386 F.3d 1306 (9th Cir. 2004), 02-56381, Fidelity Federal Bank, FSB v. Durga Ma Corp.

Docket Nº:02-56381, 02-56548.
Citation:386 F.3d 1306
Party Name:FIDELITY FEDERAL BANK, FSB, a federally chartered savings bank, Petitioner-Appellant, v. DURGA MA CORPORATION, a New Jersey corporation, Respondent-Appellee. Fidelity Federal Bank, FSB, a federally chartered savings bank, Petitioner-Appellant, v. Durga Ma Corporation, a New Jersey corporation, Respondent-Appellee.
Case Date:October 29, 2004
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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386 F.3d 1306 (9th Cir. 2004)

FIDELITY FEDERAL BANK, FSB, a federally chartered savings bank, Petitioner-Appellant,


DURGA MA CORPORATION, a New Jersey corporation, Respondent-Appellee.

Fidelity Federal Bank, FSB, a federally chartered savings bank, Petitioner-Appellant,


Durga Ma Corporation, a New Jersey corporation, Respondent-Appellee.

Nos. 02-56381, 02-56548.

United States Court of Appeals, Ninth Circuit

October 29, 2004

        Argued and Submitted March 29, 2004

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[Copyrighted Material Omitted]

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        Timothy M. Maggio, Shane Blackstone, Lord, Bissell & Brook, LLP, Chicago, IL, for the appellant.

        Philip Brown, Egerman & Brown LLP, Beverly Hills, CA, for the appellee.

        Appeal from the United States District Court for the Central District of California; John F. Walter, District Judge, Presiding. D.C. No. CV-02-01990-JFW.

        Before: PREGERSON, BEEZER, and TALLMAN, Circuit Judges.

        BEEZER, Circuit Judge.

        In No. 02-56548, Fidelity Federal Bank, FSB ("Fidelity") appeals the district court's order granting Durga Ma Corporation's ("Durga Ma") motion under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10. The order confirms an arbitration award against Fidelity in favor of Durga Ma arising out of a breach of contract claim. In No. 02-56381, Fidelity appeals the district court's order denying Fidelity's motion to vacate the award. Fidelity contends that the award should be vacated under 9 U.S.C. § 10 due to the evident partiality of an arbitrator appointed by Durga Ma. The arbitrator agreed to "act neutrally" but failed to disclose certain family and business relationships with Durga Ma's attorneys. Nos. 02-56548 and 02-56381 are consolidated for this appeal.


        We have jurisdiction pursuant to 28 U.S.C. § 1291 and 9 U.S.C. § 16(a) and we affirm. We hold that Fidelity waived its right to seek vacatur of the arbitration award based on the evident partiality of the arbitrator initially appointed by Durga Ma. Fidelity had constructive notice of the arbitrator's potential connections to the Durga Ma attorneys but did not object to the arbitrator's appointment or his failure to make disclosures until after an interim award was entered in favor of Durga Ma.


        Fidelity and Durga Ma, a jewelry retailer, were parties to a Private Label Credit Card Marketing and Origination Agreement ("Agreement") under which Fidelity agreed to issue private label credit cards to customers of Durga Ma and affiliated jewelry retailers. Shortly after the inception of the Agreement, Durga Ma claimed that Fidelity breached the Agreement, and demanded arbitration of the disputed claim. The parties' Agreement provided for arbitration in the following terms:

If any disputes or controversies arise between the Parties in connection with this Agreement or their acts or duties hereunder, such disputes or controversies shall be submitted to and resolved by binding arbitration in accordance with the laws of the State of California and the rules of the American Arbitration Association. Each Party shall select one arbitrator, and the arbitrators so selected shall select a third arbitrator, which three arbitrators shall constitute the arbitration panel for the dispute. All arbitration proceedings shall be conducted in Los Angeles, California. The decision or award of the arbitration panel shall be final and binding and judgment thereon may be entered in a state or federal court with jurisdiction over the Parties. It is understood that the arbitration panel shall have no authority to add to, subtract from, or modify any provision of this Agreement.

Durga Ma appointed Alton Leib as its arbitrator and notified the American Arbitration Association ("AAA") of its selection by letter on November 19, 1999. In May 2000, Fidelity selected the Hon. Judith M. Ryan, a retired California Superior Court

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judge, as its arbitrator. In September 2000 Viggo Boserup was engaged as the neutral arbitrator and administrator of the arbitration panel. 1

        The arbitrators and the parties' counsel convened for the first time in an October 2, 2000 phone conference to address preliminary matters. During the conference, both party-appointed arbitrators agreed, with the consent of the parties, to "act neutrally" when considering the evidence and rendering an award. 2

        Neither Fidelity nor Durga Ma requested a disclosure statement from any arbitrator at any time before or during the arbitration proceedings. Neither of the arbitrators who were initially appointed by the parties provided a disclosure statement. Neither Fidelity nor Durga Ma objected to the arbitrators' failure to provide disclosure statements.

        The arbitration was conducted before the three-member panel in July and September 2001 and included seven days of testimony. On September 27, 2001, the arbitrators issued a unanimous interim arbitration award in favor of Durga Ma. The panel awarded Durga Ma $2.3 million in damages and left open the question of attorneys' fees and costs.

        On September 28, 2001, Durga Ma's counsel filed papers in support of its request for attorneys' fees and costs. Durga Ma submitted time records for its attorneys, Egerman & Brown. The Egerman & Brown time records revealed communications between Arbitrator Leib and Durga Ma's counsel both before and after the October 2, 2000 phone conference at which the arbitrators agreed to "act neutrally." 3 Fidelity accused Durga Ma of carrying out ex parte communications with Arbitrator Leib.

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        Egerman & Brown represented Durga Ma at all relevant times in the arbitration and court proceedings. Philip Brown, named partner of Egerman & Brown, served as lead counsel. Lee Egerman, an associate at Egerman & Brown and the son of named partner Mark Egerman, served as co-counsel and appeared at nearly every arbitration hearing.

        On October 26, 2001, Fidelity objected to any further proceedings before the arbitration panel and, three days later, requested limited discovery of the communications and relationship between Arbitrator Leib and the Durga Ma attorneys. Fidelity was permitted to take the deposition of Philip Brown and obtain sworn declarations from Mark Egerman and Arbitrator Leib.

        Arbitrator Leib disclosed that he had been married to Mark Egerman's sister, Maxine Egerman, for 17 years. 4 Leib and Maxine Egerman were separated and divorced about 25 years before Leib became involved in this matter as an arbitrator. Thus, Arbitrator Leib and Mark Egerman are former brothers-in-law. Arbitrator Leib is also the former uncle of Lee Egerman, who served as co-counsel throughout the arbitration proceedings. Arbitrator Leib and Maxine Egerman were separated when Lee Egerman was five years old. Arbitrator Leib's two sons are Lee Egerman's cousins. According to Leib's declaration, his divorce was bitter and he had very little...

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