In US Electronics, Inc. v Sirius Satellite Radio, Inc., 958 N.E.2d 891 (N.Y. 2011), US Electronics (USE) and Sirius entered into a non-exclusive distribution agreement. After a breach of contract dispute arose, the parties went to arbitration and the arbitrators rendered a unanimous award in favour of Sirius. USE then sought to vacate the award in a New York state court.

In seeking to vacate the award, USE argued that the chairman of the tribunal failed to disclose relationships affecting the impartiality and propriety of the arbitration. USE referred to two specific incidents, based on the fact that the chairman's son was:

The New York Appellate Division, the intermediate appellate court, found that there was no basis to vacate the arbitration award. It explained that USE had to prove with clear and convincing evidence that the relationships the chairman failed to disclose prejudiced its rights, and USE failed to meet its burden.

The New York Court of Appeals found that the Appellate Division was correct in refusing to vacate the award, but had applied the wrong standard. The court explained that the Federal Arbitration Act (FAA) governed the motion to vacate, and the standard applied by the Appellate Division was not based on any federal precedent. Under the FAA, an arbitral award can be vacated based on "evident partiality" of an arbitrator.

To determine whether there was evident partiality, the court adopted the Second Circuit reasonable person standard. The reasonable person standard states that evident partiality "will be found where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration". The court explained that this standard properly balances the concern that courts will threaten the role of arbitration in settling commercial disputes, with the court's duty to ensure that parties are treated fairly. The standard requires more than "a mere appearance of bias" but accounts for the fact that parties can rarely prove actual bias.

In this case, the court found that USE did not meet its burden of proof by meeting the high threshold required to vacate an award. The relationships cited by USE did not affect the breach of contract dispute and were "too tenuous" to support an inference of bias. The court explained that this was only speculation of bias and did not warrant vacating the award.

This case demonstrates the application of the FAA in state court proceedings and shows that the high threshold required to vacate an arbitral award is applied by both federal and state courts to promote the federal policy favoring arbitration.