Positive Software Solutions, Inc. v. New Century Mortgage Corp.

SOLUTIONS, SOFTWARE POSITIVE

INC., Plaintiff-Appellee,

v.

NEW CENTURY MORTGAGE CORPO-

RATION; Century New Financial Corporation;

Corporation; eConduit Anyloan Company; Lemieux; Jeff Nese, Defendants-Appellants.

Frank

No. 04-11432. Appeals,

United States Court of

Fifth Circuit.

Jan. vacated for “evident must be award

tion 10(a)(2), § where 9 U.S.C. partiality,” prior profes- failed to disclose one of a member of association with sional con- him. We engaged the law firms that Act Arbitration clude that the Federal (“FAA”) extreme not mandate the does of a vacatur for nondisclosure remedy of association, we reverse the past trivial contrary judgment, but court’s district consideration necessary to remand for objections to the arbitral appellee’s other award. Alfonso Gar- (argued), Shore Michael W. BACKGROUND Dallas, Chan, Bragalone, Shore Chan

cia Lazarus, Akin, Gump, TX, Edward Peter January In undisputed. The facts are CA, Feld, Strauss, Angeles, Los Hauer & Corporation Century Mortgage New Plaintiff-Appellee. (“New an automated Century”) licensed P. Robin (argued), Freytag Sharon N. from Positive support program software Breaux, Anne Hartmann, Wayne Ronald (“Positive Solutions, Soft- Inc. Software Boone, Johnson, Ophelia S. Haynes & M. ware”). 2002, during negoti- In December Gardner, Camina, Susman Kenneth E. license, of that Posi- for a renewal ations Dallas, TX, Defendants-Ap- Godfrey, Century alleged New tive Software pellants. par- in violation of copied program copyright agreement applicable

ties’ law- then filed this Positive Software law. in the Northern Century New against suit JONES, Judge, and Chief Before con- breach of alleging of Texas District HIGGINBOTHAM, REAVLEY, JOLLY, secrets, tract, of trade misappropriation SMITH, WIENER, DAVIS, property, misappropriation intellectual DeMOSS, BARKSDALE, GARZA, fraud, and other infringement, copyright DENNIS, STEWART, BENAVIDES, sought Software of action. Positive causes OWEN, CLEMENT, Circuit PRADO and damages, and money performance, specific Judges.* injunctive relief. joined JONES, Judge, Chief EDITH H. granted court April district JOLLY, E. PATRICK E.

by GRADY preliminarily DAVIS, motion to Software’s HIGGINBOTHAM, Positive EUGENE W. using pro- SMITH, Century H. from enjoin New E. RHESA JERRY DENNIS, BARKSDALE, DeMOSS, and, parties’ con- pursuant gram CLEMENT, PRADO EDITH BROWN tract, to arbitration. submitted matter OWEN, Judges: Circuit Associa- Arbitration Following American (“AAA”) provid- AAA procedures, tion this case en banc The court reconsidered potential arbi- with list arbitra- ed whether order determine * decision. participate in the Judge Circuit KING did rank

trators and asked entered an in two of the three reviewing biographical candidates. After on which Although cases Camiña worked. information, selected Peter their appeared together plead- names case, Shnrn to arbitrate as he had the ings, Shurn and Camiña never attended highest ranking. The AAA con- combined participated any meetings, telephone serving tacted as an Shurn about arbitra- calls, hearings, depositions, or trials to- tor, agreed, stating and he after that he gether. nothing regarding past had to disclose re- Positive Software filed motion to va- lationships party with either or their coun- award, cate the arbitration alleging that sel. fraud, procured by the award had been seven-day hearing, After a Shurn issued manifestly disregarded Shurn had applica- an eighty-six page ruling, written conclud- laws, and, despite ble the lack of contact ing Century infringe New did not Camiña, between Shurn and Shurn had Positive copyrights, Software’s did not mi- biased, been as evidenced his failure to secrets, sappropriate trade did not breach past disclose his connection to Camiña. In contract, and did not defraud or con- September the district court granted spire against Positive Software. He or- Positive Software’s motion and vacated the dered that Positive Software take nothing award, finding that Shurn failed to disclose granted on its claims and Century New significant “a prior relationship with New $11,500 on its counterclaims and mil- $1.5 counsel,” Century’s creating ap- thus attorney’s lion in fees. pearance of requiring partiality vacatur. Upon losing arbitration, Positive Solutions, Positive Inc. v. New Software Software conducted a investiga- detailed Century Mortgage Corp., F.Supp.2d tion of background. Shurn’s It discovered (N.D.Tex.2004). 862, 865 Century New years earlier, that several Shurn and his appealed, and a panel of this court af- firm, Arnold, White,

former law & Durkee firmed the district court’s vacatur on the (“Arnold White”), had represented the ground that the prior relationship “might counsel, same as New Century’s conveyed an impression possible L.L.P., Godfrey, Susman in patent litiga- partiality to a person.” reasonable Posi- tion between Intel Corporation Cyrix Solutions, tive Inc. v. New Cen- Software (“the Corporation litigation”). Intel One tury Mortgage Corp., 436 F.3d Godfrey’s Susman attorneys in the New (5th Cir.2006). Neither the district court Century arbitration, Camiña, Ophelia nor appellate panel found that Shurn been involved in the litigation. Intel actually biased toward New Century. litigation Intel granted involved six different This court New Century’s petition lawsuits in early rehearing 1990s. Intel was en banc.

represented by seven law firms and at thirty-four lawyers,

least including Shurn DISCUSSION dispute and Camiña. The involved none of to the arbitration. Camiña To assure that arbitration serves as an participated in representing Intel in three efficient and cost-effective alternative to of the lawsuits August from until July litigation, and to hold parties to their 1992, although her name agreements arbitrate, remained on the FAA narrow- pleadings in one of the cases until ly judicial June restricts review arbitrators’ September 1992, Shurn, along awards. The ground of vacatur alleged with twelve other attorneys, Arnold White here is that partiality” “there was evident simple require- “the imposed Court meaning of evident arbitrator.1 par- to the definitionally that arbitrators disclose ment is discernible dealings Court create any ties as construed of our sister circuits. possible bias.” Id. at number that, He noted while arbitra- S.Ct. at 339. conveys face, partiality” “evident itsOn expected to sever all ties with tors are not bias, Partiality means a stern standard. world, scrupu- must be the business courts as “clear is defined “evident” while safeguarding impartiality lous in synony- and is understanding” vision ability to obvious, arbitrators, given are manifest, who apparent. mous Collegiate Dictio- and the law and Ninth New decide both the facts Webster’s (1985). statutory language, The nary subject appel- to are not whose decisions to re- always begin, seems we with which 148-49, at 339. Id. at 89 S.Ct. late review. awards unless arbitral upholding quire Thus, “not must be unbi- arbitrators in the decision- clearly evident bias appear- must avoid even the ased but also makers. 340, 150, at in bias,” Id. at 89 S.Ct. of ance in the arbi- to maintain confidence with order disagreed here decision panel interpretation, system. howev straightforward tration the that, in “a nondisclosure er, concluded case, White, the fifth vote Justice chose the arbitra parties case in which Marshall, purported together with Justice tor,” by the “arbitrator selected opinion, join” Black’s “glad to be Justice by very fail displays partiality evident re- to make “additional but he wrote create a might facts that ure to disclose (White, J., Jus- concurring). Id. marks.” of the arbitrator’s impression reasonable that Court emphasized “[t]he tice White panel F.3d 502. The at partiality.” are today that arbitrators not decide does in any actual bias a lack of acknowledged judicial of held to standards a reason as it substituted this award even or indeed of judges, Article III decorum of partiality standard impression able Indeed, White judges.” Id. Justice any in arbitra partiality eases “evident” are not “automati- that arbitrators wrote parties. to the nondisclosure tor’s relationship by cally disqualified a business standard to be this different panel believed if ... [the them decision before by Court’s required v. Conti facts but Coatings Corp. are parties] unaware Commonwealth 337, 145, Co., sup- 89 S.Ct. Cas. 393 U.S. trivial.” Id. While nental (1968), interpreted which L.Ed.2d 301 arbitra- policy of disclosure porting 10(b).2 § Jus- process, the selection to enhance tors concluded, practical in a tice also White guides

How Commonwealth expect- vein, “cannot be that an arbitrator Reasonable critical issue. court is a complete with his provide ed agree can minds biography.” unexpurgated business plurality-plus Su- many like Coatings, 151, opinion at 340. His 89 S.Ct. decisions, Id. pellucid. is not Court preme ar- awards when fully upholding envisions opinion Black delivered Justice corruption in the arbitrators 10(a)(2) ("[T]he partiality or § United States 1. 9 U.S.C. ....") n wherein the for the district court in and vacating may an order made award was make 10(b) § is now contained any party was then upon 2. What application the award 10(a)(2). § ... there was evident arbitration where Co., N.C., fail to disclose insubstantial rela- ANR Coal Inc. v. Cogentrix bitrators tionships. Id. at 89 S.Ct. at 341. Inc., (4th 173 F.3d 499-500 & n. 3 Cir.1999) (noting that given courts have If lays primary emphasis one on Justice Justice particular White’s “concurrence “glad White’s statement he was join” weight” and plurality, opinion holding his can be that “an arbitrator’s deemed reconcilable with that of Justice failure may to reveal facts be relevant in Only plurality Black. in that event is the determining evident under 9 opinion binding on lower courts. 10(a)(2), § U.S.C. but that mere nondisclo vacatur”); sure justify does not itself compelling reading opin

Another possible, ions is also however. Justice Morelite Corp. City Constr. v. N.Y. Dist. egregious Black’s uses an set Funds, Carpenters Council Benefit as the require facts vehicle to broad disclo (2d Cir.1984) (“Because F.2d 83 n. 3 “any dealings sure of create opinions impossible the two are to recon possible Id. at bias.” 89 cile, however, holding we must narrow the White, S.Ct. at 339. part, Justice his to that subscribed to both Justices closely hews to the facts and finds it Black”); White and Merit Ins. Co. v. hold, “enough present purposes to Co., (7th 673, Leatherby Ins. 714 F.2d 681 does, the Court that where the arbitrator Cir.1983) (noting that Commonwealth has a substantial interest in firma which Coatings “provides guidance little because has done more than trivial business with inability majority of a of Justices to party, that fact must be disclosed.” 393 agree anything result”); on but cf. 151-52, (empha U.S. 89 S.Ct. at 34-41 Commons-Urbana, Univ. Ltd. v. Univer added). White, read, sis Justice thus sup Inc., sal Constructors 304 F.3d 1339- ports ample disclosure, not but unrealistic (11th Cir.2002) 40 (citing Justice White’s supports approach and he a cautious to Coatings Commonwealth opinion per “joinder” vacatur for nondisclosure. His is mitting only if vacatur facts creating “a magnanimous significantly qualified. but impression reasonable of partiality” are reading persuasive, The latter is more disclosed); not Peoples Sec. Ins. v.Co. Life because it scope accords to the full White Co., Monumental Ins. 991 F.2d Life opinion, unlike the view that focuses on the (4th Cir.1993) (“It 146 is well established introductory “glad join” to sentence. that a mere of bias is insuffi Thus, concurrence, Justice White’s pivotal cient to demonstrate partiality. evident judgment, to the is based on a narrower Arbitrators are not held to ground the same ethi than Justice opinion, Black’s and it required becomes the cal standards Court’s effective ratio deci- III Article ” States, (citations dendi. See Marks v. United judges omitted)); 430 .... Ormsbee 188, 193-94, 990, 993-94, U.S. 97 S.Ct. 51 Grace, Dev. 1140, 1147, Co. v. 668 F.2d (1977). L.Ed.2d 260 (10th Cir.1982) 1150-51 (citing Justice White’s Coatings Commonwealth opinion A majority of circuit courts have requiring “clear evidence of improprie concluded that Justice opinion White’s did vacatur). ty” for While these courts’ inter majority not lend plurality status to the pretations of Coatings Commonwealth opinion. See Nationwide Mut. Ins. Co. v. may particulars, differ in agree all Co., (6th Home Ins. 429 F.3d 644 n. 5 Cir.2005) (“[A] that nondisclosure alone require does not majority of the Court did not endorse vacatur of an ‘appearance arbitral award for bias’ stan evident dard set forth in plurality opinion”); partiality. An arbitrator’s failure to dis Coatings to mandate compromis ed significant must involve close of bias” standard “reasonable the parties. ing connection on va cases went but in nondisclosure consis is also prior easelaw This court’s award where arbitra an arbitral cate reading of Common a narrow tent aware of not himself been had tor& Seawell In Bernstein Coatings. wealth failed under conflict (5th Cir. F.2d Bosarge, 813 v. Kove and then to ascertain diligence due take arbitration 1987), losing party if one Even parties.4 disclose al because the award challenged of Commonwealth the extension ignores of the arbi of one partiality evident leged Schmitz, rela the undisclosed Coatings by a fractional owned The trators. firm the arbitrator’s tionship between and had disputed property share of company was more parent Pru-Bache’s the sale of certain commissions received meaning current, financially concrete party had held the The court interests. the co-counsel than ful composition objection waived his is an outlier case. Schmitz present Nevertheless, assuming “[e]ven panel. to Positive Software. support little lends evidence waiver,” produced he had not no concluded, the better As we ap “[t]he because partiality,3 of evident of Commonwealth alone, interpretation is standing impropriety, pearance White’s reads Justice that which Sheet (quoting Id. at 732 insufficient.” standard is holistically. resulting Union Ass’n Local Int’l Metal Workers cases, may an award in nondisclosure Co., Conditioning Kinney Air v. or insub of a trivial vacated because Cir.1985)). (9th court F.2d ar relationship between stantial “[ejvident means also noted proceeding. to the and the bitrator of bias.” a mere more than stan of bias” impression “reasonable The Pickholz, v. Florasynth, Inc. (quoting Id. rather practically interpreted thus dard is Cir.1984)). (2d 171, 173 750 F.2d rigor. with utmost than interpreted has Circuit Only Ninth the interpretation of to this According ma Coatings, panel as Commonivealth Coatings, the outcome did, Justice White’s Commomuealth de-emphasize jority dis failure to is clear: Shurn’s case v. Zilv See Schmitz narrowing language. relationship Cir.1994). former business (9th a trivial In close eti, 1043 20 F.3d award. require vacatur not sug does Schmitz, law court criticized case is that charge of bias essential is suffi The bias “that an gesting on the arbitrator, Shurn, worked Peter is not.” bias] appearance [of cient while Camina, Ophelia as did litigation same Coatings, at 1047. Commonwealth Id. They rep parties. of the dis counsel one a “hairline held, not such does merit litiga- patent protracted Intel interpret resented not Id. tinction.” Schmitz cases at nineteen least involved resentation surrounding the find- court’s The 3. discussion including case period, a thirty-five year partiality is an over a ing evidence of evident of no dicta, according- years holding, and two before than ended less alternative bind- doc- ly, its evident had reviewed discussion The arbitration. subsequent panels. any ing precedent did company, naming parent but uments or parent for the check not run conflict Schmitz, previ- law firm In arbitrator's representa- earlier any of his firm's disclose represented Prudential Insurance ously had arbi- company to the parent tions Securities, Co., parent of Pru-Bache tration. rep- arbitration. party in prevailing 284 (7th Cir.1992) (arbitrator 1255,

tion that lasted from 1990 1996. Cami- knew signed ña and Shurn each the same ten one parties, had worked in the same pleadings, spoke never met or but office him twenty years ago, and saw They each other before arbitration. since; him a year about once the court thirty-four lawyers, were two. of and from found this relationship “minimal” in- firms, that represented two seven Intel vacate); Ins., sufficient to Merit 714 F.2d lawsuit, during the which at ended least (no 677, vacatur; at arbitrator had years seven before the instant arbitration. directly worked president under the principal stockholder of one of the No case we have discovered in research years, ending or three years briefs has come close to fourteen vacating pri- arbitration; or arbitration award for nondisclosure of the Seventh such Circuit emotions, slender connection noted that between the arbitra- cools “[t]ime whether fact, tor a party’s counsel. gratitude resentment”); courts Ormsbee have refused vacatur Co., (no where the undis- Dev. 668 F.2d at 1149-50 vacatur closed connections are much stronger. where arbitrator represent- and law firm See, Inc., e.g., Sec., v. Montez Prudential ing party common; had clients in requir- (8th Cir.2001) (no 260 F.3d ing vacatur under such facts would “re- vacatur; general counsel company, for a quest neutral arbitrators employed arbitrator had sixty-eight attor- sever all their ties with the business neys, paying fees, them million in $2.8 (internal omitted)). world” quotation from the firm law representing one of the in this pales case arbitration); Coal, ANR comparison to those in which courts have (no vacatur; F.3d 495-96 arbitrator’s See, granted vacatur. e.g., Commonwealth firm represented law company that indi- Coatings, 393 U.S. at 89 S.Ct. at 338 rectly dispute caused the in the arbitration (business relationship between arbitrator by buying defendant, less from the inwho “repeated significant”; sought buy turn less from plaintiff); the party to the arbitration was one of the Citibank, N.A., Al-Harbi v. 85 F.3d “regular customers”; arbitrator’s “the re- (D.C.Cir.1996) (no vacatur where arbi- lationship even went so far as to include trator’s former law firm represented party the rendering of very services on pro- the matters); arbitration on unrelated jects lawsuit”); involved in this Int’l, Olson v. Med., Inc., Inc. v. CD 68 Lifecare Pierce, Lynch, Smith, Merrill (11th Fenner & 429, Cir.1995) (no F.3d 432-34 n.& 3 Inc., (8th 157, Cir.1995) (arbi- 51 F.3d 159 vacatur where arbitrator had memorialized trator was a prior high-ranking officer in a scheduling dispute com- with an attorney pany that a from the firm had substantial ongoing law representing one of the busi- ness relationship and eighteen parties); mentioned it one of months the Schmitz, (arbitrator’s arbitration; later at the 20 F.3d at arbitrator also law failed to disclose that firm represented he became “of parent coun- company of a par- sel” to a law firm prevailing party ty decades, the had for including within years two purpose interviewed for the arbitration); of of obtaining Morelite, the 748 F.2d at representation (arbitrator’s in the instant dispute and father was General Presi- that had reviewed the contract involved in dent of the union involved the arbitrated years prior; this, case two court found dispute). best, “remote, at uncertain, showed a

speculative partiality”); Health Finally, Servs. even if Justice White’s Mgmt. Corp. 1253, v. Hughes, 975 “joinder” F.2d is not read as a limitation on than for actual nondisclosure award in Commonwealth opinion Black’s Justice em- controlling opinion bias. Coatings, to “disclose requires arbitrators

phatically Moreover, on a requiring vacatur based any dealings to for nondisclosure of bias mere bias,” 393 possible create higher a ethical arbitrators to would hold 339, find 149, we cannot at at 89 S.Ct. U.S. judges. III federal Article than standard case. The in this breached the standard concurrence, noted Justice White In his are easi- of Commonwealth facts not decide whether the Court did In Commonwealth distinguishable. ly to the stan- are be held “arbitrators a had party and a the arbitrator Coatings, III of Article judicial decorum dards rela- significant” business “repeated at any judges.” Id. judges, indeed at 338. at 89 S.Ct. tionship. Id. (White, J., concurring). at 340 89 S.Ct. $12,000 of about involved fees relationship are held mean that arbitrators This cannot extend- party, paid to the III Article standard than to a higher years, or five of four period ed over oc- relationship this same judges. Had arbitration, year before one ended judge Article III between an curred of ser- rendering even included nor disclosure lawyer, neither the same involved in very projects vices forced or would been disqualification have rela- Id. Such a before him. arbitration Tribe suggested. See Chitimacha even resemblance tionship bears little Co., Laws 690 F.2d Harry La. v. L. limited, contacts be- and stale tangential, Cir.1982) (5th finding of (rejecting a Nothing in and Camifia. Shurn tween judge where the federal judicial bias Coatings requires vacatur in an to the case represented this undisclosed years prior). matter at least six unrelated case. it is true that disclosure WThile dealings and business contacts significant CONCLUSION and the prospective between as in situations such Awarding vacatur selection,5 it is informed parties furthers finality seriously jeopardize would per- true, White’s not as Justice here, happened Just arbitration. informed that “the best explains, ceptively have an incentive losing parties would potential arbitrators” capable and most intensive, investiga- after-the-fact conduct (and automatically disqualified should rela- most trivial of to discover the tions nullified) failure to inform their awards they likely would tionships, most which relationships. Com- of trivial been if objected disclosure had Coatings, 393 U.S. monwealth over litigation Expensive satellite made. at S.Ct. “complete arbitrator’s an nondisclosure - these at- on requiring vacatur Finally, will biography” unexpurgated business of one rob facts would arbitration tenuated “mere Ironically, appear- proliferate. apart from attractive features of its most for a make it easier standard would ance” Arbitration finality expertise. speed and challenge an arbitration to losing party — Whether Shurn’s process arbitrators. tion Association Arbitration 5. The American rules, the AAA (“AAA”), proceed- ran afoul governed this nondisclosure however, whose rules plays prophylactic disclosure no role ing, requires us and broad is not before impartiality likely to affect "any embodied circumstance standard applying the federal partiality,” so that appearance of or create FAA. integrity of selec- may rely on of specialized would lose the benefit knowl- may dissent because this court not over- lawyers edge, profes- because the best rule a decision of the Supreme Court. sionals, normally longest who have the lists disclose, connections to have no need reputa- to risk blemishes their Overseas, A.C. Samford Inc. was the post-arbitration tions from lawsuits attack- general contractor on six large construc-

ing them as biased. projects tion in Puerto Rico. Common- Neither the FAA Supreme nor Coatings Corporation wealth had the Court, law, nor predominant case nor painting projects. subcontract for the A policy sound countenances vacatur of FAA dispute arose about per- Commonwealth’s arbitral awards for by nondisclosure formance and then its abandonment of the concrete, arbitrator unless it creates not work. dispute The went to three arbitra- speculative impression of bias. Arbitra- tors, and the unanimous award of all three flaws, may tion but this is not one of $15,872.35. awarded Samford Common- remedy them. The draconian of vacatur is appealed wealth to the First Circuit on the upon warranted nondisclosure that ground sole Capacete, failure of a significant involves compromising rela- impartial arbitrator selected the other tionship. This case does not come to close arbitrators, two appellee Samford, and of meeting this standard. party, successful past disclose their relationship. Capacete a majority judgment

The of the district court is owner of an engineering company that had REVERSED, and the case is REMAND- Samford, done work for including work ED FOR FURTHER PROCEEDINGS. with the planning projects architects REAVLEY, issue. He had Circuit done no work on Judge, dissenting, the con- joined by WIENER, any struction or GARZA, matter ques- EMILIO M. related to tions the arbitration. STEWART, Capacete BENAVIDES and CARL E. When was being selected to Judges: Circuit be the third arbitra- tor, he was not asked prior about a rela- In 1968 the Supreme Court held that an tionship with Samford. The circuit court arbitral award could not stand where the affirmed the denial of the attack on the arbitrator had failed past to disclose a award prejudice.2 absence of bias or might give possible partiality.1 The Court has nev- granted Court certiorari er changed holding; it is the law that award, vacated the arbitral saying that today. rules us But majority of this while the arbitrator had shown no improp- disapprove court of that they motives, law because er required he was to “disclose to prefer protect arbitrators and their the parties any dealings that might create awards when fail to disclose an impression possible bias.” Id. at relationships with parties 147-49, or counsel. 89 S.Ct. 337. majority opin- They change therefore the law for this ion was written Justice Black. Justice and, case appear make it as if their White also began wrote and by saying: transgression matter, does not trivialize glad join “While I am my Brother report their of past the relationship. I case, Black’s in this I desire to Coatings 1. Corp. Commonwealth v. Cont’l Coatings Cas. Corp. Commonwealth v. Cont’l Cas. Co., 145, 337, 393 U.S. Co., 89 S.Ct. 21 (1st L.Ed.2d Cir.1967). 382 F.2d 1010 (1968). 301 impression an might create jus- ings that Six remarks.” these additional make And it be disclosed. possible of bias must the though even the award tices vacated circuits to hold that join other purports impartial. fair had been does not vaca- require alone non-disclosure Coatings opinions The Commonwealth If the circuit award. of arbitral tur (with Warren, Douglas, Black of Justice Court, Supreme the courts could overrule Justice White joining) and Brennan on a firmer majority might be bit the lengthy. (with are not joining) Marshall Coat- the Commonwealth ground, because rec- easily compared and easily They are well ruling has not been received ings im- the emphasize opinions Both onciled. courts. some of circuit those who impartiality of portance Posner declared example, Judge For distin- White controversy. Justice decide Leatherby v. in Merit Co. Insurance that of judges from role of guishes the (7th Cir.), Co., 714 F.2d Insurance rela- in that the arbitrator’s arbitrators relation that the test of undisclosed long is immaterial —so party tion with intimate as to cast serious must be so ship in advance is informed the other as impartiality. on the arbitrator’s doubt points And he objection. makes no attack on the arbitral though Even cre- not relation would that a out trivial 60(b) Rule and was there was under award as so possible of bias impression ate an did not create the award rejected because Black. rule stated Justice to meet the result, unjust of an danger a substantial emphasizes contribution Justice White’s say that took the occasion to Judge Posner establishing an atmo- importance of little Coatings “provides Commonwealth of an at the outset of frankness sphere inability a ma of the because guidance by disclosure when arbitration agree on but anything jority Justices accept reject the are free following at 681. the result.” Id. relationship. knowledge him with where case year Second Circuit White that Justices I am confident ¿he son, of father relationship was saying they were what knew Marshall outset, Kauf Judge but known from the they joined Justice they said when man addressed Commonwealth describing and were not opinion, Black’s Black opinions Justice though only to be majority opinion it as the not be reconciled could and Justice White says. court now as our “magnanimous” disqual they had addressed though and as Furthermore, that six quite pellucid it is failure rather than ification arbitrators that, despite agreed of the Court Justices New Corp. v. Constr. to disclose. Morelite of the arbi- impartiality fairness and Bene Carpenters City Dist. Council York “any dealings trator, to disclose failure (1984). Funds, & 3 F.2d 82-83 n. fit possi- impression of that create problem with Jus saw Judge Kaufman award. vacatur justifies ble bias” Black’s arbitrators tice statement only for vacate award The Court did Id. at bias. must avoid that reason. Black’s agree All with Justice will 82-83. trying contro any tribunal statement Coatings and appear bias and the must versies avoid Courts Circuit bias, at S.Ct. 393 U.S. ance of a statement manages to substi- but majority opinion Oth of the Court. requirement bias, impres- disclosure or the reasonable tute actual Supreme transposed courts of bias er bias, or concrete sion to avoid requirement disclosure deal- Court’s ruling that Court’s for the 288 See, disclose, e.g., rejected of bias.” failure to “appearance Sun that view Growers, v.

kist Drinks Sunkist 10 Commonwealth Coatings only plu- Soft (11th Cir.1993); decision, Apperson rality F.3d 758 v. applied the non-disclo- Corp., Fleet F.2d Supreme Carrier 1358 n. sure rule of the Court. (6th Cir.1989); Middlesex Mutual Ins. judicial The disfavor of Commonwealth Levine, (11th Co. v. 675 F.2d Coatings, receiving surprisingly while little Cir.1982). treatment, gone by has not unnoticed com- “[fjederal should distinguish We the Common- mentators. One that observed Coatings wealth requirement for disclo- courts have floundered in the wake of prior relationships sure of when arbitra- Coatings” treating Justice being tors are selected from what will White’s .concurrence as authoritative and disqualify an arbitrator after selection. standing holding for a different even majority misses that distinction in its though Justice expressly White “does not discussion of Bernstein & Seawell Kove v. define the standard that should govern (5th Cir.1987).

Bosarge, 813 F.2d 726 conduct. His makes it ... clear arbitrators will be majority departs from Supreme a, governed by standard less than the stan- ruling by Court’s following those courts dard governing judges.” Elizabeth A. that have decided that Commonwealth Note, Murphy, Standards Arbitrator Coatings a plurality is or a “plurality-plus” Impartiality: Impartial How They Must opinion.3 majority But the opinion, like Disp. Bet, 1996 J. 470. opinions relies, on which it Resol. do not explain how Justice majority opin- Black’s IWhile can understand the desire to ion is irreconcilable with Justice White’s protect finality of arbitration awards concurrence. Aside from Justice White’s and avoid a return to extended court ex- statement glad join he was pense delay, justify this does not evad- majority opinion and the substance his ing the law of the Court mis- remarks, Justice White did not articulate stating it or avoiding byit bleaching the an alternative rationale. Justice White possible evidence of partiality. Nor should merely hold, stated what the Court did not we miss the need to promote the impartial- which is not inconsistent with the majority ity of arbitrators in this time when that is opinion. the favored method of dispute resolution.

The Ninth Circuit easily followed Influence can so corrupt Common- the deci- Zilveti, wealth sion-making v. process Schmitz even when it is not (9th Cir.1994). F.3d 1043 recognized by that case magistrate or arbitrator district court had denied vacatur because himself. prove And to bias or improper the arbitrator was unaware of his rarely firm’s influence is possible. It is impera- representation, parent company of a tive we not good allow even the faith party because he had run a memory conflict check or party on the parent but not the company, for, control the disclosure decision as the and therefore no evident existed. Justices made clear in Commonwealth correctly The Ninth Circuit distinguished Coatings, it is protection and reassur- cases of bias or of bias and ance of the that matters most.4 19; Apperson, 3. 879 F.2d at Perhaps 1358 n. Morelite the rule should be different when 83; Corp., Constr. Co., 748 F.2d at Merit Insurance relationships disclosure of expressly all re- 681-82; F.2d at quired Middlesex Mutual to be perhaps made the outset. And Co., Ins. 675 F.2d at 1200. some allowance should be made for a three

289 2004, found that its judge the district v. New Positive Software tell in an order been violated orders had Century Mortgage story. Positive disturbing ing the Soft appeal, on New Cen- Coming to case Solutions, Century Inc. v. New ware telemarketing by borrowers tury seeks F.Supp.2d 862 Mortgage Corp., 337 pros- to call devices computer employs and (N.D.Tex.2004). Century New January of pects. gone to arbi- dispute Meanwhile Software Positive a license from obtained New Cen- the award tration where favored Loan Force product the software to use found that completely. The tury award Software. Positive by Positive developed infringement no or breach there had been employ- by former then told Software charged and Posi- licensing contract it was reverse- Century that of New ees million dollars with several tive Software Force copying Loan or engineering fees, and costs. damages, and own software develop its effort Force. The Software with Loan dispense ruling the arbitrator At the outset of his ¶ 7A, prohibited Agreement, Subscription claim and Positive Software’s ridiculed terminat- Software conduct. Positive of how failure to saga “It involves a wrote: and license, for an audit called ed $86,100 license has led software renew an software, law- and filed this of its return $500,000,000 in damages in to a claim February of 2003. in suit $38,000,000,000in arbitration, and for court ex- The district Federal Court.” of New by counsel Despite assurances explanation for curiosity about the pressed by Positive Software Century, efforts disdain. this statement arbitrator’s of the software for the return court n. F.Supp.2d at 886 23. 337 failed. use Positive disclosure its aid of district enlisted the Software the Arbitrator Godfrey and Susman hearings March in a series of court for an an searched Software Positive April on that culminated 2003 April a rela and found to this award by the swer order injunction and protective Century, counsel for New tionship between court, finding a that New Centu on based firm, and the Godfrey the Susman law copied Positive Software’s material ry had Shum, arbitrator, a member of Peter J. Century from use enjoining New firm. These & Durkee database, software, the Arnold White Force its Loan both in Houston law firms prominent two claiming to be Century was New software patent in its protracted Intel represented then Positive Software products. own its Godfrey Cyrix.5 Susman litigation with on the judgment for a default moved Au Intel in representation destroyed began the Century had that New ground Susman, Terrell Stephen gust par court sent The district evidence. Oxford, appearing. Ophelia Camina hearings before mediation and ties September the team joined Peter Shurn Finally, September judge. magistrate arbitrators, which guilty of closure is "misbehavior distinguished panel of member prejudiced.’’ any party been single rights the selection of from 10(a)(3). § parties. in Commonwealth Court F.Supp. 666 Corp., 879 Cyrix Corp. v. Intel 5. authority statutory Coatings derived the Corp., 879 (E.D.Tex.1995); Cyrix v. Intel Corp. grounds of evident vacating award on the (E.D.Tex.1995); Cyrix Corp. v. F.Supp. undue means. or the use (E.D.Tex.1992). F.Supp. § also be said that Corp., It Intel U.S.C. significant dis- to make who fails Shurn was must also be disclosed.” When thereafter with Sus- He was listed 1992. you “Have had man, Oxford, on docket he was asked: appointed and Camiña motions, relationship or with sheets, any professional and briefs. social pleadings, or any party proceeding in this counsel from Susman God- only response He the firms for which work?” Century is a statement New frey or nothing to checked: “I have disclose.” her involvement with that Ophelia Camiña in signed he an oath that he would act And in 1991 and end- began litigation the Intel Ar- accord with the rules of the American name and that of But her ed in 1992. Association. bitration multiple together appeared Shurn September 1992 and majority opinion portrays this rela- pleadings between Shurn, with by reducing Camiña shown trivial the record tionship June 1993. trial motion filed Susman, on a no and Oxford to Gamma’s statement that she did appeared And the four January 1993. court had a work with Shurn. The district and Intel’s notice together picture relationship, on motions one different appears filed in 1993. She also if appeal that would have been remembered Godfrey Arnold & any with White lawyers given Susman or the other Shurn it, in of counsel on an certainly Durkee the list thought would have resting in 1994. from prevented Positive Software its case with Peter Shurn. lawyers partici- were not inactive These Cyrix litigation. One letter pants in the Positive Software asked the district by Stephen Susman to discovery found written was court for more of the relation- detailing the witnesses opposing counsel ship between the arbitrator and the Sus- trial, copy firm, call at Godfrey Intel intended to request man but this to Peter J. Shurn. granted the letter went al- because the record had ready established a failure to disclose a of this relation- explanation There is no relationship requiring vacatur under the any Terry Oxford or ship from Shurn Coatings. rule of Commonwealth Godfrey than member of Susman other district court said that the Camiña. The Positive Software has also asked the fact name remained on Camiña’s dispute courts to allow the now to tried records, years af- pleadings and court good judiciary, hands of the because partic- claimed to ended her ter she expense it cannot afford the of another of im- ipation, gives itself Anyone arbitration. familiar with the ex- Id. at propriety. perience of Positive Software will under- Further, request. stand that one will un- being considered to When Shurn was derstand the wisdom of the told the dispute, he was arbitrate ruling Coatings. in Court’s of the impor- names of counsel and told And, finally, ruling one would follow that any relationship disclosing tance of judgment vacating and affirm the this ar- signed them. He a disclosure for the bitration award. saying Arbitration Association American nothing past that he had to disclose of WIENER, Judge, Specially Circuit or their coun- with the Concurring in Judge Circuit REAVLEY’s indirect, financial, sel, “direct or whether dissent, REAVLEY, joined by Circuit professional, any social or of other kind.” Judge: any “If rela- He was further instructed: wholeheartedly Judge I in tionship during the course of the As concur arises dissent, arbitration, Reavley’s ... I any change separately or if there is it write I perspective helpful find is that Justice did not to add White “remark” that demonstrating analyzing this case differences between the standards of I Reavley gotten right. applicable has refer decorum Judge judges and those to general key differences between which arbitrators are held anything has litigation the FAA and all to arbitration under do with the immutable prerequisite court; that, particular I refer in to one parties sign federal before the off on a candi- prime significance arbitrator, that in date for difference is must have re- case, viz., disparate ways that the ceived unexpurgated from him an disclo- judge maker —an Article III on sure of absolutely every past decision or present the one hand and an arbitrator on the relationship parties with the and their law- selected, unique yers.2 other —is and the role of That potential him- potential arbitrator’s unredacted might dis- self deem one or more of such rela- relationships tionships closure of his with the to be so de minimis as not to require irrelevant; and their counsel to ensure selection of an divulgence its is such general arbitrator. These impartial culling by and of information a candidate must particular why seep differences underscore such never be allowed to interstitially into by potential full and fair disclosure a arbi- the disclosure calculus. Justice White’s every relationship trator of conceivable remark that disqualification is not auto- counsel, party or matic slight, with however is for minor business relationships is No prerequisite. simply inapposite requirement with lawyer or a too minimal to full every relationship, is war- disclosure of large disclosure, if, end, because, arbitration, rant even it and small. its This is (more might disqualification too minimal to accurately, rejection) be deemed be disqualification. province parties, warrant Such evalua- is the exclusive arbitrator, by tion potential any each of whom is entitled to make its deter- it, withholding of information based on are mination on the basis of total disclosure of simply relationships, not calls that he is authorized to not on the basis of some make, yet Lawyer ones that cherry- Shurn obvi- truncated version that has been ously picked by made. position the nominee for the arbitrator. penumbral point that supervenes recognition legal this case lies in our who have on Most commented Justice analyze distinction between disclosu/re and dis- statement have White’s failed qualification import depth, treating the context of arbitration. its full it either White, in a tautological musing starting Justice his celebrated and thor- or as a oughly point holding vetted concurrence in Common- arbitrators to a lesser “recusability” Corp., degree impartiality wealth “remarked” convinced, deciding judges. though, Court was not than trial I am more, “arbitrators are to be held to the much stan- Justice White meant judicial regarding dards decorum of Article III least the absolute nature of the judges” duty potential or that arbitrators are “automati- of a to disclose cally by disqualified every relationship large a business relation- and small. This is ship” justices with the to arbitration or because he and the other who emphasized joined them counsel.1 must full What the Black knew well White, Emphasis by "relationship” mine. 2. As noted Justice here does not include mere chance encoun- personal ters or introductions. familiarity of or with the equal knowledge authority and the sole that has who Fed- history full arbitrators. a candidate for whether duty to determine dispute full-time resol- judges trial are accepted eral should be of arbitrator post all vers; of arbitrators falls experience they alone. rejected: or spectrum, from those along experience dispute- on the attendant The tradeoffs or in a serve but once twice who litigation and ar- choice between resolution conduct arbitration to those who lifetime widely known: are well bitration judge The trial increasing regularity. to arbi- usually ascribed principal benefits is almost never to hear a case who is cost-savings, informality, speed, tration are by parties; agreed “selected” of a decision- confidentiality, and services rather, desig- is “selected” or judge such familiarity with expertise maker with as- objectively random or blind nated dispute. These subject matter court through long established signment offset- however, are not without “pluses,” in the rare case of a (except procedures informalities attend- ting “minuses.” in a sin- shopping forum party’s successful come at in arbitration proceedings ant on district, try a consenting or to gle-judge automatically protections the cost of the magistrate judge). case to a known court, which reside parties to in afforded contrast, arbitra- parties it is the to stark rules as the in such venerable institutions responsibili- who have sole tion themselves procedure. Likewise and civil of evidence or ty the selection of their arbitrator quick of and econom- at the altar sacrificed arbitrators. system of finality virtually the entire ical is they then that because alone review, largely It follows as embodied appellate selecting, the'parties the to arbitration appellate in rules of do courts the federal entirely on depend able to almost constantly growing must be and the procedure faith, sensi- trial, good arbitrator’s appellate, potential and the body of tivity, understanding, compliance and with interpreting applying and precedent Court by of disclosure candidates for such basic the rules By dispensing rules. such erroneous, And, then, appellate even relief clearly post. the of review as standards discretion, novo, questions rara when it comes of there is avis de and abuse bias, in ar- only prejudice, or non-disclosure in arbitration parties remain to Consequently, except for such bitration. appellate narrowest of recourse. parties might checks that the background frequently A encountered less less conduct, only shield avail- able to and its frequently discussed distinction favoritism, against prej- parties able here: implicated tradeoffs is the one disclosure, udice, full and frank and bias is by the method vital difference between front,” by potential each arbitrator. “up judge is selected to hear which federal than even that is far less efficacious And by méthod litigation case in vis-a-vis the parties that are afforded to safeguards distinc- which arbitrators are selected—a through the elaborate rules of litigation in but fre- tion hinted Justice White conduct, disqualification, professional All misinterpreted. overlooked or quently recusal, body procedure and the of law sys- in judges that trial the federal know in of the developed the crucible thereon only and confirmed tem are nominated judicial system. very and extensive formal capabili- rigorous testing after a of their that, that I belabor here is ties, point In con- experience, integrity. have virtual- to arbitration trast, parties because quickly arbitrators are selected against preju- ly protections alone, frequently have un- none who thereof) (or fox, cannot appearances therefore be left to the who dice and bias is routinely arbitrator, af- automatically potential guard that are the arbi- court, henhouse, litigants secretly in federal tration identifying forded to remaining “prior present in the otherwise- himself alone all or single arrow relation- protection par- ships,” just afforded to then empty quiver secretly deciding which full, worthy disclo- are ties in unredacted disclosure and which are not. arbitration — every prior relationship contrary, sure of be On the avoidance of —must rigorously strenuously adhered to and en- the selection of the arbitrator can be Indeed, if, very it is these differ- achieved in discharging duty forced. his disclosure, standards —not dis- potential objec- ences the disclosure judges tively qualification disgorges absolutely every standards —to which conceiva- are held vis-á-vis those to which arbitra- ble fact of or present relationships unyielding counsel, tors are held that demand feal- with regardless of how spirit the letter and ty to both tenuous or remote might seem to him. requirement: disclosure With such a slim He must leave the value (if safeguard against appearance judgment bias or the any) as to which among those arbitration, fully bias reason obvious disclosed facts constitutes basis for why every rejecting such mandated disclosure for bias relationship, self-abridgment by without or the Only bias. of and arbitrator, potential the must be assidu- after that is can done disclosure translate ously disqualification rejection. enforced. into or court, system system

In federal it is the and the Thus the fails when the nominee judges perform “gatekeeper” post who the for the of upon takes it judgment function to exclude decision-maker favorit- himself to make the value arbitration, In appearance. ism or its whether a is relationship inconsequen- so gatek- it the are the tial that it though, parties is who need not be disclosed at all. eepers, potential and not the arbitrators or Arbitration’s protection against scant bias rules). (or the arbitration associations their obviously and favoritism breaks down com- pletely Filtration in is the question of arbitration when the whether a rela- prerogative duty of the par- tionship exclusive should be disclosed is assumed only they ties—and it parties sub silentio —as alone by disclosing allowing who select decision maker. As rather than all and gatekeepers, charged parties following are with the to make that call guarding against prejudice, receipt through favoritism and their of all facts an una- duty possibly discharge bridged that cannot disclosure. of the absence total disclosure. dutifully knows? If re- Who Shurn exchange

In actual perceived ported prior professional relationships for the or his time, money, economies of expertise and and interaction with counsel for New Cen- confidentiality, tury, to arbitration counsel for Positive Software responsible accepted alone are for who it is that will nevertheless have Shurn. But Subject very decide their rela- act preemptively deciding, fates. Shurn’s limitations, own, tively insignificant solely on relation- prior his his (or panels, Century each party’s ship the case with counsel for New need arbitrator) virtually withholding selected absolute not be disclosed and then information, conveys ap- accepting rejecting control over nomi- unmistakable me, that mis- pearance impropriety. nee for the role of decision maker. It To support sufficient more than step is America, STATES UNITED that was Positive Software

objections of Plaintiff-Appellant, informed of the right to be of its deprived Shurn relationship between prior v. firm, its Susman, and to make Godfrey of that significance own evaluation KRUMNOW, Michael Jason connection. Defendant-Appellee. gulf began: The vast I I end where No. 06-50241. in federal court resolving disputes between espe- resolving them Appeals, States Court United arbitration — distinction be- overlooked cially the often Fifth Circuit. disqualification disclosure and tween 18, 2007. Jan. gatekeeper role of plays the between who maker —frames selecting the decision arbitration, full today. decide

issue we reed proverbial slender

disclosure is the of favor- prevention lean

against which we up highly circumscribed prop

itism to out a candidate’s

ability to ferret relationships and then determine

whether, party, as to impinge impartiality. not

does or does further reed must

This anorexic

slenderized, majority today. as the does enjoy credibility, each system

For the absolutely must dis-

potential arbitrator every relationship with the

close counsel, no matter how minimal or aspiring

insignificant preroga- not the it to be. For

deem choose, pick

tive of the candidate alone to prerogative

but the And that cannot significance.

decide such comfort any degree absent

be done and those

full disclosure. These reasons Reavley compel me to

expressed by Judge

concur in his dissent.

Case Details

Case Name: Positive Software Solutions, Inc. v. New Century Mortgage Corp.

Court Name: Court of Appeals for the Fifth Circuit

Date Published: Feb 6, 2006

Citation: 476 F.3d 278

Docket Number: 04-11432

Court Abbreviation: 5th Cir.