Sussex v. United States District Court, 781 F.3d 1065

Background

Hundreds of condo purchasers sued developer Turnberry alleging fraud and seeking rescission or damages; three related arbitrations/consolidated federal actions (Sussex, Abraham, KJH) arose from identical purchase agreements that required AAA arbitration.
AAA appointed Brendan Hare as arbitrator in 2010; Hare later engaged in nascent litigation-finance activities (founded Bowdoin Street Capital) but did not disclose those efforts on a 2012 conflicts form.
Turnberry challenged Hare’s impartiality to the AAA (which denied disqualification) and then moved to disqualify Hare in state and federal courts; state plaintiffs proceeded with a new arbitrator.
The federal district court granted Turnberry’s emergency motion (Dec. 31, 2013), stayed arbitration, and removed Hare, reasoning that Hare’s undisclosed litigation-finance efforts could create a reasonable impression of bias under 9 U.S.C. § 10(a)(2) and that vacatur would likely follow an award.
Sussex petitioned the Ninth Circuit for a writ of mandamus directing the district court to vacate its disqualification order; the Ninth Circuit granted the petition and ordered the district court to vacate its removal order.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether district court may intervene mid-arbitration to disqualify an arbitrator for evident partiality	Sussex: district court lacked authority to intervene before a final award; review is limited	Turnberry: intervention justified because undisclosed arbitration-finance activities created likely vacatur for evident partiality and delay/expense would be caused if vacatur occurred later	Court held intervention was improper; mid-arbitration disqualification was clear error and mandamus warranted
Whether Hare’s undisclosed litigation-finance activities met the § 10(a)(2) "evident partiality" standard	Sussex: Hare’s activities were attenuated, speculative, and insufficient to create a reasonable impression of bias	Turnberry: Hare could profit from a large award and would use success to attract investors, creating reasonable impression of bias	Court held activities were attenuated/insubstantial and did not meet precedent for evident partiality
Whether delay and expense from potential vacatur justify interlocutory review/intervention	Sussex: costs and delay are insufficient to justify early intervention	Turnberry: avoiding wasted time and resources justified intervention	Court held costs/delay alone are inadequate to justify mid-arbitration intervention; not an "extreme case"
Whether mandamus is appropriate to correct the district court’s order	Sussex: mandamus needed because harm and circuit-wide precedent confusion not correctable on appeal	Turnberry: (implicit) ordinary appeal or post-award vacatur process suffice	Court granted mandamus under Bauman factors: clear legal error plus risk of circuit-wide misapplication of Aerojet-General

Key Cases Cited

Aerojet-General Corp. v. Am. Arbitration Ass’n, 478 F.2d 248 (9th Cir. 1973) (intervention in ongoing arbitration permissible only in most extreme cases)
Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S. 145 (recognizes reasonable-impression-of-bias standard for arbitrators)
Schmitz v. Zilveti, 20 F.3d 1043 (9th Cir. 1994) (application of Commonwealth Coatings; direct, longstanding financial ties can show evident partiality)
New Regency Prods., Inc. v. Nippon Herald Films, Inc., 501 F.3d 1101 (9th Cir. 2007) (concrete, ongoing business negotiations involving arbitrator can create reasonable impression of partiality)
Lagstein v. Certain Underwriters at Lloyd’s, London, 607 F.3d 634 (9th Cir. 2010) (long-past, attenuated connections insufficient for vacatur)
Bauman v. U.S. Dist. Court, 557 F.2d 650 (9th Cir. 1977) (factors governing mandamus relief)
DeGeorge v. U.S. Dist. Court, 219 F.3d 930 (9th Cir. 2000) (mandamus is extraordinary; must show clear and indisputable right)