ANR Coal Co., Inc. v. Cogentrix of North Carolina, Inc.

• Decision Date: 01 April 1999
• Docket Number: No. 98-1753,98-1753
• Citation: 173 F.3d 493
• Parties: ANR COAL COMPANY, INCORPORATED, Plaintiff-Appellee, v. COGENTRIX OF NORTH CAROLINA, INCORPORATED, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 493

173 F.3d 493

ANR COAL COMPANY, INCORPORATED, Plaintiff-Appellee, v. COGENTRIX OF NORTH CAROLINA, INCORPORATED, Defendant-Appellant.

No. 98-1753.

United States Court of Appeals Fourth Circuit.

Argued Jan. 26, 1999.

Decided April 1, 1999.

ARGUED: John G. Kester, Williams & Connolly, Washington, D.C., for Appellant. Barbara Kathryn Polich, Parsons, Behle & Latimer, Salt Lake City, Utah, for Appellee. ON BRIEF: James T. Fuller, III, Julia B. Shelton, Williams & Connolly, Washington, D.C., for Appellant. Lee A. Spinks, Cynthia V. McNeely, Poyner & Spruill, L.L.C., Charlotte, North Carolina, for Appellee.

Before ERVIN, MOTZ, and TRAXLER, Circuit Judges.

OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

The magistrate judge in this case vacated an arbitration award, finding that the arbitrator's failure to reveal certain matters violated his "duty to disclose." Because an arbitrator's failure to disclose, in and of itself, provides no basis to vacate an award, and because the facts here do not demonstrate evident partiality by the arbitrator, we must reverse.

I.

This dispute arises from a coal sales contract between Cogentrix of North Carolina, Inc. and Coastal Coal Sales, Inc., the predecessor in interest of ANR Coal Company, Inc. (collectively "ANR"). Under this contract, Cogentrix agreed to purchase coal from ANR for Cogentrix's Southport, North Carolina facility. Cogentrix used the coal to generate electric power, which it, in turn, sold to Carolina Power & Light Co. Originally, Carolina Power agreed to purchase all of the electric power generated at the Cogentrix Southport facility. Cogentrix and Carolina Power renegotiated their agreement, however, to provide that Carolina Power was no longer obligated to purchase all of the electric power generated at that facility. For this reason, Cogentrix determined that it would have to reduce its electrical power output and, accordingly, sought to decrease its coal purchases from ANR. Asserting that Cogentrix's attempt to reduce its purchases of coal violated the coal sales contract, ANR initiated arbitration to resolve the dispute.

The coal sales contract between Cogentrix and ANR permitted each party to select one arbitrator, with the final arbitrator to be chosen by the other two arbitrators. Cogentrix and ANR each selected an arbitrator, but initially those arbitrators could not agree on a neutral third arbitrator. In accordance with the American Arbitration Association (AAA) Commercial Arbitration Rules, the AAA provided the parties with the names and qualifications of ten potential neutral arbitrators. Each side had three preemptory strikes and could also make challenges for cause. ANR objected to the list as too heavily weighted toward the utility industry, and specifically objected for cause to two potential arbitrators on the list. The AAA struck those two names from the list, as well as one name to which Cogentrix objected, and replaced them with three new names, including Wilburn Brewer, a partner at the Columbia, South Carolina law firm of Nexsen, Pruet, Jacobs & Pollard.

ANR then asked that Brewer be removed from the list for cause because his law firm represented Carolina Power. The AAA refused to take Brewer off the neutral list explaining that, although Brewer's firm represented Carolina Power in "electrocution cases ... which are sporadically filed," Brewer himself "never personally represented" Carolina Power. ANR used its three preemptory strikes, but chose not to strike Brewer. Each party then ranked the ten potential neutral arbitrator candidates; Brewer, the individual with the highest average ranking, was chosen as the neutral arbitrator.

In its December 19, 1996 letter announcing Brewer's selection as the neutral arbitrator, the AAA listed the following disclosures by Brewer:

In 1987, his firm merged with Moore & Van Allen [the firm representing Cogentrix at arbitration and on appeal] and then separated in 1988. During 1988, Mr. Brewer was ill with leukemia and not actively practicing law or involved with the firm. Through this temporary merger, Mr Brewer knows Mr. Davis [counsel in this matter for Cogentrix].

Mr. Brewer is confident that this will not affect his ability to impartially hear and determine this dispute.

Unless we are advised to the contrary by January 15, 1997, we will assume that the Parties waive any presumption of bias by the Arbitrator based on this disclosure.

ANR did not renew its request to remove Brewer.

Two months later, on February 13, 1997, the AAA sent a letter to the parties addressing scheduling; an enclosure in that letter included another, similar disclosure signed by Brewer and again stated that the failure of a party to respond by a certain date (February 24) would constitute a waiver of any presumption of bias based on the disclosure. Again, ANR did not renew its request to remove Brewer. ANR maintains that it declined to object to Brewer because "[g]iven there was no assurance the challenge would be granted, a failed challenge could potentially offend the 'neutral' arbitrator as a challenge to his integrity."

The arbitrators ruled 2-1 for Cogentrix, with Brewer in the majority. ANR contends that, after the arbitration award, it learned that Brewer's law firm had represented Carolina Power in cases involving the utility's right to deliver electric service, "contrary to the earlier disclosures ... that his firm only represented [Carolina Power] in electrocution cases." Furthermore, ANR learned that Moore & Van Allen, the law firm that represented Cogentrix in the arbitration, had also represented Cogentrix in 1988 when Moore & Van Allen was merged with Nexsen Pruet, and that in 1983 certain attorneys at Moore & Van Allen had loaned money to Cogentrix in consideration for stock warrants in the company.

ANR filed a civil complaint asking the court to vacate the arbitration award, which the magistrate judge promptly did. ¹ We review de novo an order vacating an arbitration award. See Consolidation Coal Co. v. Local 1643, United Mine Workers of America, 48 F.3d 125, 128 (4th Cir.1995). A district court's underlying factual findings will stand unless clearly erroneous. See id. The clearly erroneous rule, however, "does not protect findings 'made on the basis of the application of incorrect legal standards.' " Id. (quoting Pizzeria Uno Corp. v.Temple, 747 F.2d 1522, 1526 (4th Cir.1984)).

ANR maintains that two rationales support vacatur of the arbitration award. We discuss each in turn.

II.

First, and principally, ANR contends that Brewer's failure to disclose the full extent of his relationship to Cogentrix constitutes a basis for vacating the arbitration award. The magistrate judge apparently agreed, reasoning that Brewer violated his "duty to disclose all information regarding his present and past relations with Cogentrix and other interested parties."

Section 10 of the Federal Arbitration Act, 9 U.S.C. § 10 (1994) (the FAA), lists the grounds that may form the basis for vacatur of an arbitration award. These include proof that an award was procured by fraud, corruption, or undue means, or resulted from an arbitrator's evident partiality, corruption, misconduct, or the like. See 9 U.S.C. §§ 10(a)(1)-(3). The statute makes no mention of an arbitrator's failure to disclose information as a basis for vacating an arbitration award.

Implicitly recognizing the lack of statutory authority for vacating an award based on a failure to disclose, ANR rests its argument on the AAA Commercial Arbitration Rules, which the coal sales contract provides govern the arbitration here. ² Specifically, ANR contends that Brewer's failure to disclose violated AAA Rule 19 and that this violation requires vacatur of the arbitration award.

Rule 19 provides:

Any person appointed as neutral arbitrator shall disclose to the AAA any circumstance likely to affect impartiality, including any bias or any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their representatives. Upon receipt of such information from the arbitrator or another source, the AAA shall communicate the information to the parties and, if it deems it appropriate to do so, to the arbitrator and others.

AAA Commercial Arbitration Rule 19 (1996) (emphasis added). The language of this Rule does not require a potential arbitrator to disclose every interest or relationship with a party that could conceivably be regarded as a basis for bias. Rather, it only requires disclosure of an interest or relationship "likely to affect impartiality." Even so, ANR contends that Rule 19 imposes a "mandatory nondiscretionary" disclosure duty on an arbitrator, that Brewer violated this duty, and that this violation requires vacatur of the arbitration award.

ANR relies heavily on Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 89 S.Ct. 337, 21 L.Ed.2d 301 (1968). There, the petitioner failed to demonstrate actual bias, but the Supreme Court nonetheless vacated the arbitration award because the "neutral" arbitrator, an engineering consultant, did not reveal that one of his regular customers was a party in the arbitration. Id. at 146, 89 S.Ct. 337. Although the Commonwealth Coatings Court explicitly stated that the statutory "evident partiality" ground, 9 U.S.C. § 10(a)(2), provided the basis for its decision, it suggested that arbitrators may have the same disclosure and recusal obligations as Article III judges. 393 U.S. at 147-48, 89 S.Ct. 337. Moreover, the Court noted that "[w]hile not controlling" in the case before it (presumably because the parties did not agree to be governed by the AAA Rules) what is now AAA Rule 19 (then Rule 18) was "highly significant," because the rule demonstrated 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 149. ANR thus reads Commonwealth...