J.P. Stevens & Co. v. Rytex Corp., 34 N.Y.2d 123 (1974)
Arbitrators must disclose any facts that might reasonably support an inference of bias before arbitration proceedings begin; failure to do so is grounds to vacate the arbitration award.
Summary
Rytex Corp. sought to vacate an arbitration award favoring J.P. Stevens & Co., Inc., alleging bias due to the arbitrators’ failure to disclose significant business relationships with Stevens. The arbitrators, employed by Deering Milliken, Inc. and Kenyon Piece Dyeworks, respectively, did substantial business with Stevens. Rytex argued that these undisclosed relationships created a presumption of bias. The court held that arbitrators must disclose any relationships that could reasonably cause a party to seek disqualification. Because the arbitrators failed to disclose these relationships, the arbitration award was vacated.
Facts
Rytex and Stevens entered into a service agreement in 1966, which included an arbitration clause for dispute resolution. A dispute arose, and Rytex initiated arbitration. The American Arbitration Association (AAA) provided a list of potential arbitrators. The parties agreed on James T. Burnish, employed by Deering Milliken, Inc. The AAA administratively appointed Philip J. Kaplan and Gerard Jerry Lincer, employed by Kenyon Piece Dyeworks. The AAA disclosed Lincer’s employer. Rytex did not object to Burnish or Lincer’s selection before the arbitration. An award was issued in favor of Stevens, signed by all three arbitrators. Rytex then claimed arbitrator bias.
Procedural History
Rytex sought to vacate the arbitration award in the lower court. The Appellate Division reversed the lower court’s decision and vacated the arbitration award, finding the business relationship between the arbitrators’ employers and Stevens to be substantial enough to create an inference of bias. Stevens appealed to the New York Court of Appeals.
Issue(s)
Whether the failure of an arbitrator to fully disclose a business relationship with one of the parties to the arbitration proceeding constitutes grounds to vacate the arbitration award under CPLR 7511.
Holding
Yes, because the failure of an arbitrator to disclose facts which reasonably may support an inference of bias is grounds to vacate the award under CPLR 7511.
Court’s Reasoning
The court emphasized the importance of arbitrator disclosure to maintain the integrity of the arbitration process. It noted that arbitration is a consensual arrangement, and parties should have the opportunity to assess potential bias before proceedings begin. The court cited the AAA’s rule requiring arbitrators to disclose any circumstances likely to create a presumption of bias, stating that “any doubt should be resolved in favor of disclosure.” The court found that the substantial business relationship between the arbitrators’ employers (Deering and Kenyon) and Stevens ($2.5 million annually) was a fact that should have been disclosed. Failure to disclose this relationship warranted vacating the arbitration award. The court reasoned that while parties have some responsibility to inquire into potential conflicts, the primary burden of disclosure rests on the arbitrator, given their quasi-judicial role. The court clarified that not every business relationship warrants disqualification, but all arbitrators should disclose any relationships, direct or indirect, that they have with any party to the arbitration. As stated by the court, “all arbitrators before entering upon their duties should make known any relationship direct or indirect that they have with any party to the arbitration, and disclose all facts known to them which might indicate any interest or create a presumption of bias.”