Case Name: In the Matter of the Arbitration between Baar & Beards, Inc., Appellant, and Oleg Cassini, Inc., Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1971-06-24
Citations: 37 A.D.2d 106
Docket Number: 
Parties: In the Matter of the Arbitration between Baar & Beards, Inc., Appellant, and Oleg Cassini, Inc., Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 37
Pages: 106–113

Head Matter:
In the Matter of the Arbitration between Baar & Beards, Inc., Appellant, and Oleg Cassini, Inc., Respondent.
First Department,
June 24, 1971.
Robert 8. Groban for appellant.
Donald 8. Engel of counsel (Booth, Lipton é Lipton, attorneys), for respondent.

Opinion:
McGivern, J.
In this article 75 proceeding, the submission reveals that the petitioner, Baar & Beards, Inc., had an exclusive licensing arrangement with Oleg Cassini, Inc., wherein the latter permitted it to use the Cassini trade-mark in connection with the manufacture and distribution of scarves. The agreement provided for arbitration. The petitioner, Baar & Beards, Inc., claiming a violation by Cassini, demanded arbitration, but since the parties could only agree upon one arbitrator, the American Arbitration Association selected the other two. Baar & Beards, Inc., through its attorney, commendably wrote to the AAA, stating that six years ago the president of Baar & Beards, Inc., Stanley Finkel, had had an attorney-client relationship with one of the arbitrators, Jules Hessen, Esq., an attorney, and a director of the AAA. The attorneys for respondent, Oleg Cassini, Inc., then wrote to the tribunal administrator of the AAA : ' in view of the information disclosed therein, we feel that Mr. Hessen is obligated to decline his appointment as arbitrator". Despite the formal objection of .Cassini, the AAA determined that Hessen would remain as an arbitrator, although the AAA, through its tribunal administrator, significantly also said: " the Association feels that it would be improper to forward said letters to the Arbitrators ".
At the hearing, Mr. Hessen, now chairman of the panel, mentioned that knowledge of the objection had been brought to his attention, that it was true he had represented the petitioner in the past, but, nevertheless, he would be fair and impartial. Thereupon, the parties signed a statement to the effect that the panel was acceptable. The arbitration resulted in a triumph for Baar & Beards, Inc.; Cassini moved to modify and clarify the award, and failing there, finally cross-moved to vacate the award on the grounds of bias, prejudice and misconduct.
Special Term has vacated the award as offensive to ' ' elemental fairness ' ', and in the interests of justice. Although this appeal presents a very, very close question, we cannot fault Special Term for high-mindedness, and we agree.
There are many tangential issues: the questionable applicability of some sections of the arbitration rules, the remoteness of the arbitrator's connection with one of the parties, whether his alleged bias touched the subject matter, and whether Cassini did not pass the point of no return by participating in the hearings. We place none of these factors in the van of our consideration. The one central issue on which this case turns, is whether or not a reasonable man would say that the challenged arbitrator, by reason of his former attorney-client relationship with cne of the parties, would give the appearance of bias or be reasonably regarded as biased. (Commonwealth Corp. v. Casualty Co., 393 U. S. 145.) In the latter case (p. 150) the court noted: " This rule of arbitration and this canon of judicial ethics rest on the premise that any tribunal permitted by law to try cases and controversies not only must be unbiased but also must avoid even the appearance of bias." (Emphasis supplied.)
Or, as our progenitors of the common law have often told us, it is just as important, not .only that justice be done, but that it be manifestly done. See: Hannam v. Bradford Corp., Court of Appeal, England, March 9, 1970, The Weekly Law Reports (vol. 1,1970, 937, 941-942): "The county court judge applied the test as to whether ' a reasonable man would say that a real danger of bias existed. ' Mr. Duncan asserted that that test was erroneous and that, anyway, no real danger existed. This court was referred to the well-known series of authorities, not all of which had been cited to the county court judge, ranging from Reg. v. Rand (1866) L.R. 1 Q.B. 230, through the case of Reg. v. Camborne Justices, Ex parte Pearce [1954] 1 Q.B. 41 to Metropolitan Properties Co. (F. G. C.) Ltd. v. Lannon [1969] 1 Q.B. 577, a recent decision of this court. It seems, however, only necessary to quote the following passages in the last-mentioned case, in which the authorities were reviewed. Lord Denning M.R., .after emphasising the importance, in relation to the points in issue, of Lord Hewart C.J. 's celebrated dictum in Rex v. Sussex Justices, Ex parte McCarthy [1924] 1 K.B. 256, 259, said, at p. 599: ' The court looks at the impression which would be given to other people. Even if he ' —the chairman of the tribunal in that case — ' was as impartial as could be, nevertheless if right-minded persons would think that, in the circumstances, there was a real likelihood of bias on his part, then he should not sit. And if he does sit, his decision cannot stand. '
' ' Then a little later, he said: ' The court will not inquire whether he did, in fact, favour one side unfairly. Suffice it that reasonable people might think he did. The reason is plain enough. Justice must be rooted in confidence: and confidence is destroyed when right-minded people go away thinking: ' ' The judge was biased." '
' ' Danckwerts L.J. propounded the question as follows, at p. 601: 1 Must there be a real likelihood that the tribunal was biased, or is it sufficient that a reasonable person would think that the tribunal might be biased? And, how should the principle expressed by Lord Hewart that " justice should not only be done, but should manifestly and undoubtedly be seen to be done " be applied in a matter of this kind? '
'1 Then, at p. 602, he decided the case on the basis: ' A person subsequently hearing of these matters might reasonably feel doubts, I think, of the chairman's impartiality. . . . ' Edmund Davies L.J. said, at p. 606: ' But I cannot bring myself to hold that a decision may properly be allowed to stand even although there is reasonable suspicion of bias on the part of one or more members of the adjudicating body. ' "
Thus, despite the " sour grapes " aspect of Cassini's position, what happened in the instant arbitration is not a good precedent; nor is it conducive to fostering confidence in the arbitration system; and in view of the undissipated charge of bias, true or not, there is something impalpable trailing behind the result herein that faintly wafts the olfactory senses. Nor is the AAA completely free from fault. Although rule 39 proscribed any communication whatsoever between an arbitrator and one of the parties, a rule specifically regarded as applicable to the present circumstances by the AAA, in its letter of July 7, 1970, this rule was clearly violated by the public avowal by the arbitrator of his personal knowledge of the Cassini objection to his sitting. Unexplained, the arbitrator was clearly the recipient of some ex parte intelligence. We note, also, that this letter of July 7, 1970, wherein the AAA proclaimed its fiat that Hessen would remain as arbitrator, was signed by a " Joseph Prizzi, Tribunal Administrator ". We observe that it might take a great deal of hardihood for any administrator to disqualify a member of the board of directors, such as Hessen.
True, at the hearing, the Cassini representatives proceeded, but then they were behind the gun, and we cannot reject nut of hand their conclusion that further protest would have been futile because Hessen, as panel chairman, at that point would not have disqualified himself anyway, since he already had the imprimatur of the AAA, of which he was a director. And, although perhaps, what took place at the hearing is beyond our technical competence, the conduct of the arbitrator casts some light on the elusive issue of actual bias, particularly the claim of Cassini that the arbitrator prejudged the agreement between the parties and peremptorily abridged the Cassini attorneys' right of summation.
In any event, we feel that if AAA had to do it all over again, Hessen would not have been continued as arbitrator in the presence .of Cassini's written objection. Without any reflection on .the integrity of the arbitrator, and we doubt it not, the inflexible determination to retain him regardless of a formal protest, known to the arbitrator, cannot be said to reflect ' ' the punctilio of an honor the most sensitive." And if such an exalted standard of conduct is expected of mere businessmen, why should it not be exacted of AAA arbitrators, dwelling, as they do, on the Mount Olympus of ethics ?
Thus, we cannot declare the conclusion of Special Term to be incorrect. And we affirm, without costs and without disbursements.