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Commonwealth Coatings Corp. v. Continental Casualty Co.

Supreme Court of the United States

October 22, 1968, Argued ; November 18, 1968, Decided

No. 14

Opinion

 [*145]   [***303]   [**337]  MR. JUSTICE BLACK delivered the opinion of the Court.

 [**338]  At issue in this case is the question whether elementary requirements of impartiality taken for granted in every judicial proceeding are suspended when the parties agree to resolve a dispute through arbitration.

 [*146]  The petitioner, Commonwealth Coatings Corporation, a subcontractor, sued the sureties on the prime contractor's bond to recover money alleged to be due for a painting job. The contract for painting contained an agreement to arbitrate such controversies. Pursuant to this agreement petitioner appointed one arbitrator, the [****3]  prime contractor appointed a second, and these two together selected the third arbitrator. This third arbitrator, the supposedly neutral member of the panel, conducted a large business in Puerto Rico, in which he served as an engineering consultant for various people in connection with building construction projects. One of his regular customers in this business was the prime contractor that petitioner sued in this case. This relationship with the prime contractor was in a sense sporadic in that the arbitrator's services were used only from time to time at irregular intervals, and there had been no dealings between them for about a year immediately preceding the arbitration. Nevertheless, the prime contractor's patronage was repeated and significant, involving fees of about $ 12,000 over a period of four or five years, and the relationship even went so far as to include the rendering of services on the very projects involved in this lawsuit. An arbitration was held, but the facts concerning the close business connections between the third arbitrator and the prime contractor were unknown to petitioner and were never revealed to it by this arbitrator, by the prime contractor, or by [****4]  anyone else until after an award had been made. Petitioner challenged the award on this ground, among others, but the District Court refused to set aside the award. The Court of Appeals affirmed, 382 F.2d 1010 (C. A. 1st Cir. 1967), and we granted certiorari, 390 U.S. 979 (1968).

 In 1925 Congress enacted the United States Arbitration Act, 9 U. S. C. §§ 1-14, which sets out a comprehensive  [*147]  plan for arbitration of controversies coming under its terms, and both sides here assume that this Federal Act governs this case. Section 10, quoted below, sets out the conditions upon which awards can be vacated. 1 [****8]  The two  [***304]  courts below held, however, that § 10 could not be construed in such a way as to justify vacating the award in this case. We disagree and reverse. Section 10 does ] authorize vacation of an award where it was "procured by corruption, fraud, or undue means" or "where there [****5]  was evident partiality . . . in the arbitrators." These provisions show a desire of Congress to provide not merely for any arbitration but for an impartial one. It is true that petitioner does not charge before us that the third arbitrator was actually guilty of fraud or bias in deciding  [**339]  this case, and we have no reason, apart from the undisclosed business relationship, to suspect him of any improper motives.  But neither this arbitrator nor the prime contractor gave to petitioner even an  [*148]  intimation of the close financial relations that had existed between them for a period of years.  We have no doubt that if a litigant could show that a foreman of a jury or a judge in a court of justice had, unknown to the litigant, any such relationship, the judgment would be subject to challenge. This is shown beyond doubt by Tumey v. Ohio, 273 U.S. 510 (1927), where this Court held that a conviction could not stand because a small part of the judge's income consisted of court fees collected from convicted defendants.  Although in Tumey it appeared the amount of the judge's compensation actually depended on whether he decided for one side or [****6]  the other, that is too small a distinction to allow this manifest violation of the strict morality and fairness Congress would have expected on the part of the arbitrator and the other party in this case. Nor should it be at all relevant, as the Court of Appeals apparently thought it was here, that "the payments received were a very small part of [the arbitrator's] income . . . ." 2 For in Tumey the Court held that ] a decision should be set aside where there is "the slightest pecuniary interest" on the part of the judge, and specifically rejected the State's contention that the compensation involved there was "so small that it is not to be regarded as likely to influence improperly a judicial officer in the discharge of his duty . . . ." 3 Since in the case of courts this is a constitutional principle, we can see no basis for refusing to find the same concept in the broad statutory language that governs arbitration proceedings and provides that an award can be set aside on the basis of "evident partiality" or the use of "undue means." See also Rogers v. Schering Corp., 165 F.Supp. 295, 301 (D. C. N. J. 1958). [****7]  It is true that arbitrators cannot sever all their ties with the business world, since  [*149]  they are not  [***305]  expected to get all their income from their work deciding cases, but we should, if anything, be even more scrupulous to safeguard the impartiality of arbitrators than judges, since the former have completely free rein to decide the law as well as the facts and are not subject to appellate review. We can perceive no way in which the effectiveness of the arbitration process will be hampered by the simple requirement that arbitrators disclose to the parties any dealings that might create an impression of possible bias.

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393 U.S. 145 *; 89 S. Ct. 337 **; 21 L. Ed. 2d 301 ***; 1968 U.S. LEXIS 277 ****; 59 Lab. Cas. (CCH) P13,055

COMMONWEALTH COATINGS CORP. v. CONTINENTAL CASUALTY CO. ET AL.

Prior History:  [****1]  CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT.

Disposition:  382 F.2d 1010, reversed.

CORE TERMS

arbitrator, parties, partiality, bias, business relationship, prime contractor, impartial, innocent

Business & Corporate Compliance, Pretrial Matters, Alternative Dispute Resolution, Validity of ADR Methods, Civil Procedure, Arbitration, Federal Arbitration Act, General Overview, International Trade Law, Dispute Resolution, International Commercial Arbitration, Arbitration, Governments, Legislation, Interpretation, Legal Ethics, Judicial Conduct, Judicial Review