This is the final installment of a three-part series.
In our first installment of this series, we met Founders One and Two, who launched a business together. Optimistic about their relationship, they did not consider how to manage disputes. This created problems when differences arose. In the second installment we observed how the Founders ended up before Your Way ADR, an informal provider lacking procedures. Without a detailed dispute resolution agreement or forum rules, the parties navigated issues that could have been avoided with an ADR provision.
Now, we explore how the lack of clear expectations on how the arbitration would proceed impacts an arbitrator’s continuing obligation to disclose relationships and consequences if they fail to do so.
The Ongoing Duty of Disclosure
The Arbitration Agreement requires a “neutral” but is silent on Arbitrator disclosures. As Your Way ADR has no protocols, parties agree to provide the Arbitrator, a lawyer, with names of counsel, parties, and witnesses, requesting the Arbitrator disclose any relationships. The Arbitrator runs a conflict check using the information provided, determining they have no required disclosures.
When hearings commence, the Arbitrator recognizes Founder One as a member of their religious congregation with whom they serve on a committee and have social contact. The Arbitrator had not realized they knew Founder One, who is known socially by a nickname different from their legal name. The Arbitrator feels they can be impartial and does not disclose the relationship to Founder Two or their counsel. Founder One, aware of the connection, did not tell their counsel. After the Arbitrator issues an award favorable to Founder One, Founder Two discovers the undisclosed connection between the Arbitrator and Founder One. They file a motion to vacate the award in federal court, to which Founder One counters with a motion to confirm the award.
Did the Arbitrator err in failing to disclose the congregation-based relationship with Founder One? Should the court vacate the award in Founder One’s favor for the Arbitrator’s failure to disclose the relationship once the Arbitrator became aware of it?
In assessing the integrity of the award, we consider (1) Rules of Professional Conduct; (2) Arbitration Agreement and Your Way ADR procedures; and (3) the Federal Arbitration Act. The first consideration is whether the Arbitrator was required to disclose this relationship; and the second consideration is whether nondisclosure jeopardized the arbitral award.
Where the Arbitrator is a lawyer, Rule 2.4 of the Pennsylvania Rules of Professional Conduct applies, providing in part:
(a) A lawyer serves as a third-party neutral when the lawyer assists two or more persons who are not clients of the lawyer to reach a resolution of a dispute or other matter that has arisen between them. Service as a third-party neutral may include service as an arbitrator, a mediator or in such other capacity as will enable the lawyer to assist the parties to resolve the matter.
Comment [2] further states, in part:
The role of a third-party neutral is not unique to lawyers, although, in some court-connected contexts, only lawyers are allowed to serve in this role or to handle certain types of cases. In performing this role, the lawyer may be subject to court rules or other law that apply either to third-party neutrals generally or to lawyers serving as third-party neutrals. Lawyer-neutrals may also be subject to various codes of ethics, such as the Code of Ethics for Arbitration in Commercial Disputes prepared by a joint committee of the American Bar Association and the American Arbitration Association … (italics added) (the “Code”).
The Code was promulgated in 1977 and has been revised and adopted by other ADR providers. The parties did not incorporate the Code in the Arbitration Agreement, and Your Way ADR has not adopted it. The Code is not binding here, but it is instructive to arbitrators considering disclosures. and abiding by its terms voluntarily would be a viable option. Under Canon I. An Arbitrator Should Uphold the Integrity and Fairness of the Arbitration Process an arbitrator should not accept appointment if they cannot “serve impartially” or “serve independently from the parties, potential witnesses, and the other arbitrators.” Under Canon II. An Arbitrator Should Disclose any Interest or Relationship Likely to Affect Impartiality or Which Might Create an Appearance of Partiality, arbitrators should disclose “[a]ny known direct or indirect financial or personal interest in the outcome of the arbitration” and “existing or past financial, business, professional or personal relationships which might reasonably affect impartiality or lack of independence in the eyes of any of the parties.” These obligations continue throughout the arbitration.
Even if the Arbitrator is not bound by the Code and does not follow it, failure to disclose relationships can still provide grounds to vacate an award. FAA Section 10 covers the potential consequences of arbitrator conduct when an award is challenged. Under Section 10(a)(2), a party may apply to the district court in which the award was issued to vacate it under specific circumstances, including “where there was evident partiality or corruption in the arbitrators, or either of them.” This provision has been considered by federal courts with varying interpretations.
In Commonwealth Coatings Corp. v. Continental Casualty. Co., 393 U.S. 145, 149, (1968), the United States Supreme Court reversed the appellate court, which affirmed district court’s decision to confirm rather than vacate an arbitral award despite nondisclosure. The Court held the award should be vacated because the arbitrator failed to “disclose to the parties dealings that might create an impression of possible bias.” The Court considered American Arbitration Association rules and Canons of Judicial Ethics then in effect, noting they were not controlling:
This rule of arbitration and this canon of judicial ethics rest on the premise that any tribunal permitted by law to try cases and controversies not only must be unbiased but also must avoid even the appearance of bias. We cannot believe that it was the purpose of Congress to authorize litigants to submit their cases and controversies to arbitration boards that might reasonably be thought biased against one litigant and favorable to another.
Concurring, Justice White, joined by Justice Marshall, explained not all undisclosed relationships require vacating an arbitration award, but “where the arbitrator has a substantial interest in a firm which has done more than trivial business with a party, that fact must be disclosed. 393 U.S. at 151-52
We focus here on some of the interesting developments in the Third Circuit. In Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503, 1523 n. 30 (1994), the U.S. Court of Appeals for the Third Circuit, applied an actual bias standard, to reverse the district court’s confirming an arbitration award, where a party challenged the arbitral award for “evident partiality on the performance of the arbitrators during the arbitration process.” Subsequently, in Crow Construction v. Jeffrey M. Brown Assoc. Inc., 264 F. Supp. 2d 217, 220 (E.D. Pa. 2003), the district court distinguished Kaplan from situations where an arbitrator did not disclose relationships. With nondisclosure, Crow held an appearance of bias test suffices to establish evident partiality to vacate an award.
Ten years later, in Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 252 (3d Cir. 2013), the Third Circuit clarified the test for evident partiality. In Freeman, affirming a Western District decision denying a motion to vacate an arbitral award, the Third Circuit held the actual bias test applied to evaluating evident partiality challenges whether based on arbitrator nondisclosure or misconduct during arbitration. The Third Circuit noted although judges may be held to an appearance standard, FAA language did not provide for less than clear bias to vacate an award. In response to the parties’ confusion, we take this opportunity to reaffirm what we said in Kaplan. An arbitrator is evidently partial only if a reasonable person would have to conclude that she was partial to one side. Id. The conclusion of bias must be ineluctable, the favorable treatment unilateral. See Andersons, 166 F.3d at 329 (“The alleged partiality must be direct, definite, and capable of demonstration.”).
This standard requires a stronger showing—namely, partiality that is evident—than does the appearance standard, and for good reason. Most importantly, the relevant statutory language indicates that the two standards should be different. See Zimmerman v. Norfolk S. Corp., 706 F.3d 170, 177–78 (3d Cir.2013) (“Statutory interpretation requires that we begin with a careful reading of the text.”). The Federal Arbitration Act requires a party to show “evident partiality.” 9 U.S.C. § 10(a)(2). The word “evident” suggests that the statute requires more than a vague appearance of bias. Rather, the arbitrator’s bias must be sufficiently obvious that a reasonable person would easily recognize it.
Many cases challenge awards for undisclosed financial relationships with a party, counsel, or another arbitrator, but that is not present here. This Arbitrator did not have a financial relationship with Founder One; it had a personal one. The issue for a court is whether there is “evident partiality” such that a reasonable person would conclude the Arbitrator was partial to Founder One. The court needs to consider frequency, nature and timing of the Arbitrator and Founder One’s dealings as members of their congregation’s committee and as social contacts. Not disclosing membership in the congregation alone would not likely be a basis to vacate the award. Founder Two should have opportunity to discover the depth of the relationship and its proximity to arbitration. For example, were the Arbitrator and Founder One participating in committee meetings or social interaction while arbitration was underway? With specifics, the court can assess whether a reasonable person would easily recognize the relationship as arbitrator bias. If that standard is met, then nondisclosure amounts to evident partiality warranting vacating the award.
Key Things to Remember
The Arbitrator realized they had a relationship with Founder One. The prudent course would be to disclose so parties could object even if the Arbitrator believed they could be impartial. Failure to disclose provided Founder Two grounds to challenge the award. Founder One should have informed their counsel of the relationship to assess whether to inform opposing counsel. If Founder Two prevails on the motion to vacate, the parties will face another hearing with attendant costs and delay. Even if the challenge fails, the parties still will have incurred costs and delays that could have been avoided. This situation also affects the Arbitrator’s reputation. It could require the Arbitrator to disgorge fees if the award is vacated and parties face hearings with a new neutral. When in doubt, candor is the best practice.
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I wish everyone a happy and healthy holiday season and look forward to sharing more in the new year. As always, I welcome suggestions of topics you would like to read about in future columns.
Francine Friedman Griesing, Founder of Griesing Law, LLC, has represented clients as an advocate in alternate dispute resolution for over 40 years and has served as a neutral arbitrator and mediator for over 30 years. She represents public and privately held companies, nonprofits, higher education and government entities in litigation, employment and ADR issues.
Reprinted with permission from the November 10, 2025 edition of the “Legal Intelligencer” © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.