Yesterday, the Second Circuit affirmed a district court’s decision in which the court held that an arbitrator who had previously resigned was able to rejoin the arbitration panel. Click here to read a copy of the decision.  Insurance Co. of N. Am. v. Pub. Serv. Mut. Ins. Co., No. 09-3640-cv (2d Cir. June 23, 2010).

In July 2009, we reported on the judgment of the United States District Court for the Southern District of New York granting the Rule 60(b)(2) motion of Public Service Mutual Insurance Company (“PSMIC”) based on newly discovered evidence that an arbitrator who had resigned from a panel because of illness was, in fact, able to rejoin the panel.  The court had previously ruled that the arbitration should begin anew with a new panel, but based on newly discovered evidence, ordered Insurance Company of North America (“INA”) to reappoint the arbitrator who had resigned, or if the arbitrator was unwilling or unable to serve, to direct INA to appoint a replacement or to forfeit that right to the court.  Click here to read our July 2009 blog post.

In yesterday’s decision, the Second Circuit affirmed the district court’s decision and rejected INA’s contention that the law in the Second Circuit under Marine Products Export Corp. v. M.T. Globe Galaxy, 977 F.2d 66 (2d Cir. 1992) is that whenever an arbitrator dies or resigns the arbitration panel must automatically be reconstituted anew, finding that this rule does not apply to vacancies resulting from resignations.  The appellate court held that application of the rule in that context would create problems that do not arise in the case of vacancies caused by an arbitrator’s death, principally the potential for manipulation by a party that, perceiving itself to be losing, could disrupt the proceedings by pressuring its appointed arbitrator to resign.

The Second Circuit noted that 9 U.S.C. § 5 specifies certain circumstances under which a court may appoint an arbitrator, including the filling of a vacancy on a panel of arbitrators.  The court acknowledged the potential unfairness to party where a substitute arbitrator is appointed and tasked with deciding issues about which the original panel members previously heard argument and discussion.  However, given the potential for manipulation and waste occasioned by convening a new panel, the appellate court held that this potential unfairness is not sufficiently strong to require application of the Marine Products rule to resignations.  Thus, the court  affirmed the district court’s decision to reappoint the arbitrator who had resigned or to require a replacement in the event he declined.