A per curiam opinion from the 8th Circuit last week highlights that even if an arbitration goes off the rails, the only remedy is vacating (or confirming) the award. The parties cannot recover from the administrator of the arbitration.
In Owens v. American Arbitration Association, Inc., 2016 WL 6818858 (8th Cir. Nov. 18, 2016), a terminated CEO filed for arbitration against his former company. The AAA administrated the arbitration and a three member panel was chosen. One of the arbitrators disclosed that he had been consulted in a different matter handled by the same firms that were representing the CEO and the company. No party objected to that arbitrator’s continued involvement or asked follow up questions.
The panel issued an initial award of over $3 million to the former CEO. At that point, the company moved to remove the arbitrator who had made the disclosure, alleging the disclosure was incomplete. The AAA did not have a rule or published procedure for addressing the removal of an arbitrator. It allowed the CEO to respond, but did not inform any of the arbitrators that a motion had been made or allow the arbitrator whose disclosure was at issue to respond. The AAA eventually removed the arbitrator who made the disclosure, and the remaining two arbitrators issued a final award in favor of the CEO.
The company moved to vacate the award, and a state court trial judge granted the motion. At that point, the CEO sued the AAA in Minnesota state court for “breach of contract, unjust enrichment, [and] tortious interference with contract.” The AAA removed the case to federal court, and the federal district court dismissed the claims based on arbitral immunity.
On appeal, the 8th Circuit made quick work of this messy case. It first recognized that arbitrators, like judges, have immunity. And, that immunity can extend to “organizations that sponsor arbitrations” and all of the acts within the arbitral process. Second, it cited a previous case in which the 8th Circuit concluded that “arbitral immunity bars claims against a sponsoring organization based on the appointment of a biased arbitrator.” (Even if the organization failed to follow its own rules in appointing the arbitrator.) Third, it extended that rule, concluding that the removal of arbitrators is also protected by arbitral immunity.
p.s. In honor of the all-Minnesota nature of this case, I give you a photo I took of the prize-winning giant pumpkins at the Minnesota State Fair. Happy Thanksgiving!