Hottle v. BDO Seidman, LLP

• Decision Date: 24 December 2002
• Citation: 74 Conn. App. 271,811 A.2d 745
• Court: Connecticut Court of Appeals
• Parties: DEAN M. HOTTLE v. BDO SEIDMAN, LLP BDO SEIDMAN, LLP v. DEAN M. HOTTLE

74 Conn. App. 271

811 A.2d 745

DEAN M. HOTTLE v. BDO SEIDMAN, LLP

BDO SEIDMAN, LLP v. DEAN M. HOTTLE

(AC 22636), (AC 22666)

Appellate Court of Connecticut.

Argued September 19, 2002.

Officially released December 24, 2002.

Foti, Schaller and Peters, Js. William J. Wenzel, with whom was Aimee J. Wood, for the appellant (plaintiff in the first case, defendant in the second case).

Donald E. Frechette, with whom, on the brief, was Jeffrey J. Medeiros, for the appellee (defendant in the first case, plaintiff in the second case).

Opinion

PETERS, J.

The Federal Arbitration Act (arbitration act), 9 U.S.C. § 1 et seq., establishes a federal policy favoring arbitration. These appeals raise the question of whether an arbitration panel is disqualified because of structural bias if the panel consists only of partners in the accounting firm. The trial court concluded that an arbitration agreement including such a description of eligible arbitrators was enforceable against a claimant who was a former member of the partnership. We agree.

These appeals arise out of a dispute over the payment of compensation between the plaintiff, Dean M. Hottle, a former partner, and the defendant partnership, BDO Seidman, LLP, an accounting firm. After his withdrawal from the firm, the plaintiff initiated judicial proceedings by filing an application for a prejudgment remedy. In response, the defendant filed a motion to stay the court proceedings and an independent action to compel arbitration¹ under §§ 3 and 4 of the arbitration act.² The defendant argued that the plaintiff was obligated to arbitrate his claims pursuant to § 14.8 of the partnership agreement.³ The trial court agreed and rendered judgment in favor of the defendant. The plaintiff has appealed.⁴

In support of his appeals, the plaintiff argues that the arbitration provision is unenforceable because it does not provide for a neutral third party decision maker.⁵ It is the defendant that controls the list of prospective arbitrators, all of whom are partners of the firm. For this reason, the plaintiff contends that the proceedings authorized by § 14.8 do not qualify as an arbitration agreement. The plaintiff therefore urges us to reverse the trial court's ruling staying his court action and compelling arbitration.

The defendant argues, to the contrary, that the arbitration provision is not unenforceable simply because partners serve as arbitrators. The defendant also contends that the plaintiff knowingly signed the partnership agreement and cannot now claim to have been unaware of its terms. As long as the arbitral process affords a fundamental level of fairness, the defendant argues, the trial court properly compelled the parties to proceed to arbitration.

These appeals require us to construe the terms of the partnership agreement. The parties have stipulated that New York law governs the agreement.⁶ Under New York law, the interpretation of a contract is a question of law and, accordingly, our review is plenary. 805 Third Avenue Co. v. M.W. Realty Associates, 58 N.Y.2d 447, 451, 448 N.E.2d 445, 461 N.Y.S.2d 778 (1983).

I

The arbitration act creates a "body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act."⁷Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983). The act governs any arbitration agreement "involving commerce"; 9 U.S.C. § 2; whether the case arises in state court or in federal court. Southland Corp. v. Keating, 465 U.S. 1, 14-15, 104 S. Ct. 852, 79 L. Ed. 2d 1 (1984). Federal law has, however, looked to state law to provide basic contract principles to supplement the act. Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 686-87, 116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996).

As a threshold matter, we must determine, therefore, whether the arbitration act applies to § 14.8 of the partnership agreement. Section 1 of the act defines "commerce" to include "commerce among the several States. . . ." 9 U.S.C. § 1. The United States Supreme Court has construed § 1 broadly. The court has explained that "involving commerce" is the equivalent of "affecting commerce," and accordingly, the term "signals an intent to exercise Congress' commerce power to the full." (Internal quotation marks omitted.) Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 277, 115 S. Ct. 834, 130 L. Ed. 2d 753 (1995).

The defendant is a nationwide accounting firm with offices in several states. The plaintiff also had clients located both within and outside of the state of New York. We conclude that the partnership agreement "involves commerce" and is governed by the arbitration act. See id., 281-82.

Pursuant to the arbitration act, we must decide whether the court properly granted the motion to stay court proceedings and to compel arbitration. 9 U.S.C. §§ 3, 4. Under the circumstances of this case, the court was required to resolve two issues. It had to determine (1) whether the parties agreed to arbitrate, and (2) whether the agreement was enforceable.

II

Before addressing the enforceability of the arbitration provision, we first note what these appeals do not involve. The parties do not dispute the existence of the partnership agreement under New York law. State law governs issues of formation. Doctor's Associates, Inc. v. Casarotto, supra, 517 U.S. 686-87.

Similarly, the parties do not dispute that the plaintiff knowingly agreed to the arbitration clause in the partnership agreement and to the standard expectations associated with arbitration. Having signed the agreement, the plaintiff is presumed, under New York law, to have knowledge of its contents. Metzger v. Aetna Ins. Co., 227 N.Y. 411, 416, 125 N.E. 814 (1920). It is well established that the parties may define the arbitral process by contract. Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468, 479, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989). We conclude, therefore, that the parties properly entered into an agreement to arbitrate.

Finally, the parties agree that their dispute falls within the scope of § 14.8 of the partnership agreement. According to the federal policy favoring arbitration, arbitration agreements should be construed as broadly as possible. Oldroyd v. Elmira Savings Bank, FSB, 134 F.3d 72, 76 (2d Cir. 1998). Any doubt concerning the scope of arbitrable issues is to be resolved in favor of arbitration. Moses H. Cone Memorial Hospital v. Mercury Construction Corp., supra, 460 U.S. 24-25. "[T]he existence of a broad agreement to arbitrate creates a presumption of arbitrability which is only overcome if it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that [it] covers the asserted dispute." (Emphasis in original; internal quotation marks omitted.) Oldroyd v. Elmira Savings Bank, FSB, supra, 76.

The arbitration provision in this case provides in relevant part that "[a]ny controversy or dispute relating to this agreement or to the Partnership and its affairs shall be resolved and disposed of in accordance with this section . . . ." The dispute in this case concerns the amount of compensation owed to the plaintiff under the withdrawal agreement. The withdrawal agreement to which the plaintiff subscribed incorporated the arbitration provision contained in the partnership agreement. Accordingly, we conclude that the plaintiff's claims fall well within the scope of the arbitration agreement.

III

We now turn to the enforceability of the arbitration provision. The plaintiff challenges its validity on the ground that it deprives him of a right to a neutral arbitrator because the designated arbitration pool consists only of partners in the accounting firm. We disagree.

Although the requirement of a neutral arbitrator has often been stated; Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1208 (9th Cir. 1998); Harrison v. Nissan Motor Corp. in U.S.A., 111 F.3d 343, 350 (3d Cir. 1997); AMF, Inc. v. Brunswick Corp., 621 F. Sup. 456, 460 (E.D.N.Y. 1985); the parties have not cited, and we have not found, an authoritative definition of the requisite neutrality. As a matter of first impression, we hold that neutrality requires an absence of structural bias that demonstrates probable partiality in favor of one of the parties to the dispute.

Some courts have phrased the need for neutrality in terms of "institutional bias" and "evident partiality." The arbitration act allows a court to vacate an award because of "evident partiality" on the part of the arbitrators. 9 U.S.C. § 10 (a) (2). "Evident partiality" requires a showing of a "reasonable impression of partiality on the arbitrator's behalf." (Internal quotation marks omitted.) Scott v. Prudential Securities, Inc., 141 F.3d 1007, 1015 (11th Cir. 1998), cert. denied, 525 U.S. 1068, 119 S. Ct. 798, 142 L. Ed. 2d 660 (1999). The alleged partiality must be "direct, definite and capable of demonstration rather than remote, uncertain and speculative." (Internal quotation marks omitted.) Id.; Harter v. Iowa Grain Co., 220 F.3d 544, 553 (7th Cir. 2000). This standard requires more than an appearance of bias, but less than a showing of actual bias. Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308, 325 (6th Cir. 1998).

For present purposes, we treat these terms as functionally identical to structural bias. Appearance of bias is not, however, enough to disqualify an arbitrator. Harter v. Iowa Grain Co., supra, 220 F.3d 555-56; Andersons, Inc. v. Horton Farms, Inc., supra, 166 F.3d 329. Connecticut law is to the same effect. Clisham v. Board of Police Commissioners, 223 Conn. 354, 361-62, 613 A.2d 254 (1992).

We have found no case that is identical to this case in all respects. In Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1 (1st Cir. 1999), and Woods v. Saturn Distribution Corp., 78 F.3d 424 (9th Cir.), cert....