New York State Legislature Considers Adding Vacatur Ground

Thanks to the Securities Arbitration Commentator’s Arbitration Alert service, I recently learned that the New York State Legislature is considering legislation to amend New York’s arbitration law to add a specific bias ground for vacatur.  The bill already passed through the State Assembly as A7002A-2011, and has now been introduced in the State Senate as S. 5798-2011.  The bill would amend New York’s Civil Practice Law & Rules §7511(b)(1)(ii) on Award vacaturs to state (new language in ALL CAPS):

(ii) partiality of an arbitrator appointed as a neutral, except where the award was by confession; OR WHERE THE ARBITRATOR HAS BEEN AFFILIATED IN ANY WAY WITH ANY PARTY TO THE ARBITRATION, OR ANY OF ITS SUBSIDIARIES OR AFFILIATES; OR WHERE THE ARBITRATOR HAS A FINANCIAL INTEREST, DIRECTLY OR INDIRECTLY, IN ANY PARTY OR IN THE OUTCOME OF THE ARBITRATION; or…

SAC further reports:

A memo to the Senate Bill offers a two-paragraph “justification” for the legislation. The statement makes the broad assertion that arbitration has become “a sword to wield against parties of lesser means rather than a shield to wield against unnecessary litigation;” this proposal, then, is intended to codify the principle that arbitration “occurs in front of a neutral third party….” The statement of justification further implies that vacatur will be automatic, i.e., that the movant will not have a further burden to prove bias, where the stated conditions are found to exist.  

SAC Ref. No. 2011-28-01. 

This could be an important development in arbitration law in New York.  Of course, if it passes, it will surely raise thorny issues of Federal Arbitration Act preemption of state law vacatur grounds, legal issues which are as complex as they can get involving the intersection of principles of federal jurisdiction, federal preemption, the FAA and civil procedure.  Stay tuned for further developments on the status of this proposed legislation. 

JG

One thought on “New York State Legislature Considers Adding Vacatur Ground”

  1. Great find Professor, but that language is a concern. “WHERE THE ARBITRATOR HAS BEEN AFFILIATED IN ANY WAY WITH ANY PARTY TO THE ARBITRATION, OR ANY OF ITS SUBSIDIARIES OR AFFILIATES” is going to be a problem. What does “affiliated” mean, and what are we to do with the “has been.” On the securities arbitration side, we have hundreds, if not thousands of arbitrators who “have been affiliated” with a particular brokerage firm. This bill would seem to prevent someone from sitting as an arbitrator on a Merrill Lynch case if she worked for Bank of America 20 years ago.

    The sentiment is great, and I completely agree, but they need to tighten up that language, or we will see a sharp increase in the number of motions to vacate.

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