
Universal actually served University Commons with a nearly identical set
of discovery materials on December 28, 2000, but soon thereafter discovered
technical irregularities with one of its requests. Therefore, it resubmitted the
materials, corrected, to University Commons on January 9.
8
authorize initial disclosures or discovery in connection with a Motion to Confirm
or Vacate an arbitration award,” University Commons objected to Universal’s
requests, but nonetheless purported to respond to them on February 7, 2001.
In this February 7 response to Universal’s discovery requests, however,
University Commons refused to respond to most of Universal’s interrogatories and
declined most of Universal’s requests for admissions and documents. To illustrate,
of the twelve admissions Universal requested, University Commons denied
possessing the knowledge to answer eleven of them – all of which dealt with
whether Meyerson took part in various litigation in which Bradley Arant served as
counsel. Similarly, University Commons objected to fifteen of the eighteen
interrogatories that Universal submitted, because they sought information on
interactions between Meyerson and Bradley Arant and, according to University
Commons, “[Bradley Arant] is not a party and has no obligation to respond.”
Furthermore, with regard to two of the other three interrogatories, which sought
information regarding Meyerson’s previous dealings with Capstone Building and
Schattinger, University Commons professed to know no more than what was
previously revealed at the arbitration hearings.4 Not surprisingly, all of Universal’s
4
The one interrogatory that involved information clearly within University
Commons’ direct possession asked University Commons to “[i]dentify all
business, professional, civic, social, or other relationships and contacts during the
9
requests for documents, which sought materials relevant to each of the
interrogatories, were refused by University Commons.
Unhappy with University Commons’ response to its discovery requests,
Universal moved the court to compel discovery pursuant to Rule 37(a) of the
Federal Rules of Civil Procedure. At a hearing on the motion, the court, on its own
initiative, chose to revisit whether discovery should have been allowed at all. It
decided that its initial decision to allow discovery was incorrect and that it should
confirm the arbitration award without further debate.5 Therefore, the court, on
relevant time period between Edward P. Meyerson and University Commons.” In
response, University Commons said that it was “not aware of any such
relationships or contacts other than Mr. Meyerson’s service as an arbitrator [in this
case].”
5
The court’s reasons for changing its opinion are a bit muddled, but seem to
be motivated, at least in part, by a desire that this court confront the issue:
And so forcing me, when this was presented, to go back to look at
what the situation is, I think that while it’s an intriguing thing, it was
to start with, with me, I think it’s the kind of thing that if you want to
pursue it, it ought to be pursued now and with the Eleventh Circuit.
There’s no point in my trying this case all over again one way or
another and then having one of you go to the Eleventh Circuit, when
you can go now and the way and the avenue and the vehicle to go is
for me to agree with the arbitration award and let you all get the
Eleventh Circuit to tell me, if they want to, that I’m wrong. And it
won’t be the first time I’ve been told that, and it won’t hurt my
feelings. So the plaintiffs in my court won’t hurt my feelings by
getting me reversed.
Consequently, the court allowed the parties one week, from February 28 to March
1, to file further materials in the record before it issued a dispositive order.
10
March 8, 2001, entered a final judgment confirming the arbitration award.
Universal and Reliance now appeal.
II.
Universal and Reliance have posited two separate reasons for us to overturn
the district court’s decision confirming the arbitration award. First, they claim that
the arbitrators, by awarding lost rental income for the 1999-2000 school year even
though the project was completed before this time period began, acted in “manifest
disregard for the law.” Second, Universal and Reliance assert that Meyerson’s
previous contacts with Bradley Arant, Capstone Building, and Schattinger
demonstrate enough prima facie evidence of Meyerson’s evident partiality that the
district court should have allowed discovery to continue. We consider the district
court’s rulings as to both of these arguments using a mixed standard: We review
district court’s factual findings for clear error and its legal conclusions de novo.
Gianelli Money Purchase Plan and Trust v. ADM Investor Servs., 146 F.3d 1309,
1310-11 (11th Cir. 1998) (discussing the standard of review for orders confirming
and negating arbitration awards).
A.
In Montes v. Shearson Lehman Bros., Inc., 128 F.3d 1456 (11th Cir. 1997),
we joined other circuits in holding that an arbitration decision could be vacated if
11
the arbitrators, in making their decision, acted in “manifest disregard of the law.”
In reaching our conclusion, however, we emphasized that only “a manifest
disregard for the law, in contrast to a misinterpretation, misstatement or
misapplication of the law, can constitute grounds to vacate an arbitration decision.”
Id. at 1461-62. In other words, “[t]o manifestly disregard the law, one must be
conscious of the law and deliberately ignore it.” Brown v. ITT Consumer Fin.
Corp., 211 F.3d 1217, 1223 (11th Cir. 2000) (quoting Montes, 128 F.3d at 1461).
Consequently, “there must be some showing in the record, other than the result
obtained, that the arbitrators knew the law and expressly disregarded it.” O.R.
Sec., Inc. v. Prof’l Planning Assocs., Inc., 857 F.2d 742, 747 (11th Cir. 1988).
Unfortunately, in the instant case, we have no showing in the record of the
arbitrator’s thoughts – other than the result. Universal and Reliance contend that
the arbitrators acted in manifest disregard for the law by awarding damages that
included lost rent for the 1999-2000 school year because the Project was completed
before the school year even began. But we cannot ascertain from the bare-bones
statement of the award what principle of law the arbitrators purportedly chose to
ignore when they awarded this rent.6 The statement simply lists the amounts
6
We cannot even tell for certain from the wording of the award whether the
arbitrators awarded the lost rent at all. The award simply says that Universal and
Reliance should pay $2,248,648 to University Commons, but does not indicate
12
awarded to each party and is devoid of any mention of cases or treatises that might
have provided the underpinnings for the arbitrators’ decision. Furthermore, since
the hearings were not transcribed, we cannot even look at questions or offhand
remarks by the arbitrators for possible evidence of their legal rationale. In sum, we
have no indication of the arbitrators’ reasons for awarding the lost rent, and, thus,
we have no reason to believe that they disregarded the law in doing it. See id. (“In
fact, when the arbitrators do not give their reasons, it is nearly impossible for the
court to determine whether they acted in disregard of the law.”)
This logic seems especially apt in a situation like the one before us, where
there does not appear to be any clear rule of law that the arbitrators might have
transgressed. There is, at least, some case law suggesting that delay damages can
be awarded for intervals after the completion of a construction project, if “the
residual effects of non-performance of the contract are carried over into a period
when the building is operational.” See Perini Corp. v. Greate Bay Hotel & Casino,
why that sum was chosen. Since University Commons sought $3,649,669.98 –
$1,989,700 of which was for lost rent for the 1999-2000 school year – one might
assume that an award greater than $1,659,969.98 – the difference between the total
sum sought and the figure for lost rent – would include some measure of damages
for that rent. This assumption only holds true, however, if the arbitrators, in their
calculation of the award, did not deviate from the accounting prepared by
University Commons. There is no way to determine whether the arbitrators made
such a deviation when they computed damages.
13
Inc., 610 A.2d 364, 379 (N.J. 1992) (upholding an arbitration award that awarded
delay damages to a casino for its fall revenue after its renovation was substantially
complete in the summer because, among other reasons, “the possibility that the
public perception of the [casino] during the critical summer months could have had
a significant impact on [its] operations in the fall”), abrogated on other grounds by
Tretina Printing, Inc. Fitzpatrick & Assocs., Inc., 640 A.2d 788 (N.J. 1994)
(adopting narrower grounds on which arbitration awards may be vacated). While
we do not necessarily concur with this view, we would be hard-pressed to say,
without evidence of the arbitrators’ thinking, that they consciously ignored the law
in deciding the matter at hand.7
Ultimately, due to both the paucity of the record and the unsettled nature of
the law on delay damages, we cannot find proof that the arbitrators recognized a
clear rule of law and, furthermore, chose to ignore it. Therefore, we cannot find
that the arbitrators acted in manifest disregard for the law by awarding damages
that included lost rent for the 1999-2000 school year.
7
Theoretically, we suppose, the arbitrators’ approach to the award of
damages could be in disregard of the law altogether, if it differed from the
provisions of the contract. Unfortunately for the appellants, while the case law on
contract interpretation is well-developed, we have no way to determine if the
arbitrators acted in knowing disregard of this case law because the contract was not
entered into the record.
14
B.
Section 10 of the Federal Arbitration Act provides that a federal district
court may vacate an arbitration award “[w]here there was evident partiality or
corruption in the arbitrators . . . .” 9 U.S.C. § 10(a)(2). This rule is meant to be
applied stringently. As the Supreme Court emphasized in the seminal case of
Commonwealth Coatings Corp. v. Cont’l Cas. Co., 393 U.S. 145, 89 S. Ct. 337, 21
L. Ed. 2d 301 (1969), courts “should, if anything, be even more scrupulous to
safeguard the impartiality of arbitrators than judges, since the former have
completely free rein to decide the law as well as the facts and are not subject to
appellate review.” Id. at 149, 89 S. Ct. at 339.
To maintain this sense of impartiality, the law imposes “the simple
requirement that arbitrators disclose to the parties any dealing that might create an
impression of possible bias.” Id. The key word in this rule is “impression.”
“Whether the arbitrator’s decision itself is faulty is not necessarily relevant.”
Woods v. Saturn Distrib. Corp., 78 F.3d 424, 427 (9th Cir. 1996). Disclosure
ensures that parties can view arbitration as a substitute for litigation, even though
the former is not bound by the same strictures of procedure and formality as the
latter. This practice, correspondingly, has been adopted by the various bodies that
oversee arbitrations. For example, under Rule 19 of the version of the AAA’s
15
Construction Industry Arbitration Rules which were in effect at the time of this
case,8 “[a]ny person appointed as neutral arbitrator shall disclose to the AAA any
circumstance likely to affect impartiality, including any bias or any financial or
personal interest in the result of the arbitration or any part or present relationship
with the parties or their representatives.” Meyerson, therefore, had a duty to
disclose any potential conflicts he had to all of the parties.
Universal and Reliance contend that he failed this obligation by providing
insufficient disclosures on three separate areas: (1) his previous legal interactions
with the Bradley Arant law firm in various mediations, arbitrations, and litigations;
(2) his interview with Capstone Building; and (3) his acquaintanceship with Jeff
Schattinger. We consider each in turn, keeping in mind the standard we have
established in this Circuit through our earlier cases. That is, “an arbitration award
may be vacated due to the ‘evident partiality’ of an arbitrator only when either (1)
an actual conflict exists, or (2) the arbitrator knows of, but fails to disclose,
information which would lead a reasonable person to believe that a potential
conflict exists.” Gianelli Money Purchase Plan & Trust v. ADM Investor Servs.,
8
Revised on July 1, 2001, the current version of the Construction Industry
Arbitration Rules, now called the Construction Industry Dispute Resolution
Procedures because they incorporates rule for both mediation and arbitration, still
contains this language verbatim, but as Rule 20.
16
Inc., 146 F.3d 1309, 1312 (11th Cir 1998) (citing Lifecare Int’l, Inc. v. CD Med.,
Inc., 68 F.3d 429, 433 (11th Cir. 1995) and Middlesex Mut. Ins. Co. v. Levine, 675
F.2d 1197, 1202 (11th Cir. 1982)).
1.
It is undisputed that, at the onset of the initial set of arbitration hearings in
this case, Meyerson disclosed that he knew and had worked with the law firms
representing both parties in this arbitration. It is also undisputed that neither party
objected to Meyerson continuing as an arbitrator at that time. What Universal and
Reliance now contend is that Meyerson’s disclosure was inadequate and possibly
misleading – and thus, their own failure to object did not constitute waiver –
because Meyerson did not reveal the allegedly extensive nature of his relationship
with Bradley Arant. To determine whether Meyerson’s disclosure was sufficient,
we logically must conduct a two-step analysis: first, we must determine what
Meyerson needed to disclose; then, we must consider what he did disclose.
As we have noted in our previous cases, an arbitrator is obligated to disclose
those facts that “create a reasonable impression of partiality,” Lifecare Int’l, 68
F.3d at 433 (citation omitted), or put another way, “information which would lead
a reasonable person to believe that a potential conflict exists.” Gianelli Money
Purchase Plan & Trust, 146 F.3d at 1312. The partiality alleged must be “direct,
17
definite and capable of demonstration rather than remote, uncertain and
speculative.” Levine, 675 F.2d at 1202 (citation omitted). Here, the purported
partiality about which Universal and Reliance complain arises out of several
arbitrations, mediations, and litigations in which Meyerson and Bradley Arant both
took part. In examining these legal interactions, we may need to use different
standards, however, depending on when they occurred – that is, whether they
occurred prior to or concurrent with the arbitration between the parties in this case.
To illustrate, we first consider those occasions on which Meyerson and
Bradley Arant participated in the same arbitrations, mediations, and litigations
prior to the arbitration in this case. At first blush, a large number of such
encounters would seem to imply an inappropriately close association between
arbitrator and counsel. Closer inspection reveals, however, that frequent
interactions between Meyerson and Bradley Arant may simply be the result of the
fact that both specialize in construction law in Birmingham, Alabama. Such
familiarity due to confluent areas of expertise does not indicate bias. Rather, so
long as the previous interactions do not represent part of an ongoing business
relationship, it may be an asset, since “an arbitrator’s experience in an industry, far
from requiring a finding of partiality, is one of the factors that can make arbitration
a superior means of resolving disputes.” Scott v. Prudential Sec., Inc., 141 F.3d
181007, 1016 (11th Cir. 1998) (citing Commonwealth Coatings Corp., 393 U.S. at
150, 89 S. Ct. at 340 (White, J., concurring) (“It is often because they are men of
affairs, not apart from but of the marketplace, that they are effective in their
adjudicatory function.”)). Therefore, standing alone, the fact that an arbitrator, like
Meyerson, had previous contacts with counsel for one of the parties does not
suggest evident partiality.
On the other hand, a reasonable person might envision a potential conflict if
an arbitrator, concurrently with the arbitration, partakes in a proceeding in which
counsel for one of the parties to the arbitration is also participating. Compare
Continental Ins. Co. v. Williams, No. 84-2646-Civ-Marcus, 1986 WL 20915, at *5
(S.D. Fla. Sept. 17, 1986) (finding evident partiality where an arbitrator failed to
disclose that, concurrent with the arbitration, he was representing a plaintiff in
another, unrelated litigation against the insurance company, who was the defendant
in the arbitration), with Lozano v. Maryland Cas. Co., 850 F.2d 1470, 1472 (11th
Cir. 1988) (contrasting the facts in its case with those in Williams and finding that
no evident partiality existed where an arbitrator failed to disclose his law firm’s
representation of adversaries of the arbitral defendant in two state court cases,
partly because “there [was] no evidence that [the arbitrator] was even aware that
these cases existed or that the two cases were . . . active at the time the arbitration
19
proceedings took place.”) Whether he acts as co-counsel or opposing counsel in a
mediation, litigation or other arbitration, the arbitrator could seem biased, and his
ruling in the arbitration could be seen as a way to curry favor in the other matter.
For this reason, we are troubled by appellants’ claim that Meyerson, while the
arbitration was ongoing, represented a co-defendant in the state court case of The
Parliament House, LLC v. Danny Lee Munden d/b/a Painting by Munden with
David Pugh, a Bradley Arant attorney who individually represented University
Commons. If this allegation is true, then Meyerson, at least, would have appeared
to be biased towards University Commons in its dispute with Universal and
Reliance. Admittedly, “the mere appearance of bias or partiality is not enough to
set aside an arbitration award,” Lifecare Int’l, 68 F.3d at 433, but it should have
been enough to require the district court to hold an evidentiary hearing.
Of course, this, or any other, instance of alleged partiality would be moot if
Meyerson had disclosed it to the parties. Had Universal or Reliance failed to
contest Meyerson’s status as an arbitrator at that time, they would have waived the
right to object in the future. Waiver, however, “applies only where a party has
acted with full knowledge of the facts,” Levine, 675 F.2d at 1204, and, as the
record in this case stands now, it seems unlikely that Universal or Reliance knew
the extensive nature of Meyerson’s previous and concurrent interactions with the
20
lawyers of Bradley Arant at the time of the arbitration. The affidavits that have
been submitted by the parties simply say, without detail, that Meyerson indicated
that “he knew and worked with the law firms representing the parties in this
arbitration;” there is no suggestion that he provided any specific details about these
interactions, including the fact that one was ongoing.
As we noted earlier, Gianelli Money Purchase Plan & Trust holds that one
scenario under which an arbitration award could be vacated would be if “the
arbitrator knows of, but fails to disclose, information which would lead a
reasonable person to believe that a potential conflict exists.” Gianelli Money
Purchase Plan & Trust, 146 F.3d at 1312 (citations omitted). This standard can be
further distilled into three key elements: (1) the arbitrator must be aware of the
facts comprising a potential conflict; (2) the potential conflict must be one that a
reasonable person would recognize; and (3) the arbitrator must fail to disclose the
conflict. While we did not make it clear in Gianelli Money Purchase Plan & Trust,
it seems logical that, like the second element, the third element – whether or not the
arbitrator disclosed the conflict – should be governed by a reasonable person
standard. In other words, for an award to be vacated, the arbitrator must not have
disclosed enough information for a reasonable person to realize that a potential
conflict existed. Otherwise, the party would have – or, at least, should have –
21
recognized the conflict at the time of the disclosure, and promptly objected.
In the case at hand, Universal and Reliance have presented prima facie proof
of each of these elements. First, Meyerson knew or should have known that a
potential conflict existed, as soon as David Pugh, his co-counsel in a pending state
court action, appeared before the arbitral panel as counsel for University
Commons.9 After all, serving as the decision-maker in one action in which a
colleague in another action represents a party clearly poses the possibility of bias,
and thus represents a potential conflict that a reasonable person would easily
recognize. Moreover, as the record appears before us, Meyerson did not disclose
the relationship to the parties with enough specificity for them reasonably to
understand that a potential conflict existed. In sum, Meyerson’s alleged actions
constituted prima facie grounds for vacatur of the arbitration award.
At this point, the district court should have plunged headlong into
evidentiary fact-finding. See Legion Ins. Co. v. Ins. Gen. Agency, Inc., 822 F.2d
541, 542-43 (5th Cir. 1987) (“[S]ome motions challenging arbitration awards may
9
In his declaration, Meyerson noted that, at the time of his appointment to
the arbitration panel, only James Archibald and Ron Robey were listed as counsel
for the parties (i.e., Archibald for University Commons and Robey for Universal).
This fact may show why Meyerson initially did not believe he had a potential
conflict with either party, but it does not explain why he did not disclose his
relationship with Pugh once he learned that Pugh would be participating in the
arbitration.
22
require evidentiary hearings outside the scope of the pleadings and arbitration
record. . . . Such matters as misconduct or bias of the arbitrators cannot be gauged
on the face of the arbitral record alone.”); In re Sanko S.S. Co., Ltd. v. Cook
Indus., Inc., 495 F.2d 1260, 1262-63 (2d Cir. 1973) (finding discrepancies
regarding an arbitrator’s possible conflicts and his disclosures about those
conflicts, and deciding that “[t]hese discrepancies require that [the] case be
remanded so that an evidentiary hearing may be held and the full extent and nature
of the relationships at issue may be ascertained.”) University Commons and
Capstone Development could have presented evidence to rebut the prima facie case
set forth by Universal and Reliance, either by contesting the factual accuracy of
their claims or by somehow demonstrating facially that no undisclosed, potential
conflict existed even if the facts Universal and Reliance allege are true. Likewise,
however, Universal and Reliance could have tried to provide proof that Meyerson’s
interactions with Bradley Arant, which, by themselves, do not establish a potential
conflict, are part of an established, ongoing relationship between appellee’s
counsel and himself, which, indeed, might pose a potential conflict. Of course,
discovery would have been needed as to all of these issues.
Unfortunately, the district court took none of these steps. Instead, as soon as
it grasped the somewhat complex task at hand, or in its own words, “where this
23
was going to lead,” it chose to curtail any evidentiary inquiry and rely upon an
order it had recently issued in another case, Clark v. Alfa Insurance Company, for
the proposition that contacts outside of an arbitration between an arbitrator and a
counsel for a party to that arbitration do not pose a conflict of interest.10 As our
10
Specifically, at the hearing, the district court said:
In the Clark v. Alfa case, the plaintiff’s lawyer in this case had,
according to the allegations of the motion to disqualify him filed by
Alfa, then a mediator in a case involving Alfa, and a similar case to
this one in which some of the issues were the same, perhaps some of
the cast of characters were the same, and Alfa’s position was that the
familiarity with the modus operandi of Alfa acquired by plaintiff’s
lawyer as a mediator, albeit a successful mediator, and in particular, a
successful mediator who spent considerable time exploring the
various aspect of that particular matter, gave him an unfair advantage
because he now knows, according to Alfa, how they think. And that
gives him an advantage that is undue and presents a conflict of
interest.
I said in my opinion that it was close and that it was difficult
and that I couldn’t find any cases right on point. And I couldn’t.
There might be some, but I didn’t find them. But after struggling with
it, I reached the conclusion that the lawyer for the plaintiff was not
disqualified. And basically my rationale was the domino effect. How
far does it go?
Does the plaintiff’s lawyer in this case, does his former law
firm with which he was affiliated when he was a mediator, is it
disqualified against Alfa and in what kind of cases? And are all
members of his present firm disqualified even though they weren’t
affiliated with him at the time he was a mediator?
And I said, or I should have said, I think I did say, that under
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previous discussion intimates, we disagree with this theory of law. Rather, we
believe that interactions between an arbitrator and a party’s counsel, especially
that theory a person who holds himself out as a mediator should
anticipate that that’s all he can ever do, be a mediator. He’s got to be
in a pure mediating firm. And people like Rodney Max, I didn’t call
his name in there, who constantly and 100 percent mediate, are
infecting their firm with the inability to represent anybody in a case in
which Rodney has been the mediator. So that you are going to create
a narrow focus of people who can only mediate.
Well, I think maybe that rationale applies to arbitrators. So that
if Ed Meyerson is competing with Rodney Max, except Rodney, while
he does arbitration, he predominantly mediates, and Ed, I think,
predominantly arbitrates, although he mediates too. But anytime he
does that, and he’s a member of a law firm, if you take that to its
logical conclusion, or illogical conclusion, depending on how you
want to view it, it creates an insurmountable problem of the kind that
now is apparent in this case where the party who is seeking to avoid
the effect of the arbitration award is suggesting and asking about
every case in which Ed Meyerson has an interest as an arbitrator. And
he’s had a lot of them. And whether he’s going to be faced with this
kind of question of his ability to sit as an arbitrator in every case
before and after the arbitration is a big question.
I guess what I’m saying is I’m ready to back up and rethink.
And it may be, it may be precipitated if I rethink it, not by necessarily
agreeing now summarily and immediately to enforce the arbitration
award and to dismiss the attack on the arbitration, but to recognize the
horror and to disallow and stop it of exploring this and without regard
to all the niceties.
Unfortunately, the district court’s order in Clark was neither published in the
federal reporters nor entered into the record of the instant case, so we are unable to
review it.
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those concurrent with the arbitration, can pose a potential conflict. Although
normally we might apply a new standard like this one to the factual findings of the
district court – even as we are constrained to review those findings only for abuse
of discretion – we cannot do so in this case, because the record is bereft of such
findings. Therefore, we must leave this job in the hands of the district court on
remand.
2.
As a second basis for its assertion that Meyerson’s role as an arbitrator was
compromised by evident partiality, Universal and Reliance have pointed to the
meeting between Meyerson and Capstone Building. The district court made no
mention of this potential source of conflict during the hearing it held on February
28, 2001, and thus, we cannot be certain what, if any, its thoughts were regarding
it. Moreover, as with the other allegations in this case, the record is somewhat
murky as to many facts regarding the meeting. Nevertheless, what we already
know is somewhat troubling.
Evidently, sometime between the time that Meyerson was appointed as an
arbitrator in University Commons-Urbana, Ltd. c/o Capstone Development Corp.
and Universal Constructors, Inc. and the commencement of the arbitration,
Meyerson met with Jay Chapman, president of Capstone Building. According to
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Meyerson,11 Chapman merely wanted to consult with Meyerson as to “whether his
attorney at the time was handling an OSHA complaint properly.” Meyerson also
concedes, however, that Chapman asked him “whether [his] firm was able to do
some corporate work for him in the future,” but Meyerson declined.
Normally, that an arbitrator meets with a non-party about other business
during the course of the arbitral process would hardly suggest evident partiality.
This assumption presupposes, though, that a non-party would not have a pecuniary
interest in the arbitration. Such may not be the case here. Approximately
$500,000 of the damages University Common sought from Universal and Reliance
involved the cost of work performed by Capstone Building to complete the Project.
More importantly, Mike Mauron, the owner of Capstone Development, owns forty-
nine percent of Capstone Building. Put another way, a party to the arbitration, with
a significant stake in Meyerson’s decision-making, owned nearly half of Capstone
Building. Had the district court allowed discovery to continue, there is a chance
that more evidence may have come to light showing an even closer affiliation
11
On February 27, 2001, one day before the district court’s scheduled
hearing in this case, Meyerson filed a declaration, along with a motion to quash a
deposition subpoena that had been issued to him. Based on the court’s comments
at that hearing, however, it is clear that the court decided to confirm the arbitration
award before it had seen either the declaration or the motion and, therefore, found
both to be moot.
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between Capstone Building and Capstone Development.12
The connection between these two companies is not the only subject on
which further fact-finding is necessary. We need additional information on
Meyerson’s disclosure of his meeting with Capstone Building. Unlike our
foregoing discussion of Meyerson’s disclosures about his previous legal
interactions with Bradley Arant, however, we are not interested as much in what he
said about his meeting with Capstone Building – both parties acknowledge that
Meyerson told them he had met with a representative of Capstone Building about
possible employment – as when he said it. Our reasons are twofold. First, whether
Meyerson knew or should have known about a close affiliation between Capstone
12
For example, Universal and Reliance have cited two articles in the
Birmingham Business Journal that purportedly demonstrate a close relationship
between Capstone Building and Capstone Development. The first reveals that
Mauron purportedly started Capstone Building “as an offshoot of Capstone
Development” and only gave Chapman, whom Mauron hired to run Capstone
Building, a majority share of the ownership, when the workload became greater
than either had originally planned. Carol Muse Evans, Chapman’s Dream Now
His Reality, Birmingham Bus. J., June 9, 2000, at 7. The second article quotes
Chapman as admitting that “[t]he genesis of [Capstone Building] was to service
[Mauron’s] projects,” with Mauron elaborating that “Capstone Development uses
capstone Building as its general contractor as much as possible.” Don Milazzo,
Fast Track 25 Winners Reveal Success Stories, Birmingham Bus. J., May 5, 2000,
at 8. Universal and Reliance have also alleged that, according to Capstone
Building’s portfolio, all of Capstone Building’s completed and ongoing projects
were developed by Capstone Development. Neither the articles nor the portfolio
have been made a part of the record, however.
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Building and Capstone Development at the time he made his disclosure is
obviously relevant. After all, an arbitrator can only be held culpable for what he
knows or should know, but fails to disclose. Also relevant is whether Meyerson
delayed disclosing the meeting until it was unreasonable for Universal and
Reliance to object to his participation in the arbitration. An arbitrator must
disclose a potential conflict as soon as it becomes apparent; otherwise, delay and
concealment would be encouraged. Cf. Levine, 675 F.2d at1204 (“To hold . . . that
[a party] waived [its] right to contest the alleged impartiality of the neutral
arbitrator because [it] did not discover evidence of partiality prior to arbitration
would put a premium on concealment.”) Meyerson claims he met with Chapman
after he was appointed to the arbitration panel, but the parties disagree on when
Meyerson informed them of this meeting; both University Commons and
Meyerson claim that this disclosure occurred at the onset of the arbitration, while
Universal and Reliance assert that Meyerson’s announcement came during the
second set of hearings. If the district court finds that Meyerson delayed making his
disclosure until the arbitration had proceeded to the point that, given the amount of
funds and resources they had invested in the proceeding, Universal and Reliance
could not, as a practical matter, afford to object to Meyerson continuing as a
member of the arbitration panel, then the court may well decide that Meyerson’s
29
disclosure was insufficient to avoid vacatur.
3.
The third and final ground Universal and Reliance provide for claiming that
Meyerson was compromised by evident partiality involves his belated recognition
of Jeff Schattinger, an allegedly “principal” witness for University Commons.
Schattinger was one of the most important witnesses to testify in the arbitration
proceeding. When he appeared before the panel, Meyerson acknowledged that he
had met him on a prior occasion. After the arbitration ended, Meyerson clarified
that he had met Schattinger several years earlier during an arbitration proceeding,
in which Meyerson was counsel and Schattinger testified as an expert witness for
the opposing party.
Nevertheless, even without this late information, there was nothing so
suspicious about the relationship between Meyerson and Schattinger – if it can be
called a “relationship” – that should have prompted the district court to elicit
further information. Meyerson merely realized, at the moment he first saw the
witness face-to-face, that he had encountered him previously. Nothing about this
fact suggests that Meyerson would have been partial to one side or the other as a
30
result. In fact, Meyerson’s inability to recognize Schattinger until he appeared
before the arbitration panel demonstrates the insignificance of their previous
encounter. We cannot require district courts to review arbitration results every
time an arbitrator discovers that a mere acquaintance is a witness. Hence, we find
that the district court acted appropriately in finding that Meyerson’s recognition of
Schattinger did not represent prima facie grounds of evident partiality.
III.
In summary, while Universal and Reliance have not provided any grounds
for its claim that the arbitration award in University Commons-Urbana, Ltd. c/o
Capstone Development Corp. and Universal Constructors, Inc. represented a
manifest disregard for the law, they have identified two separate bases for a prima
facie case that the award should be vacated due to Meyerson’s evident partiality:
(1) his previous and – more problematically – concurrent legal interactions with
the individual lawyers who represented University Commons in the arbitration, and
(2) his meeting with Chapman, the president of Capstone Building. Nevertheless,
due to the paucity and incomplete nature of the record before us, we cannot say
whether vacatur is indeed warranted. “[T]he ‘evident partiality’ question
31
necessarily entails a fact intensive inquiry [as t]his is one area of the law which is
highly dependent on the unique factual settings of each particular case.” Lifecare
Int’l, 68 F.3d at 435. What is needed now, therefore, is, an evidentiary hearing on
these two allegations (in which we have found merit). From the evidence adduced
at the hearing, the district court must determine two things: the relevant facts, and
whether Meyerson adequately disclosed such facts. The district court’s
confirmation of the arbitration award is therefore VACATED and the case is
REMANDED for further proceedings.
SO ORDERED.
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