Recently, in New Regency Productions, Inc. v. Nippon Herald Films, Inc., No. 05-55224 (9th Cir. Sept. 4, 2007), the United States Court of Appeals for the Ninth Circuit upheld a district court’s vacatur of an arbitration award based upon evident partiality of the arbitrator, holding that an arbitrator has a duty to investigate possible conflicts arising from new employment and an obligation to disclose that employment to the parties. The court found evidence of partiality and a duty to investigate on the part of the arbitrator, even though there was no evidence that the arbitrator actually knew his new employer was in the process of negotiating a film deal with a production executive of one of the parties to the arbitration.
The case arose from the arbitration of a contract dispute between a film production company, New Regency Production, Inc. (“New Regency”) and a film distribution company, Nippon Herald Films, Inc. (“Nippon”). The parties agreed to arbitrate their dispute through the American Film Marketing Association (”AFMA”), a motion picture trade organization with its own arbitration rules and panel of arbitrators. The parties jointly selected an arbitrator, who was an attorney and executive of an entertainment company. During the selection process, the arbitrator disclosed contacts he had with both parties and their counsel. By order dated July 19, 2004, the arbitrator issued an award in favor of New Regency for $2,341,257. When New Regency moved in federal district court to confirm the award, Nippon moved to vacate on the grounds that the arbitrator had failed to disclose prior to the award that he began new employment with a film company that was in negotiations with New Regency.
The court concluded that the arbitrator had a duty to investigate potential conflicts when he accepted a new executive position while the arbitration was ongoing, because the parties could reasonably have expected him to investigate potential conflicts when he took a job in the same industry as the parties. Additionally, AFMA’s arbitration rules imposed a duty on the arbitrator to investigate and disclose conflicts. While recognizing the public interest in efficient and final arbitration, the court reasoned that a rule encouraging arbitrators to err on the side of disclosure was consistent with that interest. Click here to review the Ninth Circuit’s decision.
Though this decision involved AFMA’s arbitration rules, it could have an impact on the duties imposed on arbitrators in reinsurance and other commercial arbitrations with respect to investigating potential conflicts.
