Can A Court Intervene In An Ongoing Arbitration.

The Ninth Circuit discussed the ability of a court to intervene in an ongoing arbitration in Sussex v. United States Dist. Court for the Dist. of Nev. (Ninth Cir.; January 27, 2015) 776 F.3d 1092. This was a consolidated action brought by 385 condominium purchasers against the developer. The matter was submitted to arbitration before the American Arbitration Association (AAA). After the arbitrator was appointed, the developer discovered that he had failed to disclose that he had formed a corporation that would purchase meritorious lawsuits and sell them to groups of investors and it asked the AAA to disqualify him. The AAA declined to do so after the arbitrator advised it that the corporation was dormant and had not purchased any lawsuits. The developer then moved in the District Court of Nevada to disqualify the arbitrator and the court granted the motion, citing Aerojet General Corp. v. American Arbitration Association (Ninth Cir.; April 30, 1973) 478 F.2d 248, where the Circuit Court had held that a trial court could intervene in an ongoing arbitration “in extreme cases.”

This was an extreme case, as the court was confident that any award issued by the arbitrator would be vacated on the ground of evident partiality because the arbitrator would be prone to issue a large monetary award that his corporation might purchase and resell and the parties should not be put to the delay and expense of trying such a case. The Ninth Circuit granted plaintiffs’ writ of mandamus and reversed. It noted that it had rejected court intervention in Aerojet General but had kept the door open for extreme cases “as an abundance of caution.” It found that this was not an extreme case because there was no assurance of a vacatur for evident partiality since the arbitrator’s ability to profit from a large award in favor of plaintiffs would be “attenuated” and “insubstantial” and it added that even if the arbitrator’s undisclosed activities created  a reasonable impression of partiality, the court’s concern that delays and expenses would result if an award were vacated was “manifestly inadequate” to justify a mid-arbitration intervention.