Arbitrator’s “Reputational Interest” In Being Appointed Again Does Not Impact His Neutrality

The Seventh Circuit Court of Appeals recently held that a court cannot consider an arbitrator’s reputational interest in being appointed again in the future when determining whether that arbitrator is “disinterested” within the meaning of the parties’ arbitration agreement. Trustmark Ins. Co. v. Hancock Life Ins. Co. (USA), __ F.3d __, 2011 WL 285156 (7th Cir. Jan. 31, 2011). In that case, two insurance companies were fighting over the scope of a reinsurance agreement, which contained an arbitration clause, and so they proceeded to AAA arbitration. The parties chose their arbitration panel in accordance with the clause’s tripartite arbitration panel requirement. When Trustmark refused to abide by the arbitration award issued by that panel, Hancock sought a second arbitration, and named the same party arbitrator that it had appointed in the first arbitration (Gurevitz). Trustmark then sought an injunction in district court precluding Hancock’s party arbitrator from hearing the second arbitration on the grounds that he was not “disinterested” as required by the arbitration clause. The district court issued the injunction and Hancock appealed.

The Court of Appeals reversed on the grounds that Trustmark had not proven “irreparable injury.” Chief Circuit Judge Easterbrook continued, “We could stop here, but the district court’s decision leaves a cloud over this arbitration and the reputation of arbitrator Gurevitz, a reputation that Trustmark seems determined to tarnish.” The Court then concluded that the party arbitrator was indeed “disinterested,” because he had no stake in the outcome of the arbitration. For a few reasons, I love this case, but primarily because Judge Easterbrook penned a sentence that I will remember for some time: “When one party is entitled to choose its own arbitrator, and in doing so follows all contractual requirements, a court ought not abet the other side’s strategy to eject its opponent’s choice.” Abet to eject?

(H.T. to the Securities Arbitration Commentator for alerting me to this opinion.)


 

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