Tamari v. Bache Halsey Stuart Inc., 79-1937
Decision Date | 25 April 1980 |
Docket Number | No. 79-1937,79-1937 |
Citation | 619 F.2d 1196 |
Parties | Abdallah W. TAMARI, Ludwig W. Tamari and Farah W. Tamari, co-partners doing business as Wahbe Tamari & Sons Co., Plaintiff-Appellants, v. BACHE HALSEY STUART INC. (formerly Bache & Co. Incorporated), a Delaware Corporation, Defendant-Appellee. |
Court | U.S. Court of Appeals — Seventh Circuit |
James M. Breen, Chicago, Ill., for plaintiff-appellants.
Lawrence M. Gavin, Chicago, Ill., for defendant-appellee.
Before FAIRCHILD, Chief Judge, and PELL and TONE, Circuit Judges.
This is the fourth in a series of cases arising out of a dispute over two commodity accounts plaintiff Tamaris formerly maintained with defendant Bache Halsey Stuart's branch office in Beirut, Lebanon. 1 The dispute was submitted to arbitration before the Arbitration Committee of the Chicago Board of Trade (CBOT). The committee entered an award in favor of Bache for a balance due and against the Tamaris on their counterclaim for damages resulting from Bache's alleged mishandling of the accounts. In this action the Tamaris seek to set aside the award on various grounds. On the basis of the complaint, to which the Tamaris attached the entire record of the arbitration hearings, the district court granted Bache's motion for dismissal, ruling that the Tamaris had failed to state a claim. We affirm.
The Tamaris first contend that the award should be set aside because, during the course of the arbitration hearings, the employer of arbitrator Ralph Klopfenstein hired Robert Fivian, a Bache vice president who testified in several of the arbitration hearings. The Tamaris argue that these circumstances demonstrate "evident partiality or corruption in the arbitrators" within the meaning of § 10(b) of the Federal Arbitration Act, 9 U.S.C. § 10(b) (1976), 2 or that they present at least the appearance of partiality and therefore void the award under the principles laid down in Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 89 S.Ct. 337, 21 L.Ed.2d 301 (1968). 3
The pertinent facts are as follows: The arbitration committee began hearings on December 11, 1975, and continued them at irregular intervals until May 17, 1976. During this time one of the arbitrators, Klopfenstein, was employed as an administrative vice president for Heinold Commodities, Inc. Near the beginning of 1976, a management executive search company, acting on behalf of Heinold, began employment negotiations with Fivian. Fivian learned at the end of January 1976 that it was Heinold that was seeking to hire him. Subsequent to this discovery, Fivian testified before the arbitration committee on three occasions concerning Bache's internal operating procedures and the identification of documents. He had no involvement in or connection with the dealings between the Tamaris and Bache and appeared to testify only because he had been designated by Bache to respond on its behalf to a subpoena to produce documents.
On March 17, Fivian agreed to become an administrative vice president at Heinold. Although this position was similar to Klopfenstein's, the latter did not engage in the employment negotiations between Heinold and Fivian. 4 Fivian informed Bache of his new employment on March 29, and he informed the arbitration committee on April 7, the first scheduled hearing after the notice to Bache. During the April 7 hearing, the committee informed the Tamaris of the situation, and Klopfenstein offered to withdraw if either party so requested. After being given a full opportunity to question Fivian and Klopfenstein, the Tamaris asked that Klopfenstein withdraw. Klopfenstein did so and, as a consequence, did not participate in the award. The Tamaris also requested, however, that the entire committee recuse themselves because of taint flowing from Klopfenstein's presence on the panel during Heinold's negotiations with Fivian. This the committee declined to do.
In explaining their decision to proceed, the committee emphasized that neither Fivian's change of employment nor Klopfenstein's presence on the panel had affected the course of the proceedings. Committee Chairman Newman stated,
Mr. Fivian's testimony has never been really deliberated with this committee to any great extent.
He further said,
At no time did any other member of this committee know of these negotiations nor were we swayed in any way by Mr. Klopfenstein's opinion or anything that was discussed.
CBOT counsel Robert Vanasco, who attended the committee meetings, said,
Mr. Fivian's testimony has never been discussed by the committee and to that extent, Mr. Klopfenstein has had no influence on the committee with regard to that testimony, and the committee has, in its deliberations before, assured itself that no prejudice would occur and is ready to go forward with the case.
Chairman Newman added,
(T)he discussions, decisions rather, that have been rendered during Mr. Klopfenstein's participation have all been procedural and in no case did Mr. Klopfenstein cast a deciding vote. No decisions were made on the merits of the case.
On the basis of the transcript of the arbitration hearings, the district court concluded that the Tamaris had received a full and impartial hearing on their claim. We see no reason to disagree with that assessment. The circumstances of which the Tamaris complain plainly do not demonstrate "evident partiality or corruption" on the part of either Klopfenstein or the other committee members. 5
We also conclude that, even viewing the complaint in the light most favorable to the Tamaris, no claim has been stated that would warrant relief due to an appearance of bias. Fivian's negotiations with Heinold were of necessity confidential until an agreement had been reached. When the decision was made, Fivian promptly disclosed it, and the Tamaris were promptly informed by the committee of what had occurred. Klopfenstein offered to withdraw and did withdraw in response to the Tamaris' request. Therefore, even assuming that Klopfenstein might reasonably appear to have had some nontrivial interest in the proceedings because his employer had hired the employee of a party, any appearance of bias was dispelled by the forthright manner in which the situation was handled once it became known. The record of the arbitration hearings, which controls insofar as it is in conflict with plaintiffs' complaint, 6 is similarly devoid of any manifestation of partiality.
It is relevant to the appearance of bias issue as well as the actual bias issue that Fivian was not an occurrence witness but rather Bache's delegate to produce documents and answer questions about the firm's operating procedures. His testimony did not relate to disputed issues of material fact, and the Tamaris have shown no prejudice to them even on the assumption that the arbitrators believed everything Fivian said in his testimony. Moreover, Fivian was negotiating to leave Bache and did so during the period in question. The possibility that Bache might have benefited from any indirect affinity that might have developed between Fivian and Klopfenstein because of the new employment relationship is so remote that we think no reasonable person would find an appearance of bias in Bache's favor on this account.
Nothing in Commonwealth Coatings or in the other cases relied on by the Tamaris would support a contrary result. These cases involve the failure to disclose relationships that might reasonably give rise to an appearance of partiality; in each of them an arbitrator with a significant connection to a party participated in an award. 7 In the case at bar, the relationship was never significant, and the arbitrator disclosed it at the first opportunity and withdrew.
In setting aside an award for bias, the "guiding principle" is,
The interest or bias of an arbitrator must be direct, definite, and capable of demonstration rather than remote, uncertain, or speculative.
United States Wrestling Federation v. Wrestling Division of the AAU, Inc., 605 F.2d 313, 318 (7th Cir. 1979) (quoting Lucke v. Spiegel, 131 Ill.App.2d 532, 536, 266 N.E.2d 504, 508 (1970). We think this principle applies whether actual bias or merely an appearance of bias is charged. As Justice White said in concurrence in Commonwealth Coatings,
(A)rbitrators are not automatically disqualified by a business relationship with the parties before them if both parties are informed of the relationship in advance, or if they are unaware of the facts but the relationship is trivial.
393 U.S. at 150, 89 S.Ct. at 340. Here the possibility of bias was highly speculative, the facts were disclosed before decisions were made on the merits, and the arbitrator disqualified himself before substantive decisions were made. The Tamaris have failed to state a claim of either bias or the appearance of bias in the Fivian-Klopfenstein relationship, and the district court correctly so found.
The Tamaris also argue that bias can be found in the fact that Bache hired Thomas Triggs, the Secretary of the CBOT "while the arbitration was in progress." The Tamaris allege that the Secretary appointed the arbitration panel and that the Secretary was represented at all hearings by Vanasco, staff counsel to the CBOT. The Secretary might, therefore, have influenced the proceedings, it is argued.
In the first place, when the panel was selected Triggs had not been hired by Bache. In addition, CBOT rules do not give the Secretary the authority to select the arbitration panel; rather, they make plain that the Secretary's task with respect to arbitration is purely ministerial. 8 The full committee on arbitration is composed of ten members. Of these ten, eight apparently were assigned to hear the Tamaris' case, but for some reason only seven participated in the hearings, and the number was reduced to six by Klopfenstein's withdrawal. The record does not demonstrate the method by which fewer than all the...
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