Fifth Circuit Rules that Arbitrator Bias Issue Must be Raised Before the Arbitration Award Is Rendered

In Dealer Computer Servs. v. Michael Motor Co., No. 11-20053 (5th Cir. Aug. 14, 2012) Dealer Computer Services (“DCS”) provides hardware maintenance, software support, and computer hardware to automobile dealer Michael Motor Company (“MMC”). Their hardware and service contract contained an arbitration clause requiring the parties to resolve disputes in accordance with the Commercial Rules of the American Arbitration Association (“AAA”).

A dispute arose in 2006 and MMC filed a demand for arbitration. Each of the parties chose one arbitrator and the two arbitrators selected a third one (Ms. Carol Butner). The panel found unanimous for DCS. MMC moved to vacate, alleging “evident partiality” by Butner. Specifically, MMC alleged that Butner did not disclose that she was an arbitrator on the Venus Ford arbitration panel, which considered similar contract language and heard from the same damages expert as in the MMC proceedings.

The district found that “because of her prior experience serving on the Venus Ford panel, Butner’s conduct created a “reasonable impression of bias” and rose to the level of “evident partiality” as interpreted in Positive Software Solutions, Inc., v. New Century Mortg. Corp., 476 F.3d 278 (5th Cir. 2007) (en banc).”

The Fifth Circuit disagreed with the district court conclusions. The Fifth Circuit found that Butner’s disclosures were sufficient to put MMC on notice of a potential conflict. Furthermore, the Fifth Circuit said that because MMC failed to before the rendering of the arbitration award, its objections to Butner’s partiality were waived. Accordingly, the Fifth Circuit vacated the district court’s orders and remanded with instructions to confirm the arbitration award.