Opinion ID: 783506
Heading Depth: 2
Heading Rank: 2

Heading: Deposition of Arbitrator

Text: 32 Before reaching the ultimate question of the correctness of the District Court's vacatur of the arbitration award, we must consider whether the court erred in permitting MVL to depose the arbitrator regarding his decision-making process and in relying on his testimony in deciding to vacate the award. The District Court's decisions to permit the deposition of the arbitrator generally, and to permit questioning regarding his manifest disregard of the law in particular, are reviewed for abuse of discretion. See, e.g., Goetz v. Crosson, 41 F.3d 800, 805 (2d Cir.1994); Lyeth v. Chrysler Corp., 929 F.2d 891, 898 (2d Cir.1991) (The district court has discretion to deny discovery in a proceeding to confirm an arbitral award.). A district court abuses its discretion when (1) its decision rests on an error of law (such as application of the wrong legal principle) or a clearly erroneous factual finding, or (2) its decision — though not necessarily the product of a legal error or a clearly erroneous factual finding — cannot be located within the range of permissible decisions. Zervos v. Verizon New York, Inc., 252 F.3d 163, 169 (2d Cir.2001). 33 We begin our analysis with the well-established rule that arbitrators may not be deposed absent clear evidence of impropriety. Andros Compania Maritima, S.A. v. Marc Rich & Co., A.G., 579 F.2d 691, 702 (2d Cir.1978); see also Lyeth, 929 F.2d at 899. The impropriety relied on by MVL to support its application to depose Sherrill was the arbitrator's alleged prejudgment of the parties' dispute evidenced by his draft EBITDA calculation in November 2000. 34 The Hoefts appear to have conceded the permissibility of deposing the arbitrator regarding his alleged prejudgment of the dispute. (Tr., Sherrill Dep., Jan. 23, 2002, at 9-10.) Regardless, in light of the fact that Sherrill had performed, at the Hoefts' request and prior to the commencement of his role as arbitrator, the very calculation that was the substance of the parties' dispute, the District Court acted within its discretion in permitting MVL's counsel to depose him regarding the allegation of prejudgment. This does not mean, however, that MVL's counsel also should have been permitted to question Sherrill about the substance of his decision-making process. As it turned out, MVL's counsel did not question Sherrill regarding his alleged prejudgment of the EBITDA calculation, and MVL soon withdrew its prejudgment argument. 35 Thus, the crux of the parties' dispute regarding the deposition of the arbitrator involves the District Court's permitting MVL to examine him regarding his alleged manifest disregard of the law. Relying principally on our decision in Andros, the Hoefts argue, first, that manifest disregard of the law does not constitute the sort of impropriety about which an arbitrator could ever be deposed and, second, that even if manifest disregard were an impropriety, MVL did not present clear evidence that the arbitrator had manifestly disregarded the law. We agree with the Hoefts on both points. 36 While arbitrators may be deposed regarding claims of bias or prejudice, cases are legion in which courts have refused to permit parties to depose arbitrators — or other judicial or quasi-judicial decision-makers — regarding the thought processes underlying their decisions. For example, the Supreme Court long ago declared it wholly improper to submit the members of a state administrative board to an elaborate cross-examination with regard to the operation of their minds. Chicago, Burlington, & Quincy Ry. Co. v. Babcock, 204 U.S. 585, 593, 27 S.Ct. 326, 51 L.Ed. 636 (1907). The Court explained its decision by reference to the rules regarding the questioning of other decision-makers: 37 Jurymen cannot be called, even on a motion for a new trial in the same case, to testify to the motives and influences that led to their verdict. So, as to arbitrators. ... All the often-repeated reasons for the rule as to jurymen apply with redoubled force to the attempt, by exhibiting on cross-examination the confusion of the members' minds, to attack in another proceeding the judgment of a lay tribunal, which is intended, so far as may be, to be final, notwithstanding mistakes of fact or law. 38 Id. (emphasis added). Courts have consistently applied this rule to parties attempting to depose arbitrators regarding their decision-making processes. See, e.g., In re Nat'l Risk Underwriters, Inc., 884 F.2d 1389, 1989 WL 100649, at  (4th Cir. Aug. 22, 1989) (unpublished table decision) (granting writ of mandamus to prevent deposition of arbitrator); Sperry Int'l Trade, Inc. v. Gov't of Israel, 602 F.Supp. 1440, 1443-44 (S.D.N.Y.1985); Bliznik v. Int'l Harvester Co., 87 F.R.D. 490, 491 (N.D.Ill.1980) (noting that it would be improper to depose an arbitrator in order to inquire into the reasoning that led to his award); Reichman v. Creative Real Estate Consultants, Inc., 476 F.Supp. 1276, 1286 (S.D.N.Y.1979) (It is clear that Reichman seeks the deposition for the forbidden purpose: to probe the arbitrator's decisionmaking process.); Northwest Airlines, Inc. v. Air Line Pilots Ass'n, Int'l, 385 F.Supp. 634, 640 (D.D.C.1974) (declaring it inappropriate to attempt to probe [an arbitrator's] decisional processes), rev'd on other grounds, 530 F.2d 1048 (D.C.Cir.1976); Martin Weiner Co. v. Fred Freund Co., 2 A.D.2d 341, 155 N.Y.S.2d 802, 805 (1st Dept. 1956) (Inquisition of an arbitrator for the purpose of determining the processes by which he arrives at an award, finds no sanction in law.), aff'd, 3 N.Y.2d 806, 166 N.Y.S.2d 7, 144 N.E.2d 647 (1957). 39 An allegation that an arbitrator manifestly disregarded the law, unlike an allegation of bias or prejudgment, necessarily involves what the Reichman court appropriately dubbed the forbidden purpose: inquiring into the arbitrator's decision-making process. A manifest disregard claim involves both objective and subjective components. While the objective component looks to whether the governing law was well defined, the subjective component focuses on the substance of the arbitrator's decision-making process: whether the arbitrator was aware of the governing law, and whether he consciously decided to ignore it. See, e.g., Westerbeke Corp. v. Daihatsu Motor Co., Ltd., 304 F.3d 200, 209 (2d Cir.2002). The subjective component of the manifest disregard standard, in particular, may not properly be broached in deposing an arbitrator. That is, the parties to a confirmation or vacatur proceeding may not depose an arbitrator regarding the knowledge [that he] actually possessed, or whether he appreciate[d] the existence of a clearly governing legal principle but decide[d] to ignore or pay no attention to it. Id. (quotation marks omitted). 40 A review of the transcript of the arbitrator's deposition makes clear that the bulk of the questioning probed this forbidden terrain. For example, MVL's counsel asked the arbitrator whether he understood that he was supposed to determine EBITDA in accordance with GAAP, whether he actually took GAAP into consideration in calculating EBITDA, what he understood the parties' intentions to be, and why he reached the conclusion that he did. These questions — while relevant to the manifest disregard inquiry — were inappropriate, as they were all designed to determine the processes by which the arbitrator arrived at his award. See Martin Weiner, 155 N.Y.S.2d at 805. While it may be difficult to prove the subjective prong of the manifest disregard standard without questioning the arbitrator, this fact does not change our result. Cf. Woods v. Saturn Distribution Corp., 78 F.3d 424, 430 (9th Cir.1996) (Although it may be difficult to prove actual bias without deposing the arbitrators, deposition of arbitrators are [sic] `repeatedly condemned' by courts. (citation omitted)). Permitting depositions of arbitrators regarding their mental processes would make arbitration only the starting point in the dispute resolution process and deprive arbitration awards of the last word on their authors' intentions. See Duferco Int'l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 389 (2d Cir.2003). 41 The Fourth Circuit confronted a nearly identical issue in National Risk Underwriters. In that case, following an arbitration award, the losing party sought to depose the arbitrator on the grounds that he had disregarded both the law and the parties' agreement. Nat'l Risk Underwriters, 1989 WL 100649, at . After the district court ruled that it would permit the deposition, the Fourth Circuit granted a writ of mandamus preventing the deposition, drawing a distinction between allegations of manifest disregard and the sort of impropriety that may warrant an arbitrator's deposition. The court held, It is clear that only when a non-prevailing party makes a clear showing of the arbitrator's fraud, misconduct, or bias could the district court properly grant that party's request to depose an arbitrator. Id. at . Deposing an arbitrator regarding allegations of manifest disregard of the law, in contrast, would impermissibly interfere with the arbitral decision-making process. Id. at . 42 An arbitrator should be free to decide the dispute before him without fear that he will have to explain the basis for his decision, and how he arrived at it, at some later date. If the parties to an arbitration agreement want to know the arbitrator's reasoning, they may request that he include it in his award, as Sherrill did. Once an arbitrator issues an award, however, his role is complete and, like a judge or a jury, he may not be required to answer questions about why he reached a particular result. 43 Thus, while we do not believe that under the facts presented the District Court abused its discretion in permitting limited, judicially controlled discovery regarding the allegation that the arbitrator had prejudged the dispute, the court should not have permitted MVL's counsel to depose him regarding his decision-making process. The court, therefore, should not have relied on the arbitrator's deposition testimony — which focused exclusively on manifest disregard, not prejudgment — in determining whether he had manifestly disregarded the law in rendering his award. 3