Opinion ID: 3158349
Heading Depth: 2
Heading Rank: 1

Heading: Evident Partiality and Failure To Disclose

Text: 1) The Circuit Court Clearly Erred in Determining that Yim’s Failure To Disclose Did Not Result in Evident Partiality 21 ____ FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ____ In Nordic, we laid out the legal framework relevant to an arbitrator’s failure to disclose under HRS chapter 658A. Specifically, as acknowledged in Nordic, 136 Hawaiʻi at 44-45, 358 P.3d at 16-17, pursuant to the disclosure requirements enumerated in HRS § 658A-12, prior to accepting appointment and “after making a reasonable inquiry,” arbitrators are required to “disclose to all parties . . . any known facts that a reasonable person would consider likely to affect the impartiality of the arbitrator[.]” HRS § 658A-12(a). Arbitrators also have a “continuing obligation to disclose . . . any facts . . . learn[ed] after accepting appointment which a reasonable person would consider likely to affect the impartiality of the arbitrator.” HRS § 658A-12(b).13 If an arbitrator discloses 13 In full, HRS § 658A-12(a)-(b) (Supp. 2001) states: (a) Before accepting appointment, an individual who is requested to serve as an arbitrator, after making a reasonable inquiry, shall disclose to all parties to the agreement to arbitrate and arbitration proceeding and to any other arbitrators any known facts that a reasonable person would consider likely to affect the impartiality of the arbitrator in the arbitration proceeding, including: (1) A financial or personal interest in the outcome of the arbitration proceeding; and (2) An existing or past relationship with any of the parties to the agreement to arbitrate or the arbitration proceeding, their counsel or representatives, a witness, or another arbitrator. (b) An arbitrator has a continuing obligation (continued . . .) 22 ____ FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ____ facts that a reasonable person would consider likely to affect the impartiality of the arbitrator in the arbitration proceeding pursuant to HRS § 658A-12(a) or (b) “and a party timely objects to the appointment or continued service of the arbitrator based upon the fact disclosed, the objection may be a ground under section 658A-23(a)(2) for vacating” the award. HRS § 658A-12(c) (Supp. 2001). Similarly, if an arbitrator does not disclose a fact required to be disclosed under HRS § 658A-12(a) or (b), “upon timely objection by a party, the court under section 658A23(a)(2) may vacate an award.” HRS § 658A-12(d) (Supp. 2001). In turn, HRS § 658A-23(a)(2) provides that the court “shall vacate an award made in the arbitration proceeding” upon a motion by a party to the proceeding if, inter alia, there was “[e]vident partiality by an arbitrator appointed as a neutral arbitrator.”14 ( . . . continued) to disclose to all parties to the agreement to arbitrate and arbitration proceeding and to any other arbitrators any facts that the arbitrator learns after accepting appointment which a reasonable person would consider likely to affect the impartiality of the arbitrator. 14 In full, HRS § 658A-23(a)(2) (Supp. 2001) provides: Vacating award. (a) Upon motion to the court by a party to an arbitration proceeding, the court shall vacate an award made in the arbitration proceeding if: (continued . . .) 23 ____ FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ____ Our court first established an evident partiality standard for cases involving an arbitrator’s failure to disclose in Daiichi Hawaii Real Estate Corp. v. Lichter, where we acknowledged that “[w]hat constitutes ‘evident partiality’ sufficient to vacate an arbitration award is a difficult question.” 103 Hawaii at 339, 82 P.3d at 425 (quoting Valrose Maui, Inc. v. Maclyn Morris, Inc., 105 F. Supp. 2d 1118, 1124 (D. Haw. 2000)). In Daiichi, we considered the circuit court’s granting of a motion to vacate an arbitration award pursuant to HRS § 658-9(2), which has since been repealed. Id. at 327-28, 82 P.3d at 413-14. Under HRS § 658-9(2) (1993), a court could vacate an arbitration award “upon the application of any party to the arbitration . . . [w]here there was evident partiality . . . in the arbitrators.” We held that evident partiality is “present when undisclosed facts show ‘a reasonable impression of partiality.’” Daiichi, 103 Hawaiʻi at 339, 82 P.3d at 425 ( . . . continued) . . . . (2) There was: (A) Evident partiality by an arbitrator appointed as a neutral arbitrator; (B) Corruption by an arbitrator; or (C) Misconduct by an arbitrator prejudicing the rights of a party to the arbitration proceeding[.] 24 ____ FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ____ (emphasis added) (quoting Schmitz v. Zilveti, 20 F.3d 1043, 1046 (9th Cir. 1994)). Under this analysis, a finding of evident partiality related to a failure to disclose is not dependent on a showing that the arbitrator was actually biased, but instead stems from the nondisclosure itself. Id. at 352, 82 P.3d at 438 (citing Schmitz, 20 F.3d at 1045). We further noted that the United States Supreme Court had “emphasized the manifest importance of a neutral arbitrator disclosing ‘to the parties any dealings that might create an impression of possible bias,’” id. at 341, 82 P.3d at 427 (quoting Commonwealth Coatings Corp. v. Cont’l Cas. Co., 393 U.S. 145, 149 (1968)), but also acknowledged that “not all dealings rise to the level of creating the impression—or reality—of possible bias so as to warrant” vacatur, id. Finally, we stated that “[t]he burden of proving facts which would establish a reasonable impression of partiality rests squarely on the party challenging the award.” Id. at 339, 82 P.3d at 425 (citation omitted) (internal quotation marks omitted). As noted supra, we recently reiterated in Nordic, that evident partiality is established where “undisclosed facts demonstrate a reasonable impression of partiality.” 136 Hawaiʻi at 51, 358 P.3d at 23 (quoting Daiichi, 103 Hawaii at 340, 82 P.3d at 426) (internal quotation mark omitted). We also, for 25 ____ FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ____ the first time, explained the relationship between the standards for disclosure established in HRS § 658A-12 and a finding of evident partiality. In this respect, we determined that in the context of neutral arbitrators, “a failure to meet disclosure requirements under HRS § 658A-12(a) or (b) is equivalent to, or constitutes, ‘evident partiality’ as a matter of law.” Id. at 50, 358 P.3d at 22. Thus, in Nordic, we interpreted the standard required for disclosure under § 658A-12(a) and (b), i.e, “facts a reasonable person would find likely to affect an arbitrator’s impartiality,” as equivalent to the Daiichi evident partiality standard previously adopted by our court, i.e., undisclosed facts demonstrating a reasonable impression of impartiality.15 15 Our standard for evident partiality as well as that of the Ninth Circuit (and some other federal and state courts), requires only a “reasonable impression of partiality,” and as such, is more expansive than the standard proposed by a majority of federal circuit courts of appeal, which limit findings of evident partiality to situations “where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.” Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308, 325 (6th Cir. 1998) (citation omitted) (internal quotation marks omitted); see also Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 253 (3d Cir. 2013) (“An arbitrator is evidently partial only if a reasonable person would have to conclude that she was partial to one side.”); Ometto v. ASA Bioenergy Holding A.G., 12 CIV 1328 (JSR), 2013 WL 174259, at  (S.D.N.Y. Jan. 9, 2013) (“The requirement that this Court must perceive partiality so clearly that it ‘would have to conclude’ the arbitrator was biased before vacating the awards differs from the standard elaborated by the Ninth Circuit, which looks only for ‘an impression of possible bias.’”), aff’d, 549 F. App’x 41 (2d Cir. 2014), cert. denied, 134 S. Ct. 2877 (2014). (continued . . .) 26 ____ FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER ____ Under this framework, we now consider whether Yim’s failure to disclose his relationship with Cades resulted in a violation of HRS § 658A-12(a) or (b), or stated otherwise, whether the failure to disclose resulted in evident partiality, defined in our jurisdiction as a reasonable impression of partiality. In considering this question, we recognize that judicial review of arbitration awards is limited. Daiichi, 103 Hawaiʻi at 339, 82 P.3d at 422. However, because review of an arbitration award is limited, an arbitrator’s impartiality and appearance of impartiality is paramount. As a corollary, the ( . . . continued) Indeed, in the federal courts, there is an “absence of a consensus on the meaning of ‘evident partiality.’” Montez v. Prudential Sec., Inc., 260 F.3d 980, 983 (8th Cir. 2001). The confusion stems from the United States Supreme Court’s decision in Commonwealth Coatings. In Commonwealth Coatings, Justice Black, writing for at least four justices of the Court, held that an arbitrator’s failure to “disclose to the parties any dealings that might create an impression of possible bias” was sufficient to support vacatur. 393 U.S. at 147-49. Accordingly, the court vacated an award where a neutral arbitrator of a three-arbitrator panel failed to disclose his ongoing business relationship with one of the parties. Id. at 146-47.