Opinion ID: 201945
Heading Depth: 3
Heading Rank: 1

Heading: Arbitrator Misconduct

Text: 11 Section 10(a)(3) of the FAA lists three separate grounds for vacatur: it is appropriate [w]here the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced. 9 U.S.C. § 10(a)(3). National Casualty urges an argument based on the second ground: it complains that the panel refused to hear pertinent and material evidence, and that the refusal amounted to misconduct. 12 In this case, the arbitrators, who had been selected by the parties under the terms of a contract into which each freely entered, attempted at the behest of National Casualty to compel First State to produce the documents in question, but those documents were not ultimately produced. What is more, the arbitrators determined that they could reach a fair result if they drew an inference adverse to First State as to the contents of the withheld documents on the basis of First State's failure to produce them. National Casualty's claim is that this determination, that the case could be fairly resolved with a negative inference rather than with the evidence sought, constituted misconduct. 13 We may vacate under 10(a)(3) when an arbitrator has been guilty of misconduct in refusing to hear evidence pertinent and material to the controversy. 9 U.S.C. § 10(a)(3). Not all refusals to hear evidence are misconduct, of course. We have held instead that, under section 10(a)(3), [v]acatur is appropriate only when the exclusion of relevant evidence `so affects the rights of a party that it may be said that he was deprived of a fair hearing.' Hoteles Condado Beach, La Concha and Convention Center v. Union De Tronquistas Local 901, 763 F.2d 34, 40 (1st Cir.1985) (quoting Newark Stereotypers' Union No. 18 v. Newark Morning Ledger Co., 397 F.2d 594, 599 (3rd Cir.1968)). Our evaluation of whether a deprivation of a right to present evidence rendered a hearing unfair does not take place in a vacuum, but will be informed by the parties' understanding of what constituted a fair hearing when they entered into their contract. Here, the relevant contract provisions not only relieved the arbitrators of any obligation to follow the strict rules of law, but also released the arbitrators from all judicial formalities. In the face of a clause that broad, which makes no mention of the production obligations of the parties or of the discovery procedures to be followed, and which so fully signs over to the arbitrators the power to run the dispute resolution process unrestrained by the strict bounds of law or of judicial process, a party will have great difficulty indeed making the showing, requisite to vacatur, that their rights were prejudiced. 14 Of course, the archetypical case in which we will consider a 10(a)(3) challenge is the one most clearly contemplated by the statute, in which an arbitrator declines to take evidence proffered by a party. National Casualty directs us to no case in which an arbitrator's failure in its attempt to compel discovery constituted misconduct, and one might quibble that the term refuse could never apply to a case such as this, where the arbitrators did not refuse but rather sought to hear the evidence at issue. That literal interpretation, however, has not been the one adopted by the circuits that have had occasion to apply the law, which have taken section 10(a)(3) to authorize review for evidentiary failures broader than a simple refusal to consider evidence. See, e.g., Robbins v. Day, 954 F.2d 679 (11th Cir.1992) (court willing to consider claim that failure to compel testimony constituted refusal to hear evidence under section 10(a)(3)), overruled on other grounds by First Options of Chicago v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); Gulf Coast Indus. Workers Union v. Exxon Co., USA, 70 F.3d 847 (5th Cir.1995) (arbitrator refused to hear evidence where it misled party into thinking it need not present certain evidence). 15 We assume arguendo that, as in our sister circuits, the law in this circuit permits a party to seek vacatur under 10(a)(3) where the arbitrator has not refused to hear evidence, but has instead merely failed in its efforts to bring certain evidence into the proceedings. Even so, we find no violation of the statute here, because any failure to hear evidence did not `so affect[ ] the rights of a party that it may be said that he was deprived of a fair hearing.' The arbitrators ruled that as a result of First State's refusal to produce the requested documents, they would draw inferences against First State as to what those documents would show. This is a routine remedy, well within the arbitrator's powers. The drawing of an inference against First State in this case offset any unfairness to National Casualty that resulted from holding a hearing without giving National Casualty access to the actual documents it sought. 16 We make this evaluation in light of the contract between the parties, which, as we have noted, contemplated broad power in the arbitrator to conduct the arbitral proceedings. We note also that we have no reason here to suspect coercion or fraud in the inducement on the part of the parties, who appear to be sophisticated and capable of negotiating their business contracts in advance to protect themselves from the potential folly of any arbitrator they elect to subject their disputes to. In these circumstances, we have no difficulty holding that the procedural device the arbitration panel implemented, offering a party the choice between production and a negative inference, was well within the discretion committed to it by the parties under the FAA. 17 National Casualty's secondary argument is its assertion that the arbitrators could not have reached the results they reached if they had drawn the promised negative inference. There are several problems with this analysis, apart from the fact that its premise is false. First, this is simply an attack on the merits of the award, which National Casualty has eschewed. Second, courts do not generally review what weight arbitrators give to a single piece of evidence. Finally, arbitrators need not give specific reasons for the decisions they reach. For all of these reasons, this argument has no merit.