Opinion ID: 666940
Heading Depth: 2
Heading Rank: 2

Heading: Conrad's Firm's Representation of Prudential

Text: 21 Appellants claim that Conrad should have disclosed his law firm's former legal representation of Prudential Insurance Co., the owner of Appellee Pru-Bache. Appellants argue also that if Conrad did not know that Prudential Insurance Co. was a client of his firm, he should have investigated. 22 The district court rejected both contentions, holding that Conrad was not aware of the conflict and had no duty to investigate. Some courts have considered an arbitrator's lack of knowledge as a factor in determining whether evident partiality was present. See, e.g., Levine, 675 F.2d at 1201-02; Overseas Private Inv. Corp. v. Anaconda Co., 418 F.Supp. 107, 109-12 (D.D.C.1976). The district court in this case made this factor decisive. The district court's conclusion appears to be premised on the idea that no person could reasonably conclude that an arbitrator could act partially based on facts of which he was unaware. Anaconda, 418 F.Supp. at 112. This premise is Appellees' only argument on appeal regarding the evident partiality of Conrad. 23 Appellants have a better argument. Though lack of knowledge may prohibit actual bias, it does not always prohibit a reasonable impression of partiality. As Appellants argue, an arbitrator may have a duty to investigate independent of its Commonwealth Coatings duty to disclose. A violation of this independent duty to investigate may result in a failure to disclose that creates a reasonable impression of partiality under Commonwealth Coatings. For instance, the parties can expect a lawyer/arbitrator to investigate and disclose conflicts he has with actual parties to the arbitration. Close v. Motorists Mut. Ins. Co., 21 Ohio App.3d 228, 486 N.E.2d 1275 (1985) (holding that the failure to do so created a reasonable impression of partiality under Commonwealth Coatings). The NASD Code required Conrad, a lawyer, to make such an investigation regarding the actual parties to this arbitration. In the typical lawyer/arbitrator's case, lack of knowledge of a conflict may preclude a finding of actual bias. However, a reasonable impression of partiality can form when an actual conflict of interest exists and the lawyer has constructive knowledge of it. 486 N.E.2d at 1278-79. That the lawyer forgot to run a conflict check or had forgotten that he had previously represented the party is not an excuse. See In re Siegal, 153 N.Y.S.2d 673 (Sup.Ct.1956). Also, an arbitrator may not know facts of which he may have been suspicious or of which he was on notice which, if true, would create a reasonable impression of partiality if not investigated and disclosed. 24 Requiring arbitrators to make investigations in certain circumstances gives arbitrators an incentive to be forthright with the parties, honestly disclosing what arbitrators might otherwise have an incentive to hide. Commonwealth Coatings establishes that the parties rather than the arbitrators or the courts should be the judges of the partiality of arbitrators: 25 In many cases the arbitrator might believe the business relationship to be so insubstantial that to make a point of revealing it would suggest he is indeed easily swayed, and perhaps a partisan of that party. But if the law requires the disclosure, no such imputation can arise. And it is far better that the relationship be disclosed at the outset, when the parties are free to reject the arbitrator or accept him with knowledge of the relationship and continuing faith in his objectivity, than to have the relationship come to light after the arbitration, when a suspicious or disgruntled party can seize on it as a pretext for invalidating the award. The judiciary should minimize its role in arbitration as judge of the arbitrator's impartiality. That role is best consigned to the parties, who are the architects of their own arbitration process, and are far better informed of the prevailing ethical standards and reputations within their business. 26 393 U.S. at 151, 89 S.Ct. at 340 (White, J., concurring) (footnote omitted). If the parties are to be judges of the arbitrators' partiality, duties to investigate and disclose conflicts must be enforced, even if later a court finds that no actual bias was present. See Close, 486 N.E.2d at 1278-79. We therefore decline to adopt a per se rule that no reasonable impression of partiality can be found absent a showing that the arbitrator knew the facts on which it is based. 27 In this case, Conrad had a duty to investigate the conflict at issue. Section 23(a) & (b) of the NASD Code requires arbitrators to make a reasonable effort to inform themselves of any existing or past financial, business, [or] professional ... relationships [that they or their employer, partners, or business associates may have] that are likely to affect impartiality or might reasonably create an appearance of partiality or bias. Several courts have held, as we now hold, that representation of a parent corporation is likely to affect impartiality or may create an appearance of partiality in the lawyer's representation of or dealings with a subsidiary. E.g., Schlossberg v. State Bar Grievance Bd., 388 Mich. 389, 200 N.W.2d 219 (1972) (holding that a lawyer who represents subsidiaries may not sit on a board considering claims against the parent because such was an apparent conflict of interest); see, e.g., Insurance Co. of North America v. Superior Court, 108 Cal.App.3d 758, 166 Cal.Rptr. 880 (1980) (holding that a vice president of a parent was not an outsider so as to destroy the attorney-client privilege of the subsidiary by attendance at the subsidiary's directors meeting); McCourt Co. v. FPC Properties, Inc., 386 Mass. 145, 434 N.E.2d 1234 (1982) (implying that for purposes of conflict with third parties, no difference exists between parent and subsidiary); Johns-Manville Sales Corp. v. State Univ. Constr. Fund, 79 A.D.2d 782, 434 N.Y.S.2d 830 (1980) (agreeing that a possible conflict existed when a lawyer represented the subsidiary as a plaintiff and the lawyer's partner represented the parent as a defendant in other, unrelated cases); cf. In re Siegal, 153 N.Y.S.2d at 673. 3 But cf. Beck Suppliers, Inc. v. Dean Witter Reynolds, Inc., 53 Ohio App.3d 98, 558 N.E.2d 1187, 1192-93 (1988); California State Bar Standing Committee on Professional Responsibility and Conduct, Formal Opinion Number 1989-113, 1989 WL 253261, Db METH-EO. 28 Conrad therefore had a duty under the NASD Code to make a reasonable effort to inform himself of his firm's representation of Pru-Bache's parent. Conrad did nothing to fulfill that duty. Thus, though he lacked actual knowledge, he had constructive knowledge of his firm's previous representation of Prudential Insurance Co. Given Conrad's constructive knowledge and the presence of the conflict, Conrad's failure to inform the parties to the arbitration resulted in a reasonable impression of partiality under Commonwealth Coatings. See Close, 486 N.E.2d at 1278-79. 29 Conrad's evident partiality warrants vacatur of the arbitration award in this case. A finding of evident partiality in one arbitrator generally requires vacatur of the arbitration award. As stated in Wheeler v. St. Joseph Hospital, 63 Cal.App.3d 345, 133 Cal.Rptr. 775 (1976): The arbitrators are not isolated from each other; they hear and decide the case as a panel after joint discussion, debate and deliberation. Each panel member has an opportunity to persuade the others. 133 Cal.Rptr. at 793. Thus, notwithstanding a majority of an arbitration panel is required to enter any arbitration award, when one arbitrator is evidently partial, the panel's award must generally be suspect. This conclusion holds particularly when the other panel members vote with the evidently partial arbitrator, as will be the case in most awards that are later challenged.