Ethical Considerations

Sources For Guidance Regarding Ethical Rules For Arbitrators

I. Statutes

A. No Pennsylvania statute imposing specific ethical obligations

B. 42 Pa. Cons. Stat. Ann., Sections 7301-62 (1982) govern arbitration in Pennsylvania

C. 42 Pa. Cons. Stat. Ann., Section 7314 provides general parameters of permissible conduct by establishment of conditions under which the court may vacate an arbitrator’s award:

the court shall vacate an award where evident partiality by an arbitrator appointed as a neutral or corruption or misconduct in any of the arbitrators prejudicing the rights of any party.

D. 42 Pa.Cons. Stat. Ann., Section 7341 provides that a common law arbitration award may be vacated or modified when:

it is clearly shown that…fraud, misconduct, corruption, or other irregularity caused the rendition of an unjust, inequitable or unconscionable award.

II. Local Court Rules

A. E.D. Pa. Local Rules 53.2.1.D

Persons selected to be arbitrators shall be disqualified for bias or prejudice as provided in 28 U.S.C., Section 144 and shall disqualify themselves in any action in which they would be required under 28 U.S.C. section 455 to disqualify themselves if they were a justice, judge, or magistrate judge.

B. E.D. Pa. Local Rules 53.1.(B)

Federal Qualifications for Arbitrators for Eastern District of Pennsylvania

1. Member of the bar of the highest court of Pennsylvania for, at least, five years.

2. Admitted to practice before the Eastern District of Pennsylvania.

3. Determined by the Chief Judge “to be competent to be competent to perform the duties of an arbitrator”.

III. American Arbitration Association Code of Ethics

(published by the AAA governing arbitrators in commercial disputes)

A. Seven Canons of Ethics:

1. Canon I: An arbitrator should uphold the integrity and fairness of the arbitration process.

2. Canon II: An arbitrator should disclose any interest or relationship likely to affect impartiality or which create an appearance of partiality or bias.

3. Canon III: An arbitrator in communicating with the parties should avoid impropriety or the appearance of impropriety.

4. Canon IV: An arbitrator should conduct the proceedings fairly and diligently.

5. Canon V: An arbitrator should make decisions in a just, independent and deliberate manner.

6. Canon VI: An arbitrator should be faithful to the relationship of trust and confidentiality inherent in that office.

7. Canon VII: Ethical considerations relating to arbitrators appointed by one party.

NOTE: Canons 1-6 describe ethical obligations of neutral arbitrators.

Canon 7 reviews Canons 1-6 for the benefit of non-neutral party-appointed arbitrators and advises what duties they should observe and to what extent.

B. Cases quoting the American Arbitration Code of Ethics with approval by the Courts.

1. Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F. 3d 753, 759 (11th cir. 1993).

2. Metropolitan Property & Cas. Ins. Co. v. J.C. Penney Cas. Ins. Co., 780 S. Supp. 885, 892-93 (D. Comm. 1991).

3. Aetna Cas. & Surety Co. v. Gravvert, 590 A. 2 d 88, 93, (RI 1991) – AAA code “offers strong guidance” in determining appropriate standard for assessing conduct of party-appointed arbitrators.

IV. Code of Judicial Conduct

Keep in mind that an arbitration proceeding should combine an air of professionalism and formality. Arbitrators, along with all others who perform quasi-judicial functions are bound by standards that are analogous to the code of judicial conduct. SEE PHILADELPHIA LEGAL ETHICS OPINION,NO. 80-28.

1. Canon I: A judge should uphold the integrity and independence of the judiciary.

2. Canon II: A judge should avoid impropriety and the occurrence of impropriety in all of his activities.

3. Canon III: A judge should perform the duties of his office impartially and diligently.

4. Canon IV: A judge may engage in activities to improve the law, the legal system and the administration of justice.

5. Canon V: A judge should regulate his extra-judicial activity to reduce the risk of conflict with his judicial duties.

6. Canon VI: Compensation received for quasi-judicial and extra-judicial activities permitted by this code.

7. Canon VII: A judge should refrain from political activity inappropriate to his judicial office.

V. Guidelines Relating To Ethical Requirements of The Code of Judicial Conduct

A. Disqualification

1. CJC Canon 3C. regarding disqualification.

This Canon requires a judge to disqualify himself-herself in any proceeding in which his/her impartiality could be questioned including but not limited to instances where:

a. He/she has a personal bias or prejudice concerning a party or personal knowledge of disputed evidentiary facts concerning the proceeding.

b. Where he/she has served as a lawyer in a matter of controversy, or a lawyer with whom he previously practiced law, served during such association as a lawyer concerning the matter, or the judge or such lawyer has been a material witness during it.

2. Ethical opinions related to disqualification issues.

a. Pennsylvania Legal Ethics Opinion, No. 91-11 – a lawyer who represented a school district in a teacher dismissal action could not arbitrate the matter. The disqualification was imputed to other members of the lawyer’s firm as well pursuant to the rule of professional conduct 1.12.

b. Philadelphia Ethics Opinion, No. 81-87 -an arbitrator must disqualify himself if the arbitrator knows of an interest such that his or her impartiality might reasonably be questioned.

B. Impartiality

1. Canon CJC Canon 3 as in impartiality.

Under impartiality a judge should respect and comply with the law and conduct himself at all times in a manner that promotes public confidence, integrity and impartiality of the judiciary)

2. Philadelphia Legal Ethics Opinion, No. 95-8

{Judges} should disqualify themselves from any proceedings in which their impartiality might reasonably be questioned, including instances where they have a personal bias or prejudice concerning a party or personal knowledge of disputed evidentiary facts concerning the proceedings. Arbitrators take the role and fulfill the functions of judge and jury, and are required to decide cases impartially. These principles require a broad reading of Rule 3.5 to forbid ex parte communications with one appointed as an arbitrator.

3. Arbitrators must not only be impartial but must convey that impression to parties and counsel. The arbitrator must disclose any interest or relationship which might affect his or her ability to give a fair and impartial decision, and may not continue as an arbitrator once disclosure has been made unless all parties agree. Furthermore, a arbitrator should not comment on the evidence or any aspects of the proceedings as such comments might be construed as indicating bias in favor of one party or the other.

4. Parties may waive objections to an arbitrators partiality.

Donegal Ins. Co. v. Longo, 415 Pa. Super. 628, 610 a. 2d 466 (Pa. Super. 1992) – In dicta the court states “a party may waive its objection to the composition of an arbitration panel if, after learning the grounds for objection, the party, nevertheless, participates in the hearing and withholds objection until the panel renders a decision”.

5. Pennsylvania case stats advise that a party who consents to the appointment of an arbitrator knowing the arbitrators bias or impartiality cannot later object to the proceeding on the ground that partiality exits.

a. Merritt – Chapman & Scott Corp. v. Pennsylvania Turnpike Commission, 261 F. Supp. 1, affirmed 387 F. 2d 768, (MDPa 1966)- a Federal District Court ruled that plaintiff, a turnpike contractor, waived his right to object to the arbitrator’s partiality because he specifically agreed, by contract, that the disputed arbitrators were to continue to be members of the arbitration board.

b. Abramovich v. Pennsylvania Liquor Control Board, 490 Pa. 290, 416 2d 474 (Pa. 1980) – Court ruled that plaintiff did not waive right to challenge the appointment of a biased arbitrator as the partiality was challenged at the earliest opportunity and the objection was preserved for appellate review.

VI. Issues and Arbitrator Ethics; Ethical Issues That Commonly Arise In Arbitration Proceedings

A. The Neutral Arbitrator

1. A neutral arbitrator must be totally unconnected to the disputant and to the factual substance of the arbitration over which they are presiding. He or she must be strictly impartial during the proceedings and disinterested in the outcome. The neutral arbitrator is usually designated by the contract between the disputants or the determined method of appointment (e.g. appointment through the AAA).

a. Bole v. Nationwide Ins. Co., 475 Pa. 187, 379 A 2d 1346 (Pa. 1977)- Supreme Court held that insurance company’ appointment of its former lawyer violated the contract provision requiring appointment of “disinterested” arbitrators. The prior representation of one of the parties by a designated arbitrator disqualified that arbitrator upon the objection of the opposing party.

b. Whiting v. Nationwide Mutual Ins. Co., 229 Pa. Super. 162, 323, A 2d 331 (Pa. Super. 1974) – The Superior Court upheld the appointment of an American Arbitration Association arbitrator despite the fact that his insurance litigation practice constituted 90% defense work, because the lawyer’s practice had changed since designation as “neutral” arbitrator and lawyer was unaware of designation.

c. Munson v. Dury Clothing, Co., 33 Pa. D & C. 2D 450 (1964) – Disqualified officer and shareholder of corporation acting as “disinterested” arbitrator in an arbitration in which the corporation was a party.

2. The neutral arbitrator has an obligation to disclose any prior contacts with the parties to the arbitration.

a. Commentary to Canon II of the American Arbitration Code states that persons serving as Arbitrators should disclose:

(1). Any direct or indirect financial interest in the outcome of the arbitration; and

(2). Any existing or past financial, business, professional, family or social relationships which are likely to affect in partiality or which might reasonably create an appearance of partiality or bias. Persons requested to serve as a arbitrators should disclose any such relationships which they personally have with any party or its lawyer, or with any individual whom they have been told will be a witness. They should, also, disclose any such relationships involving members of their family or their current employers, partner or business associates.

b. Commonwealth Coatings Corp. v. Continental Casualty Co., 393 US 145, 89 S.Ct 337, 21 L.Ed. 2d 301 (1968) – Supreme Court of United States vacated an arbitration award when the “neutral” arbitrator failed to disclose his prior business relations with one of the parties to the arbitration.

c. Bole v. Nationwide Ins. Co., 475 Pa. 187 379 A. 2d 1346 (Pa. 1977) – Husband and “neutral” arbitrators obligated to disclose any relationships with parties that would possibly indicate bias. In this case, an arbitrator previously represented a party and was disqualified.

d. Keystone Ins. Co. Appeal, 222 Pa. Super. 404, 307 82d 55 (Pa. Super. 1973) – American Arbitration Association designated “neutral” arbitrator who failed to disclose his prior and continued representation of a party to arbitration was disqualified.

e. James Morrisey, Inc. v. Gross Construction Co., 297 Pa. Super. 151, 443 A2d 344 (Pa. Super. 1982) – Court vacated an arbitration award when the arbitrator was a long time business associate of one of the parties.

f. Abramovich v. Pennsylvania Liquor Control Board, 490 Pa. 290, 416 A 2d 474 (Pa. 1980) – Deputy attorney general failed to disclose that he had acted as legal counsel to the Pennsylvania Liquor Control Board and when he later revealed this information, the deputy refused to disqualify himself and entered an award in favor of the Liquor Control Board. The court vacated the award for his failure to disclose and failure to meet the requirements in partiality.

g. Pennsylvania Legal Ethics Opinion, No. 96-180. Lawyer should not accept appointment as arbitrator on behalf of insurer when the attorney has ongoing attorney-client relationship with same insurer, absent disclosure and consent of opposing party.

Attorney can serve as arbitrator on behalf of insured plaintiff in the insured’s UM/UIM claim against an insurer when that attorney has represented unrelated plaintiffs in actions against insured of that insurer.

B. Confidentiality. An arbitrator must keep the confidences of the parties to an arbitration.

1. AAA Code Canon VI, Comment

Unless otherwise agreed by the parties, or required by applicable rules or laws, an arbitrator should keep confidential all matters relating to the arbitration proceedings and decisions.

2. AAA Code Canon VI, Comment

An arbitrator is in a relationship of trust to the parties and should not, at anytime, use confidential information acquired during the arbitration proceedings to gain personal advantage or advantage for others, or to affect adversely the interest of another.

C. Appearance Of Impropriety.

1. CJC 2B – A judge should not allow his family, social or other relationship to influence his judicial conduct or judgment. He should not lend the prestige of his office to advance the private interest of others; nor should he convey or knowingly permit others to convey the impression that they are in a special position to influence him.

2. AAA Code Canon 3 provides that “an arbitrator in communicating with the parties avoid impropriety or the appearance of impropriety”.

3. AAA Code Canon 3 Comment

Provides that an arbitrator should communicate simultaneously with both parties and if the arbitrator received written communication from one party that has not been sent to the other, the arbitrator must do so.

D. Ex Parte Communication – Neutral arbitrators have a ethical duty to avoid ex parte contract with the party. No. 1 Rule of Professional Conduct 3.5 states that a lawyer “shall not communicate ex parte with a judge except if permitted by law.

1. CJC Canon 3.A.(4) states that a judge should “except if authorized by law, neither initiate nor consider ex parte or other communications concerning the pending or impending proceeding”.

2. Philadelphia Legal Ethics Opinion, No.95.8 states that a lawyer may not communicate ex parte with an arbitrator unless both parties agree to permit such communication or the arbitration rules, otherwise, allow them.

3. Nicholson Co. v. Pennsy Supply, Inc., 524 A. 2D 520 (Pa. Super. Ct. 1987) – The ex parte presentation of post-hearing evidence to an arbitrator was not permitted.

Note: A personal or professional relationship between the arbitrators is not usually considered a conflict – See In re: Andros Compania Maritima v. Marc Rich and Co., Cali. 579 F. 2d 691 (1978).

E. The Non-neutral Arbitrator

Non-neutral Arbitrators are party appointed. They perform a quasi-judicial function and must remain sufficiently impartial to do the job, yet they are expected to sympathize with and even advocate a favorable result for the party appointing them. They have a delicate balancing task.

1. Generally appointed in arbitrations involving three arbitrators, where each party picks their own whose task is to pick the third arbitrator.

2. Munson v. Dury Clothing Co., Inc., 33 Pa.D.&C.2d 450 (1964) – strict view that even party-appointed arbitrators must be neutral, disinterested and not connected to the appointing party; court held that officer and shareholder of a company is not qualified to serve as arbitrator in court ordered proceeding. This case is fact specific.

3. City of Erie v. Fraternal Order of Police, 57 Pa. D.&C.2d 779 (1971)- a party appointed arbitrator cannot be disqualified only because of his relationship to the appointer. Erie unsuccessfully sought to disqualify the selection of the F.O.P. national president as the chosen arbitrator by the Fraternal Order of Police.

4. Astoria Medical Group v. Health Ins. Plan, 11 N.Y. 2d 128, 182 N.E. 2d 85 (N.Y. 1962) – Contract provided that each party select its own arbitrator and the third would be selected by agreement. Defendants selected past president of the insurance company who was presently on board of directors. Plaintiffs unsuccessfully sought to disqualify. Munson holding rejected. Court stated that “the very reason each of the parties contracts for the choice of his own arbitrator is to make certain that his ‘side’ will, in a sense, be represented on the tribunal.” This reasoning was adopted by subsequent cases, e.g. Borough of New Cumberlan v. Police employees, 503 Pa. 16, 467 A.2d 1294 (Pa. 1983), where Pa. Supreme Court rejected the argument that an arbitration award was void merely because the arbitration panel included partisan arbitrators. Court noted that statute expressly stated that party-appointed arbitrators were “representing” the parties.

5. AAA Canon VII suggests framework for balancing impartiality with the notion that party appointed arbitrators should actively represent the interests of the party selecting them.

Non-neutral arbitrators may be predisposed toward the party who appointed them but in all other respects are obligated to act in good faith and with integrity and fairness. For example, non-neutral arbitrators should not engage in delaying tactics of harassment of any party or witness and should not knowingly make untrue or misleading statements to the other arbitrators.

6. Philadelphia legal ethics opinion, No. 95-8

Lawyers may make ex parte contact with a party-appointed arbitrator to discuss the nature of the claim when parties have waived the ban on such communication. Written waiver recommended.

F. Advertising/Solicitation

1. Arbitrators who are lawyers must comply with Rules of Professional Conduct governing advertising – Rules 7.1-7.5.

2. New Jersey Legal Ethics Opinion, No. 676 – Lawyer who offered arbitration services as part of his law practice did not engage in ancillary business and could undertake services in same location and advertise jointly.

G. Bias

Zuckerman v. Parkview Hosp. Inc., 428 Pa. 138, 236 A.2d 761 (Pa. 1968) – Court held that chairman of arbitration board was not biased or prejudiced simply because he hired counsel when a party to the arbitration sought an injunction against reconvening of the arbitration board.

H. Fees

Aetna Cas. & Surety Co. v. Grabbert, 590 A.2d 88 (R.I. 1988) – Court held that arbitrator was improperly paid a contingent fee based on the amount of the award.

I. Scope

Theodore C. Wills Company, Inc. v. School District of the Boyertown Area, 2003 Pa. Super. 461 (2003) – Court held that in a proceeding to stay or compel arbitration, the question of whether the parties agreed to arbitrate is generally one for the courts and not arbitrator, but resolution of procedural questions, including whether the invocation of arbitration was proper or timely is left to the arbitrator. Unless limitation on authority is imposed by the parties, the arbitrator may decide all matters necessary to dispose of disputed claims.