Commonwealth Coatings Corp. v. Continental Casualty Company/Dissent Fortas

by Abe Fortas

United States Supreme Court

393 U.S. 145

Commonwealth Coatings Corp.  v.  Continental Casualty Company

 Argued: Oct. 22, 1968. --- Decided: Nov 18, 1968

Mr. Justice FORTAS, with whom Mr. Justice HARLAN and Mr. Justice STEWART join, dissenting.

I dissent and would affirm the judgment.

The facts in this case do not lend themselves to the Court's ruling. The Court sets aside the arbitration award despite the fact that the award is unanimous and no claim is made of actual partiality, unfairness, bias, or fraud.

The arbitration was held pursuant to provisions in the contracts between the parties. It is not subject to the rules of the American Arbitration Association. It is governed by the United States Arbitration Act, 9 U.S.C. §§ 1-14.

Each party appointed an arbitrator and the third arbitrator was chosen by those two. The controversy relates to the third arbitrator.

The third arbitrator was not asked about business connections with either party. Petitioner's complaint is that he failed to volunteer information about professional services rendered by him to the other party to the contract, the most recent of which were performed over a year before the arbitration. Both courts below held, and petitioner concedes, that the third arbitrator was innocent of any actual partiality, or bias, or improper motive. There is no suggestion of concealment as distinguished from the innocent failure to volunteer information.

The third arbitrator is a leading and respected consulting engineer who has performed services for 'most of the contractors in Puerto Rico.' He was well known to petitioner's counsel and they were personal friends. Petitioner's counsel candidly admitted that if he had been told about the arbitrator's prior relationship 'I don't think I would have objected because I know Mr. Capacete (the arbitrator).'

Clearly, the District Judge's conclusion, affirmed by the Court of Appeals for the First Circuit, was correct, that 'the arbitrators conducted fair, impartial hearings; that they reached a proper determination of the issues before them, and that plaintiff's objections represent a 'situation where the losing party to an arbitration is now clutching at straws in an attempt to avoid the results of the arbitration to which it became a party."

The Court nevertheless orders that the arbitration award be set aside. It uses this singularly inappropriate case to announce a per se rule that in my judgment has no basis in the applicable statute or jurisprudential principles: that, regardless of the agreement between the parties, if an arbitrator has any prior business relationship with one of the parties of which he fails to inform the other party, however innocently, the arbitration award is always subject to being set aside. This is so even where the award is unanimous; where there is no suggestion that the nondisclosure indicates partiality or bias; and where it is conceded that there was in fact no irregularity, unfairness, bias, or partiality. Until the decision today, it has not been the law that an arbitrator's failure to disclose a prior business relationship with one of the parties will compel the setting aside of an arbitration award regardless of the circumstances. ^[1]

I agree that failure of an arbitrator to volunteer information about business dealings with one party will, prima facie, support a claim of partiality or bias. But where there is no suggestion that the nondisclosure was calculated, and where the complaining party disclaims any imputation of partiality, bias, or misconduct, the presumption clearly is overcome. ^[2]

I do not believe that it is either necessary, appropriate, or permissible to rule, as the Court does, that, regardless of the facts, innocent failure to volunteer information constitutes the 'evident partiality' necessary under § 10(b) of the Arbitration Act to set aside an award. 'Evident partiality' means what it says: conduct-or at least an attitude or disposition-by the arbitrator favoring one party rather than the other. This case demonstrates that to rule otherwise may be a palpable injustice, since all agree that the arbitrator was innocent of either 'evident partiality' or anything approaching it.

Arbitration is essentially consensual and practical. The United States Arbitration Act is obviously designed to protect the integrity of the process with a minimum of insistence upon set formulae and rules. ^[3] The Court applies to this process rules applicable to judges and not to a system characterized by dealing on faith and reputation for reliability. Such formalism is not contemplated by the Act nor is it warranted in a case where no claim is made of partiality, of unfairness, or of misconduct in any degree.

Notes

1. See Firemen's Fund Ins. Co. v. Flint Hosiery Mills, 74 F.2d 533 (C.A.4th Cir. 1935); Texas Eastern Transmission Corp. v. Barnard, 177 F.Supp. 123, 128-129 (D.C.E.D.Ky.1959), rev'd on other grounds, 285 F.2d 536 (C.A.6th Cir. 1960); Ilios Shipping & Trading Corp. v. American Anthracite & Bituminous Coal Corp., 148 F.Supp. 698, 700 (D.C.S.D.N.Y.), aff'd, 245 F.2d 873 (1957); Cross Properties, Inc. v. Gimbel Bros., 15 A.D.2d 913, 225 N.Y.S.2d 1014, aff'd, 12 N.Y.2d 806, 236 N.Y.S.2d 61, 187 N.E.2d 129 (1962). Cf. Isbrandtsen Tankers, Inc. v. National Marine Engineers' Beneficial Assn., Sup., 236 N.Y.S.2d 808, 811 (1962).
2. At the time of the contract and the arbitration herein, § 18 of the Rules of the American Arbitration Association, which the Court quotes, was phrased merely in terms of a 'request' that the arbitrator 'disclose any circumstances likely to create a presumption of bias or which he believes might disqualify him as an impartial Arbitrator.' In 1964, the rule was changed to provide that 'the prospective neutral Arbitrator shall disclose any circumstances likely to create a presumption of bias or which he believes might disqualify him as an impartial Arbitrator.' (Emphasis supplied.)
3. The reports on the Act make this purpose clear. H.R.Rep. No. 96, 68th Cong., 1st Sess., 1-2; S.Rep.No. 536, 68th Cong., 1st Sess., 3. Cf. Wilko v. Swan, 346 U.S. 427, 431, 74 S.Ct. 182, 184, 98 L.Ed. 168 (1953).