New York Law Review

Tag: Arbitrator Bias

  • U.S. Electronics, Inc. v. Sirius Satellite Radio, Inc., 17 N.Y.3d 912 (2011): Establishes Standard for Vacating Arbitration Awards Based on Evident Partiality

    U.S. Electronics, Inc. v. Sirius Satellite Radio, Inc., 17 N.Y.3d 912 (2011)

    To vacate an arbitration award based on “evident partiality” under the Federal Arbitration Act, a court must find that a reasonable person would conclude that the arbitrator was partial to one party; mere appearance of bias or attenuated relationships are insufficient.

    Summary

    U.S. Electronics, Inc. (USE) sought to vacate an arbitration award favoring Sirius Satellite Radio, Inc., claiming the arbitration panel’s chairman, William Sessions, had failed to disclose relationships creating bias. USE argued that Sessions’ son, a Congressman, publicly supported a merger beneficial to Sirius and was politically aligned with a director of USE’s competitor. The New York Court of Appeals affirmed the lower court’s decision upholding the award, adopting the Second Circuit’s “reasonable person” standard. The court found USE’s claims of bias too tenuous and speculative to justify vacating the award, as the alleged relationships were attenuated and lacked a direct connection to the arbitration.

    Facts

    USE had a nonexclusive distribution agreement with Sirius. A dispute arose, leading to arbitration where Sirius prevailed. USE sought to vacate the award, alleging “evident partiality” by the arbitration panel’s chairman, William Sessions. USE based its claim on two points: (1) Sessions’ son, Congressman Peter Sessions, had publicly advocated for a merger between Sirius and XM Satellite Radio, Inc. (XM), and (2) Sessions’ son was a political ally of Congressman Darrell Issa, the director of Directed Electronics, Inc. (DEI), a competitor of USE. USE argued these connections created bias affecting the impartiality of the arbitration.

    Procedural History

    The lower court upheld the arbitration award. The Appellate Division affirmed, but imposed a “clear and convincing evidence” standard for proving prejudice, which the Court of Appeals rejected. The Court of Appeals then affirmed, but clarified the appropriate standard for “evident partiality.”

    Issue(s)

    Whether the arbitration award should be vacated for “evident partiality” under 9 USC § 10(a)(2) based on the arbitrator’s alleged indirect relationships with parties interested in the outcome of the underlying dispute.

    Holding

    No, because the alleged relationships were too attenuated and speculative to create “evident partiality” requiring vacatur of the arbitration award; a reasonable person would not conclude the arbitrator was biased.

    Court’s Reasoning

    The Court of Appeals adopted the Second Circuit’s “reasonable person” standard for determining evident partiality, holding that vacatur is warranted “where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.” The court emphasized that the moving party bears a heavy burden of proof. It rejected the Appellate Division’s imposition of a “clear and convincing evidence” standard. The court distinguished the facts from situations involving direct personal or business relationships. The court reasoned that Congressman Sessions’ son’s endorsement of the Sirius-XM merger had no bearing on the breach of contract matter. Moreover, the purported connection between Chairman Sessions and Congressman Issa was deemed too tenuous to impute bias. The court stated, “the interest or bias . . . must be direct, definite and capable of demonstration rather than remote, uncertain, or speculative.” The court emphasized that absent a showing of a direct connection, the allegations amounted to speculation, which is insufficient to vacate an arbitration award.