Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust
2013 U.S. App. LEXIS 18142
| 2d Cir. | 2013Background
- Kolel sold three life insurance policies to YLL Irrevocable Trust and Kochav S.A.R.L. (Appellants) under a contract requiring Appellants to pay premiums and split death benefits; Kolel later sued alleging premiums were not paid and the policies lapsed.
- Parties agreed to arbitrate before a three-rabbi panel; each party appointed one rabbi and selected Rabbi Kaufman as the neutral. The Arbitration Agreement allowed decision by two of three, waived procedural rules, and permitted non-disclosure of reasoning.
- The Panel met multiple times (no transcript/record was kept) and on April 10, 2012 issued an award transferring the policies to Kolel; only Rabbi Kaufman (neutral) and Kolel’s appointee signed the award; Appellants’ appointee did not.
- Appellants sought a TRO and moved to vacate the award alleging evident partiality/corruption by Rabbi Kaufman based largely on an affidavit by David Paneth claiming he overheard Kaufman promise a favorable ruling and related conduct (exclusion of Appellants’ arbitrator, curtailed testimony).
- The district court denied vacatur and denied reconsideration; the Second Circuit affirmed, holding Appellants failed to meet the high standard required to vacate an arbitration award.
Issues
| Issue | Plaintiff's Argument (Kolel) | Defendant's Argument (YLL) | Held |
|---|---|---|---|
| Whether award should be vacated for evident partiality/corruption under FAA § 10(a)(2) | Award should be confirmed; no clear evidence of bias or corruption | Kaufman was corrupt/biased — Paneth overheard him promise a favorable ruling and he engaged in ex parte conduct and sidelined Appellants’ arbitrator | Denied vacatur; Paneth’s hearsay/ambiguous account and other evidence insufficient to show evident partiality or corruption (must be abundantly clear) |
| Whether award should be vacated for misconduct in refusing to hear pertinent evidence under FAA § 10(a)(3) | Panel provided adequate procedural opportunity and could decide on contractual/legal grounds without further testimony | Panel rushed, cut off key witness, held decision when Appellants’ arbitrator absent — fundamental unfairness | Denied vacatur; arbitration was not fundamentally unfair given multiple sessions, deference to arbitrators’ evidentiary determinations, and the dispute’s legal character |
| Whether district court abused discretion denying evidentiary hearing/reconsideration | No new, material evidence requiring reconsideration; denial proper | Appellants submitted additional affidavits about Kaufman’s reputation and new facts warranting reconsideration and hearing | Denial affirmed; purported new evidence was irrelevant, speculative, or not sufficiently direct/definite to alter the outcome |
| Standard of review and burden to vacate arbitration award | Courts must defer to arbitration; award should be confirmed absent narrow statutory grounds | Urged application of §10(a) exceptions based on alleged bias and misconduct | Affirmed that review is narrow, burden is high — vacatur requires clear/abundant evidence of corruption or direct proof of evident partiality; mere appearance or speculative claims insufficient |
Key Cases Cited
- Scandinavian Reins. Co. v. Saint Paul Fire & Marine Ins. Co., 668 F.3d 60 (2d Cir. 2012) (articulates narrow review and standard for evident partiality)
- Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16 (2d Cir. 1997) (arbitration misconduct standard; review limited to fundamental fairness)
- Rich v. Spartis, 516 F.3d 75 (2d Cir. 2008) (confirmation appropriate if there is a barely colorable justification)
- Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576 (2008) (statutory grounds in § 10(a) are exclusive bases to vacate)
- Karppinen v. Karl Kiefer Mach. Co., 187 F.2d 32 (2d Cir. 1951) (vacatur requires award be obtained by corruption, fraud, or undue means)
- Sanford Home for Adults v. Local 6, IFHP, 665 F. Supp. 312 (S.D.N.Y. 1987) (evidence of bias must be direct, not speculative)
- Ballantine Books Inc. v. Capital Distrib. Co., 302 F.2d 17 (2d Cir. 1962) (expressing opinion during proceedings is not necessarily proof of bias)
- Feifer v. Prudential Ins. Co. of Am., 306 F.3d 1202 (2d Cir. 2002) (contract interpretation may not require external evidence)
- Applied Indus. Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., 492 F.3d 132 (2d Cir. 2007) (definition of evident partiality: reasonable person must conclude arbitrator was partial)
- Flexible Mfg. Sys. PTY. Ltd. v. Super Prods. Corp., 86 F.3d 96 (7th Cir. 1996) (clear-and-convincing standard cited for bias challenges)