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467Re: Recusaciones - Obligación de revelar

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    Jul 3, 2011
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      Acompaño una interesante nota que fue enviada por el doctor Eduardo Zuleta sobre una decisión de la Corte de Apelaciones del Segundo Circuito de los Estados Unidos sobre una recusación por una alegada omisión de revelar información. Se alegaba que el hecho de que el árbitro no había revelado su experiencia previa como testigo experto en un caso semejante era motivo de recusación.  La Corte señala que para que efectivamente existiera reproche a la conducta del árbitro es necesario que "that a one-sided employment history demonstrates a predisposition that must be disclosed under that provision or some other – Credit Suisse’s claim still fails. Credit Suisse has not shown that Duval’s experience was one-sided"

      --- On Wed, 6/29/11, Eduardo Zuleta J <ezuleta@...> wrote:

      From: Eduardo Zuleta J <ezuleta@...>
      Subject: Recusaciones - Obligación de revelar
      To: jpcm2001@...
      Date: Wednesday, June 29, 2011, 11:15 AM

      Estimado Juan Pablo, transcribo la nota recibida de Mark Kantor sobre una interesante decisión de la Corte de Apelaciones del Segundo Circuito sobre el deber de revelación de los árbitros. Un abrazo, Eduardo
      Early this month, the US Second Circuit Court of Appeals released an interesting opinion on arbitrator disclosure and award vacatur in the case of STMicroelectronics, N.V. v. Credit Suisse Securities (USA), LLC, Docket No. 10-3847-cv (June 2, 2011).  The Court of Appeals rejected a claim by Credit Suisse that failure by an arbitrator (John J. Duval, Sr.) to fully disclose prior expert witness engagements constituted evidence of “predisposition” sufficient to justify vacatur under US Federal Arbitration Act § 10(a)(3) as “other misbehavior by which the rights of any party have been prejudiced.”  [That claim of “other misbehavior” by non-disclosure rather than “evident partiality” was apparently the first of its kind.]  The Court also rejected the underlying premise of Credit Suisse’s challenge, that an arbitrator’s “predisposition on legal issues” justified vacatur.  The question of “predisposition” is of course a hot topic in international arbitration.
      The ST v. Credit Suisse case involved a FINRA securities arbitration in which ST claimed Credit Suisse had breached US securities laws, engaged in fraud and made misrepresentations in connection with trades of Auction Rate Securities (ARS), by covering up trading in non-government backed ARS despite instructions to trade only in government-backed ARS.   The ARS auctions failed in the midst of the US financial collapse.  “For these actions and others, the two Credit Suisse brokers responsible for ST’s account were later convicted, one by plea and one by jury verdict, of securities fraud and related conspiracy charges.”
      In the FINRA arbitration, the arbitrators held in favor of ST.
      “The arbitrators’ award effectively undid the trades: ST would return the failed securities (with a par value of $414,975,000) to Credit Suisse upon the latter’s payment of $400 million in compensatory damages, plus $1.5 million in financing fees, $3 million to cover ST’s attorneys and expert witnesses, and interest (offset, at least prior to December 31, 2008, by the amount of interest the securities paid to ST).”
      When ST sought confirmation of the award in the US courts, Credit Suisse requested instead vacatur of the award for non-disclosure by arbitrator Duval, alleging that:
      ““[w]hile Duval has served extensively and almost exclusively as a professional claimant-side expert witness [that is, as a witness for customers arbitrating against financial firms], his disclosure report omitted all but a brief reference to his claimant-side experience and instead misleadingly stated that he worked for ‘both sides.’” Credit Suisse further contends that Duval “chose not to disclose that he had served as a claimant-side expert witness on an issue very similar to the one that would determine the arbitration.””
      Most efforts in the US courts to vacate an arbitration award under FAA § 10(a)(2) for arbitrator non-disclosure rely on an argument that the arbitrator’s failure to disclose constituted “evident partiality.”  In this case, though, Credit Suisse attacked the arbitration award on the basis that the non-disclosures justified vacatur as “other misbehavior by which the rights of any party have been prejudiced.” 9 U.S.C. § 10(a)(3).  The Court of Appeals explained why Credit Suisse approached the matter in that fashion.
      “Following issuance of an arbitration award, § 9 of the Federal Arbitration Act (“FAA”) provides that a party may apply to a district court “for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title.” 9 U.S.C. § 9.  Section 10 of the FAA, in turn, lists grounds for vacating an order, see Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 582 (2008), including, most relevantly to this argument, “evident partiality or corruption in the arbitrators” and “other misbehavior by which the rights of any party have been prejudiced.” 9 U.S.C. § 10(a)(2), (3).
      During arbitration, Credit Suisse invoked the first of these provisions, complaining that Duval’s incomplete disclosure demonstrated “evident partiality.” Cf. 9 U.S.C. § 10(a)(2); Commonwealth Coatings Corp. v. Cont’l Cas. Co., 393 U.S. 145, 147 (1968).  Before the district court and this Court, however, Credit Suisse maintains the same objection but shifts to a more novel theory, disclaiming “evident partiality” and instead relying on the FAA’s catch-all for “other misbehavior by which the rights of any party have been prejudiced.” 9 U.S.C. § 10(a)(3).  Credit Suisse does not cite any cases, nor are we aware of any, that have addressed claims of insufficient disclosure under the “other misbehavior” prong.
      There is a reason for Credit Suisse’s switch: as it now acknowledges, the decisions under § 10(a)(2)’s “evident partiality” provision have “addresse[d] non-disclosure only of facts bearing on partiality – namely, a relationship with a party, a lawyer, or another arbitrator.” Credit Suisse’s contention, however, is that Duval failed to disclose (and, in fact, affirmatively misrepresented) facts bearing not on partiality but on an alleged predisposition.”
      The appellate court rejected this argument for factual reasons.
      “Close consideration turns up very little factual support for Credit Suisse’s claim of improper disclosure – too little to vacate the award under any conceivable legal standard. ….  Even if we assume several hotly contested legal issues in Credit Suisse’s favor – that the “other misbehavior” clause in 9 U.S.C. § 10(a)(3) extends to insufficient disclosure, that violation of the FINRA rules necessarily constitutes such “other misbehavior,” and that a one-sided employment history demonstrates a predisposition that must be disclosed under that provision or some other – Credit Suisse’s claim still fails. Credit Suisse has not shown that Duval’s experience was one-sided. Failure to disclose Duval’s full experience thus could not have been “misbehavior” of any sort, much less the “other misbehavior” that would trigger § 10(a)(3).”
      Notably, however, the Second Circuit also addressed the question of arbitrator “predisposition” on legal issues, which of course has arisen in investment arbitration commentary and awards.  The Court of Appeals stated that a judge’s lack of predisposition on questions of law is not required, and “’[t]his is all the more true for arbitrators.”
      “More fundamentally, the major premise of Credit Suisse’s attack on Duval’s nondisclosure of his prior testimony fails. There is no contention here that Duval had any prior knowledge of, or misconception about, the facts of this case.  Credit Suisse’s argument, rather, is that his testimony suggests he had pre-existing views about potentially relevant propositions of law.  However, “[a] judge’s lack of predisposition regarding the relevant legal issues in a case has never been thought a necessary component of equal justice, and with good reason.  For one thing, it is virtually impossible to find a judge who does not have preconceptions about the law.” Repub. Party of Minn. v. White, 536 U.S. 765, 777 (2002). This is all the more true for arbitrators, “[t]he most sought-after” of whom “are those who are prominent and experienced members of the specific business community in which the dispute to be arbitrated arose.” Int’l Produce, Inc. v. A/S Rosshavet, 638 F.2d 548, 552 (2d Cir. 1981).  Arbitrator Duval played that very role on this panel, as the “non-public arbitrator” specifically chosen for his industry connection. See FINRA Rule 12100(p).  It would be strange if such an arbitrator were forced to search the record of all prior testimony for any statement that might – however tangentially – relate to any of the many legal issues that might arise in any given case.  A party might like to know that information when shopping for arbitrators, but its absence cannot form a ground for vacating an arbitral award.  The rule for which Credit Suisse contends finds no support in the text of the FAA or the case law, and we reject it.” (footnotes omitted)
      The Second Circuit decision in STMicroelectronics v. Credit Suisse is thus unique in considering whether arbitrator non-disclosure constitutes “other misbehavior” justifying vacatur under the FAA.  It is also unique in addressing whether an arbitrator’s “predisposition on legal issues” is a basis for vacatur of an arbitration award.  Wearing my hat as Editor-in-Chief of TDM, I therefore invite OGEMID and YO participants to consider submitting an article about this case and its relation to arbitrator disclosure duties under US law and elsewhere.
      I hope this is useful.
      Eduardo Zuleta J. 
      Socio / Partner 
      Descripción: cid:443343920@03062011-0C70
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