Two bits of news today:
First, the Supreme Court earlier today granted cert in connection with a 9th Circuit employment case dealing with Concepcion’s broad (and vague) preemption doctrine. Specifically, the case involves whether the FAA preempts a state rule that an arbitration clause can be invalidated due to several unconscionable terms, as opposed to simply severing the unconscionable terms and compelling arbitration under the surviving terms. The case is called MHN Government Services v. Zaborowski, No. 14-1458, and I previously blogged about the case here.
Second, the Third Circuit issued an opinion that carries a warning to parties engaged in arbitration: don’t trust arbitrator disclosures. In Goldman, Sachs & Co. v. Athena Venture Partners, L.P., No. 13-3461 (3rd Cir. Sept. 29, 2015) (click here for a copy of the decision), an arbitrator disclosed that he had been charged with the unauthorized practice of law in connection with a municipal court proceeding. The parties did not object to the continued participation of this arbitrator.
Then, after the arbitral award had been issued, the losing party engaged in a background check and discovered that the arbitrator’s initial disclosure had been misleading. The arbitrator had failed to disclose several other unauthorized practice of law problems. Based on this information, the losing party asked the district court to vacate the award, and the district court did so.
The Third Circuit reversed the vacatur of the award because the losing party had waived its right to challenge the arbitrator’s participation on the panel. Applying a constructive knowledge standard, the Third Circuit found that the losing party could have discovered the true extent of the arbitrator’s problems at an earlier time. The initial disclosure, although deficient, should have prompted the parties to conduct a further background investigation. In sum, thou shalt google an arbitrator’s background before the commencement of a hearing, and not afterwards. A sore loser should not conduct a background investigation on an arbitrator after the award is issued in order to seek vacatur.