178 Conn. App. 820
Conn. App. Ct.2017Background
- Plaintiffs were investors/limited partners in three limited partnerships; defendants included Gregory Imbruce and LLCs that acted as general partners or managers. Plaintiffs alleged fraud, breach of fiduciary duty, CUSA and other claims seeking injunctive relief and damages.
- Parties agreed (and later broadened) to submit the disputes to a single arbitrator under AAA rules; arbitration resulted in an award for the plaintiffs granting declaratory relief, monetary damages, fees, costs and injunctive relief.
- Plaintiffs moved in state court to confirm the arbitration award; defendants moved to vacate under 9 U.S.C. § 10, alleging (1) arbitrator nondisclosure/evident partiality, (2) refusal to compel discovery and allowing a late amendment, and (3) exceeding authority by awarding relief against Imbruce individually and awarding fees/costs.
- Trial court confirmed the award and denied vacatur; on appeal defendants argued the same three grounds. Connecticut appellate court reviewed de novo on law and for clear error on facts, recognizing the FAA’s narrow vacatur standards and the strong federal policy favoring arbitration.
- Court affirmed: (1) arbitrator’s prior, unrelated divorce arbitration involving an attorney for some defendants was trivial and not a nondisclosed material relationship giving rise to evident partiality; (2) evidentiary/discovery rulings and allowance of an amended counterclaim did not cause substantial prejudice or fundamental unfairness; (3) Imbruce had assumed the obligation to arbitrate and the arbitrator had authority to apportion costs and award attorneys’ fees under the broad submission.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Failure to disclose prior arbitration (evident partiality) | Arbitrator’s prior arbitration of Attorney Votre (who represented some defendants in another matter) was trivial and required no disqualification | Arbitrator should have disclosed and been disqualified because prior adverse ruling and initial disclosures suggested nondisclosure misled parties | No evident partiality; prior unrelated divorce arbitration was trivial and not suggestive of bias, so vacatur denied |
| Refusal to compel production of valuation / Bank statements (misconduct under §10(a)(3)) | Plaintiffs contend discovery rulings were proper or privileged; arbitration was fair | Failure to produce valuation, Dept. of Banking statements deprived defendants of evidence to show damages/defenses | No substantial prejudice shown; arbitral evidentiary rulings do not warrant vacatur absent fundamental unfairness; award standing unaffected |
| Failure to compel production of communications / privilege waiver (misconduct) | Plaintiffs argue communications remained privileged or within common interest | Defendants claim privilege waived and communications potentially dispositive | Even if privilege rulings were erroneous, defendants could not show contents or substantial prejudice; no vacatur |
| Allowing amended counterclaim shortly before hearing; and arbitrator awarding individual relief and fees (exceeding authority under §10(a)(4)) | Plaintiffs: arbitrator acted within broad discretion and parties had notice; both sides sought fees/costs so arbitrator had jurisdiction | Defendants: amendment prejudiced them; arbitrator lacked authority to award relief against Imbruce personally or to award fees/costs beyond scope | Amendment allowed without substantial prejudice; Imbruce assumed obligation to arbitrate by conduct; arbitrator’s award of fees/costs was within scope of the expanded submission — no excess of authority |
Key Cases Cited
- Hottle v. BDO Seidman, LLP, 268 Conn. 694 (Conn. 2004) (federal Arbitration Act supplies substantive law for arbitration agreements involving interstate commerce)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (arbitration awards are subject to extremely limited judicial review)
- STMicroelectronics, N.V. v. Credit Suisse Securities (USA), LLC, 648 F.3d 68 (2d Cir.) (courts must confirm awards unless vacatur grounds apply)
- D.H. Blair & Co. v. Gottdiener, 462 F.3d 95 (2d Cir.) (only a barely colorable justification needed to confirm an award)
- Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust, 729 F.3d 99 (2d Cir.) (evident partiality must be direct and shown by clear and convincing evidence)
- Scandinavian Reinsurance Co. Ltd. v. Saint Paul Fire & Marine Ins. Co., 668 F.3d 60 (2d Cir.) (overlapping arbitral service is not necessarily a material relationship suggesting bias)
- Applied Industrial Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., 492 F.3d 132 (2d Cir.) (an arbitrator must investigate or disclose nontrivial conflicts suggested by disclosures)
- New Regency Prods., Inc. v. Nippon Herald Films, Inc., 501 F.3d 1101 (9th Cir.) (failure to disclose relevant relationships after prior disclosures can mislead parties)
- Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16 (2d Cir.) (arbitrator must afford parties an adequate opportunity to present evidence; review limited to fundamental fairness)
- Bridgeport v. Kasper Group, Inc., 278 Conn. 466 (Conn. 2006) (to vacate for arbitrator misconduct a movant must show substantial prejudice)
- United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574 (U.S. 1960) (judicial inquiry is limited to whether the party agreed to arbitrate and whether arbitrator had power to make the award)
- Oxford Health Plans, LLC v. Sutter, 133 S. Ct. 2064 (U.S. 2013) (arbitral interpretation of contract must stand if it arguably construes the contract)