This action challenges the validity of an arbitration decision. Petitioner, Overseas Private Investment Corporation (OPIC), insures business investments in foreign countries. Respondents, Anaconda Copper Company and Chile Copper Company (collectively Anaconda), conducted substantial operations in Chile and contracted with OPIC for protection of their assets. When the Allende government expropriated the property, respondents filed a claim for compensation in the amount of approximately $154,000,000. Pursuant to the insurance contract, a panel of three arbitrators considered the claim and unanimously found OPIC liable. OPIC, having subsequently learned that one member of the panel was negotiating an affiliation with a law firm which performed limited services related to the arbitration for respondents' counsel, petitions the court to set aside the panel's decision under 9 U.S.C. § 10 (1970). Respondents oppose the petition and cross-petition for an affirmance of the decision. Following extensive discovery, the matter now comes before the court on cross-motions for summary judgment. The court, finding no genuine issue to exist as to any material fact and respondents to be entitled to judgment as a matter of law, will grant respondents' motion.
Anaconda instituted the arbitration proceedings attacked in this action on November 30, 1972. By September 7, 1974, Mr. Davidson Sommers had been selected as an arbitrator by the parties and consented to serve on the panel. The selection of Mr. Sommers, as well as the two remaining arbitrators,
followed extensive screening by both parties, each of whom had to approve the entire panel. During the pre-selection screening period, Mr. Sommers disclosed that he had discussed the possibility of becoming affiliated with several law firms, including Anaconda's counsel, Wilmer, Cutler & Pickering, and OPIC's counsel, Leva, Hawes, Symington, Martin & Oppenheimer. Beginning in late September, 1974, Mr. Sommers entered into serious discussions with the firm of Curtis, Mallet-Prevost, Colt & Mosle. The negotiations went into a lull from December 1974 to mid-April, 1975, then steadily increased in frequency until early September 1975, when Mr. Sommers announced that he was to become "of counsel" to the Curtis firm. During this same period, the arbitration panel, which had bifurcated the case, proceeded towards resolution of the liability question, issuing its opinion on July 17, 1975.
Curtis, Mallet-Prevost's involvement in the arbitration began on December 19, 1974, when Louis Oberdorfer, lead arbitration counsel for Anaconda, contacted the firm for the purpose of obtaining a back-up translation of a document previously translated by Anaconda house counsel and obtaining an affidavit by a member of the Chilean bar on a narrow issue of Chilean law. The Curtis firm, upon learning the identity of the arbitrators, revealed to Mr. Oberdorfer that it had discussed affiliation with Mr. Sommers in the past, and could not immediately accept the assignments. After the persons conducting negotiations with Mr. Sommers were consulted, both Curtis, Mallet-Prevost and Mr. Oberdorfer concluded that the negotiations were not at a stage where a conflict of interest could arise, although the record leaves some doubt as to whether Mr. Oberdofer was told that the talks were dead or merely dormant. In any event, Curtis, Mallet-Prevost provided the new translation requested and directed Anaconda to a member of the Chilean bar who, with initial aid from the Curtis firm, provided the required affidavit.
The Curtis firms, services were completed in large part by early January, 1975, and in their entirety by February 3, 1975. The firm's bill was paid in May, 1975.
None of the foregoing activities revealed to Mr. Sommers that Curtis, Mallet-Prevost was involved in the arbitration. The firm's name appeared in the arbitration record only once, and then in connection with an opinion it had provided Anaconda in 1966 concerning provisions of the insurance contracts construed by the panel. This reference to Curtis, Mallet-Prevost is contained in a two-page handwritten memorandum introduced by OPIC as an exhibit. Mr. Sommers claims to have never seen this memorandum, which was submitted with several other exhibits.
Section ten of Title nine of the United States Code specifies the conditions under which an arbitration decision rendered pursuant to a contract involving interstate commerce must be vacated. Of special relevance to the instant case are subsection (a), which provides for vacation of awards "procured by corruption, fraud, or undue means" and subsection (b), which provides for vacation of awards where the record reveals "evident partiality or corruption in the arbitrators."
OPIC contends that the series of " ex parte contacts" between Curtis, Mallet-Prevost and Mr. Sommers and Anaconda's failure to disclose the relationship between Curtis, Mallet-Prevost and Mr. Sommers each raise substantial questions about both the means by which the decision was procured and the impartiality of the panel.
The two theories advanced by OPIC must be viewed in the light of Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 21 L. Ed. 2d 301, 89 S. Ct. 337 (1968), rehearing denied, 393 U.S. 1112, 21 L. Ed. 2d 812, 89 S. Ct. 848 (1969), the leading case on vacating arbitration awards pursuant to section 10. In Commonwealth Coatings, the Supreme Court found an arbitration award invalid because the proceedings lacked an appearance of fairness. The two parties to the arbitration challenged in Commonwealth Coatings had each selected one member of the three-man panel on their own, then mutually agreed on a third, supposedly neutral, arbitrator. Not until after the panel reached its decision did the losing party learn that the third arbitrator, an engineering consultant, was regularly retained by the prevailing party, a construction contractor. In fact, the arbitrator had performed services for the contractor on the projects involved in the arbitration. The Court, reading sections 10(a) and 10(b) together, concluded that "any tribunal permitted by law to try cases and controversies not only must be unbiased but also must avoid even the appearance of bias." Id. at 150. The failure of the arbitrator or the contractor to disclose their relationship to the other party was considered fatal to the award.
Contrary to petitioner's reading of Commonwealth Coatings, the case does not establish a per se rule, requiring vacation of any award surrounded by facts which might, in some minds, create an appearance of bias. Rather, the Court held that each case must be reviewed on its own facts and that an award should be set aside where the panel "might reasonably be thought biased. . . ." Id. at 150 (emphasis added). As Justice White's concurrence points out, the relationship between the arbitrator and the party must be "more than trivial." Id. at 152 (White, J., concurring); see South-East Coal Co. v. Consolidation Coal Co., 434 F.2d 767, 793 (6th Cir. 1970) cert. denied 402 U.S. 983, 29 L. Ed. 2d 149, 91 S. Ct. 1662, rehearing denied, 404 U.S. 877, 92 S. Ct. 28, 30 L. Ed. 2d 124 (1971); Fuller v. Highway Truck Drivers and Helpers Local 107, 428 F.2d 503, 508 (3d Cir. 1970); Brewery Workers Joint Local Executive Bd. v. P. Ballantine and Sons, 72 Lab.Cas. P13,925 at 27,928 (D.N.J. 1973). Further, the burden of proving facts which would raise doubt about the fairness of an arbitration in the mind of a reasonable man rests squarely on the party challenging the award. Reed & Martin, Inc. v. Westinghouse Electric Corp., 439 F.2d 1268, 1275 (2d Cir. 1971).
The Court's holding in Commonwealth Coatings is somewhat analogous to a per se rule insofar as it does not require a judge to probe the mind of an arbitrator, once it is established that the arbitrator actually knew of facts which could impair his judgment.
This rule merely recognizes that courts are unable to determine with any great degree of accuracy the subjective impact of knowledge on the human mind. Thus, when the record shows that an arbitrator knew of potentially prejudicial information, the court cannot conclude that there was not actual bias, and the issue must be resolved by use of a per se rule, or irrebuttable presumption, expressing a policy judgment. Per se rules are admittedly imprecise tools, but they ensure that those errors which inevitably occur are of the type least inconsistent with general policy goals. The need for these presumptions vanishes when the question is not what effect certain information had, but whether the information was ever known. Courts regularly resolve this question with such great accuracy that not only the existence of actual bias, but the appearance of bias, can be completely dispelled. Commonwealth Coatings demands no more.
Neither of OPIC's two theories raise doubts as to the fairness of the arbitration, within the meaning of Commonwealth Coatings, because they fail to prove that the arbitrator actually received prejudicial information. OPIC first contends that the series of " ex parte contacts" between Mr. Sommers and the Curtis firm create the appearance of bias because it is impossible for the court to conclude that subtle attempts to influence the arbitration were not made at these meetings. This conclusory assertion cannot sustain petitioner's burden, especially when all the evidence in the record is to the contrary. The pattern of the meetings, for instance, bears no correspondence to crucial dates in the arbitration. Indeed, the talks subsided several weeks before Curtis, Mallet-Prevost entered the case and did not resume until several months after the firm completed its assignments. Given the limited involvement of the Curtis firm in the arbitration, there is no reason to believe that the contacts with Mr. Sommers were anything but innocent and unrelated to the arbitration. Further, contacts of this nature are to be expected during the course of an arbitration. As the Court observed in Commonwealth Coatings, "Arbitrators cannot sever all their ties with the business world, since they are not expected to get all their income from their work deciding cases. . . ." 393 U.S. at 148-49. Mr. Sommers' efforts to associate himself with a respected law firm fall squarely within this statement. To hold that talks with a nonparty raise a reasonable doubt about an arbitrator's credibility because that firm was associated in a minor way with an arbitration, would force arbitrators to completely isolate themselves during the pendency of a case.
OPIC argues that Curtis, Mallet-Prevost should not be viewed as a non-party who performed minimal services for Anaconda, but should be considered full-fledged counsel for the entire arbitration. If Curtis was Anaconda's counsel, the numerous meetings with Mr. Sommers would, no doubt, create the appearance of bias. Unfortunately for OPIC, the contention that the Curtis firm was Anaconda's counsel flies in the face of the record, common sense, and normal legal practice. The Curtis firm performed very minimal tasks in a highly specialized area for a limited period of time. The firm did not appear on the record, did not assist in the planning of strategy for the overall arbitration and did not contribute to the arbitration in any way, once its tasks were completed in February, 1975. Indeed, its bill was paid in full in May, 1975, months before the proceedings reached their conclusion.
Petitioner's second theory, that failure of counsel for Anaconda to disclose its knowledge of the relationship between Mr. Sommers and Curtis, Mallet-Prevost creates an appearance of bias, is also deficient. Petitioner cites no case where an arbitration decision was overturned because of failure of a party to disclose facts not known to the arbitrator. OPIC asserts that the duty of a party to disclose potentially prejudicial information is a natural corollary of the requirement expressed in Commonwealth Coatings that arbitrators disclose such information. This proposition does not withstand prolonged scrutiny. When the existence of a potentially prejudicial relationship is not known to an arbitrator, there is no possible way in which the relationship can affect his decision. Thus, disclosure would serve no purpose. See Fuller v. Highway Truck Drivers and Helpers Local 107, 428 F.2d 503, 508 (3d Cir. 1970); Brewery Workers Joint Local Executive Bd. v. P. Ballantine and Sons, 72 Lab.Cas. P13,925 at 27,928 (D.N.J. 1973).
Even if the law did impose on parties a duty to disclose potential conflicts not known to arbitrators, counsel for Anaconda never knew any facts meriting communication. Reading the record most favorably to OPIC, it appears that Wilmer, Cutler & Pickering merely knew that Curtis, Mallet-Prevost had talked with Mr. Sommers at one time, but that the talks were dormant. This information is of little consequence. Had the talks never resumed, no charges of bias could possibly be sustained. The knowledge of the Wilmer firm remained at this level for the duration of the proceedings. Only Curtis, Mallet-Prevost knew of the escalating contacts ...