Second Circuit: Corruption Must be "Abundantly Clear" to Vacate an Award under FAA Section 10(a)(2) | Practical Law

Second Circuit: Corruption Must be "Abundantly Clear" to Vacate an Award under FAA Section 10(a)(2) | Practical Law

In Kolel Beth Yechiel Mechil v. YLL Irrevocable Trust, the US Court of Appeals for the Second Circuit established the standard for vacating an award on the ground of an arbitrator's corruption under Section 10(a)(2) of the Federal Arbitration Act (FAA).

Second Circuit: Corruption Must be "Abundantly Clear" to Vacate an Award under FAA Section 10(a)(2)

by Practical Law Litigation (US)
Published on 03 Sep 2013USA (National/Federal)
In Kolel Beth Yechiel Mechil v. YLL Irrevocable Trust, the US Court of Appeals for the Second Circuit established the standard for vacating an award on the ground of an arbitrator's corruption under Section 10(a)(2) of the Federal Arbitration Act (FAA).
In its August 30, 2013 opinion in Kolel Beth Yechiel Mechil v. YLL Irrevocable Trust, the US Court of Appeals for the Second Circuit established that the evidence must be abundantly clear to vacate an award under Section 10(a)(2) of the FAA on the ground of corruption.
In Kolel Beth, the parties submitted their dispute over the ownership of certain life insurance policies to a rabbinical arbitration panel in accordance with a written agreement. The panel consisted of two arbitrators designated by each party and a third, neutral arbitrator appointed together by the parties. No record was made of the proceedings. The panel issued an award requiring the transfer of the policies to the plaintiff. The defendants then filed a motion for vacatur based on, among other things, Section 10(a)(2) of the FAA, which allows for vacatur where there is evident partiality or corruption of the arbitrators. The defendants alleged that the third arbitrator was not neutral and unbiased. The district court denied the motion and confirmed the arbitration award.
The Second Circuit affirmed the district court's decision and articulated for the first time, the standard for vacating an award under the corruption ground of Section 10(a)(2). It held that evidence of an arbitrator's corruption must be abundantly clear to vacate an award under Section 10(a)(2). This is the same standard for vacating an award based on an arbitrator's partiality under Section 10(a)(2), or based on the use of corrupt, fraudulent or undue means to obtain an award under Section 10(a)(1).
The court then reviewed the evidence of corruption and partiality presented, and found that the evidence did not satisfy the clear and convincing standard as required. The only piece of relevant and reliable evidence was an affidavit from an impartial witness who overheard firsthand the "neutral" arbitrator promise the plaintiff a favorable ruling. The court concluded that this did not rise to the level of bias or corruption necessary to vacate an arbitration award under Section 10(a)(2) because the allegations of partiality were too remote and speculative. Therefore, the defendants failed to show any abundantly clear evidence of corruption and did not meet the high burden of proof necessary to vacate an arbitration award.
Additionally, the Second Circuit affirmed the district court's decision to deny vacatur under FAA § 10(a)(3) based on claims that the panel refused to hear material evidence. The court also affirmed the district court's denial of the defendants' motion for reconsideration of the vacatur denial.
Court documents: