640 F. App'x 685
9th Cir.2016Background
- Ruhe and Catala obtained an arbitration award against Masimo and sought confirmation in district court; Masimo argued the award should be vacated.
- Masimo claimed the arbitrator was evidently partial based on (1) the arbitrator’s brother’s litigation practice and (2) the arbitrator’s role in a SIDS foundation; the arbitrator did not recuse himself and ruled on the arbitration.
- The arbitrator applied Third Circuit law rather than California law in part when awarding punitive damages and included conduct by Masimo’s attorneys in the punitive calculation.
- The district court vacated the arbitration award, finding evident partiality; the Ninth Circuit reviewed the vacation under the narrow FAA vacatur standards (9 U.S.C. § 10).
- The Ninth Circuit reversed the district court, holding Masimo failed to prove evident partiality or actual bias and that other asserted errors did not meet the high standards for vacatur.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Evident partiality / nondisclosure | Masimo: arbitrator failed to disclose relationships creating a reasonable impression of bias (brother's practice; SIDS role) | Ruhe/Catala: disclosures were sufficient; no reasonable impression of bias; arbitrator explained context | Vacatur improper — Masimo failed to show nondisclosure creating reasonable impression of bias or specific facts of actual bias. |
| Arbitrator recusal procedure | Masimo: arbitrator should have referred recusal request to another because of employment/fee interest | Ruhe/Catala: arbitrator entitled to decide recusal; JAMS rules permitted him to rule | Ninth Circuit: although better practice was to refer, late timing and public-nature of issues plus lack of merit to bias claim mean error (if any) does not require vacatur. |
| Application of wrong law for punitive damages | Masimo: arbitrator misapplied law by using Third Circuit standards rather than California law, affecting punitive award | Ruhe/Catala: error was not central or sufficiently prejudicial to warrant vacatur | Court: incorrect legal application, but did not constitute affirmative misconduct, irrationality, or manifest disregard warranting vacatur. |
| Manifest disregard / exceeding powers | Masimo: multiple alleged arbitral errors warrant vacatur under FAA § 10(a)(4) | Ruhe/Catala: arbitration errors are insufficient; manifest disregard requires more than legal error | Held: arbitrator’s errors, even if wrong, did not meet the demanding manifest-disregard or exceed-powers standards; award must be confirmed. |
Key Cases Cited
- Lagstein v. Certain Underwriters at Lloyd's, London, 607 F.3d 634 (9th Cir. 2010) (disclosure rule — failure to disclose must create reasonable impression of bias)
- Woods v. Saturn Distribution Corp., 78 F.3d 424 (9th Cir. 1996) (standard for evident partiality under FAA)
- Douglas v. U.S. Dist. Court for Cent. Dist. of Cal., 495 F.3d 1062 (9th Cir. 2007) (affirmative misconduct/irrationality standard for vacatur)
- Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987 (9th Cir. 2003) (en banc) (vacatur standards; arbitrator misconduct definitions)
- Biller v. Toyota Motor Corp., 668 F.3d 655 (9th Cir. 2012) (arbitrators exceed powers only when award is completely irrational)
- Collins v. D.R. Horton, Inc., 505 F.3d 874 (9th Cir. 2007) (manifest-disregard exception requires more than mere legal error)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (FAA permits vacatur only in very unusual circumstances)
- Comedy Club, Inc. v. Improv W. Assocs., 553 F.3d 1277 (9th Cir. 2009) (manifest-disregard standard under § 10(a)(4))
- BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996) (due process limitations on punitive damages ratios)