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Tuesday, August 03, 2004

Court refuses to vacate arbitration award. Surprise! Tatung Co. lost an arbitration to Lucent Technologies Inc. to the tune of $12,551,613 plus interest. It decided its next step was to attack the arbitrators. First, it complained that it did not receive a disclosure form that revealed that one of the arbitrators had been a litigation consultant to Lucent in an unrelated case. Second, it argued that it had not been revealed that two of the arbitrators had owned an airplane together from 1974 to 1990. The district court confirmed the award, stating that Tatung's argument was "a classic example of a losing party seizing upon a pretext for invalidating the [arbitration award]." The District Court found that vacatur of the award would serve no public purpose in a case where the disclosure was made to the AAA, but not forwarded to the parties. Finally, the Court found that the disclosures were not such as would suggest partiality or warrant vacating the award.

The Second Circuit agreed. While the Court agreed that where an arbitrator hid a conflict, such action might suggest evident partiality so as to warrant vacatur. But that rule must be applied on a case by case basis. Where the arbitrator made the disclosure, even though the AAA did not follow through, no presumption of bias can be made. And requiring vacatur whenever a disclosure was accidently not made would run counter to the policy of encouraging and supporting arbitration. The Court also noted that Tatung knew of the policy of providing disclosures, yet it never asked about the missing disclosure until after it lost.

The Court further agreed with the District Court that the joint ownership of an airplane by two of the arbitrators, which ended over a decade ago, was too insubstantial to warrant vacatur of the award.

Finally, the Court agreed with the District Court that the fact that an arbitrator served as a litigation consultant for Lucent in an unrelated case did not warrant vacatur. The arbitrator's relationship had materially ended before Lucent appointed him an arbitrator.

Tatung had asked the Second Circuit for leave to take discovery regarding the conflict if it did not vacate the award. Becasue Tatung had not sought that relief from the District Court, the Second Circuit declined to do so.

The decision in Lucent Technologies Inc. v. Tatung Co. can be found here.

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