Woods v. Saturn Distribution Corp.

• Decision Date: 27 February 1996
• Docket Number: No. 94-55911,94-55911
• Citation: 78 F.3d 424
• Parties: 96 Cal. Daily Op. Serv. 1262, 96 Daily Journal D.A.R. 2128 Timothy L. WOODS, Plaintiff-Appellant, v. SATURN DISTRIBUTION CORPORATION, a Delaware Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 424

78 F.3d 424

96 Cal. Daily Op. Serv. 1262, 96 Daily Journal

D.A.R. 2128

Timothy L. WOODS, Plaintiff-Appellant, v. SATURN DISTRIBUTION CORPORATION, a Delaware Corporation,

Defendant-Appellee.

No. 94-55911.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 10, 1996.

Decided Feb. 27, 1996.

Stephen J. Perrello, Jr., San Diego, California, for plaintiff-appellant.

Gregory R. Oxford and Wallace M. Allan, O'Melveny & Myers, Los Angeles, California, for defendant-appellee.

Appeal from the United States District Court for the Central District of California; Lawrence T. Lydick, District Judge, Presiding.

Before BRIGHT ^*, SKOPIL, and WIGGINS, Circuit Judges.

Opinion by Judge WIGGINS.

WIGGINS, Circuit Judge:

OVERVIEW

Timothy Woods appeals the district court's order granting Saturn Distribution Corporation's motion to confirm the arbitration award pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. § 9 (1994), and denying Woods's motion to vacate the arbitration award pursuant to 9 U.S.C. § 10(a)(2) (1994). The arbitration panel unanimously upheld Saturn's termination of its franchise agreement with Woods and awarded Woods $66,754 plus reimbursement of any franchise fees paid to Saturn ($25,000 maximum). Woods contends that his actual damages exceed the award. On appeal, he argues that the district court applied the wrong legal standard for determining whether the arbitration panel was "evidently partial" under section 10(a)(2) or, alternatively, the court erred in not continuing the motions to allow time for

                Woods to conduct discovery to show actual bias on the part of the arbitrators.   We have jurisdiction under 28 U.S.C. § 1291 (1994), and we affirm the district court's order
                

FACTS AND PRIOR PROCEEDINGS

On September 21, 1989, the parties entered into a Dealer Agreement, whereby Saturn authorized Woods to construct and operate two Saturn dealerships in Southern California. Article 5A of the agreement provides that the FAA governs the franchise agreement and that the procedure contained in Saturn's Dealer Dispute Resolution Guide shall be the exclusive mechanism for resolving any claim or controversy relating to the franchise agreement.

Saturn's dispute resolution process consists of mediation and binding arbitration. Both mediation and arbitration are conducted by a panel of two Saturn dealers and two Saturn employees, randomly selected from a pool of volunteers consisting of ten Saturn dealers and ten Saturn employees trained in Saturn's dispute resolution process. If mediation does not resolve the dispute or if the parties agree in writing to waive mediation, the dispute shall be resolved by arbitration. An administrative officer resolves any objections to discovery requests and challenges for cause to arbitration panel membership. The officer also advises the panel members on questions of law, but does not participate in the panel's decision. All arbitration awards are binding and non-appealable, except as otherwise provided in the FAA. Pursuant to the Dealer Agreement, judgment upon any arbitration award may be entered and enforced in any court having jurisdiction.

According to Saturn, it terminated the franchise agreement in August 1993 because Woods failed to construct the Saturn facilities as required by the franchise agreement. Woods alleged that Saturn wrongfully terminated their agreement. The parties' mediation efforts in December 1993 were unsuccessful, and arbitration was scheduled for April 7, 1994. Prior to arbitration, Woods's counsel sent a letter to Saturn, stating that Woods "objects to arbitration before a panel composed of persons so closely tied to and dependent upon Saturn that any reasonable person would conclude he is not likely to receive a fair hearing." Letter from Shapiro to Collins of 3/14/94, at 2. The letter also stated that "the arbitration procedure set forth in the Dealer Agreement ... lacks fundamental fairness and is inherently biased against a dealer and in favor of Saturn." Id. Saturn responded that it believed that the "arbitration procedures are fair, reasonable, and legally enforceable." Letter from Oxford to Shapiro of 3/23/94, at 1.

On April 5, 1994, Woods filed a complaint in San Bernardino Superior Court for, inter alia, breach of contract and requested injunctive relief to prevent the arbitration from proceeding. Saturn removed that action to federal court on April 6, 1994. The district court denied Woods's motion for a temporary restraining order and ordered Saturn to show cause why a preliminary injunction should not be issued. Hearing on the order to show cause was set for April 26, 1994, but was taken off calendar by stipulation of the parties because the arbitration proceeded on April 7 and 8, 1994.

On April 9, 1994, the four-member arbitration panel ¹ issued its decision, upholding Saturn's termination of the franchise agreement and awarding Woods $66,754 plus reimbursement of any franchise fees paid to Saturn ($25,000 maximum). The district court granted Saturn's motion to confirm and denied Woods's motion to vacate the arbitration award. The court held that Woods failed to show that "the decision of the allegedly biased arbitrator(s) was actually the result of the alleged bias," and that the " 'appearance of impropriety, standing alone is [an] insufficient' " basis for vacating the arbitration award. The court also denied Woods's request for a continuance to allow him an opportunity to depose Saturn employees and dealers (including the arbitrators). The court stated that Woods provided no legal authority for continuing the motion to confirm and allowing time for discovery in light of the summary nature of the court's review

                of an arbitration award.   Moreover, even if the court had such authority and Woods's evidence (Woods's declaration and those of two non-Saturn dealers) was admissible, the court found that Woods failed to show that the requested discovery would reveal that the arbitration decision actually resulted from the arbitrators' bias
                

DISCUSSION

I. STANDARD OF REVIEW

The district court's decision confirming the arbitration award and denying vacatur is reviewed de novo. Employers Ins. of Wausau v. National Union Fire Ins. Co. of Pittsburgh, 933 F.2d 1481, 1485 (9th Cir.1991). Specifically, the court's adoption of a standard of impartiality for arbitrators is reviewed de novo. Toyota of Berkeley v. Automobile Salesmen's Union, 834 F.2d 751, 755 (9th Cir.1987), cert. denied, 486 U.S. 1043, 108 S.Ct. 2036, 100 L.Ed.2d 620 (1988), modified, 856 F.2d 1572 (9th Cir.1988). Factual findings underlying the court's decision will be reversed only for clear error. Id. at 756.

The decision to deny a continuance is in the sound discretion of the trial court and will not be reversed except upon a showing of clear abuse. United States v. Real Property Located at Incline Village, 47 F.3d 1511, 1521 n. 5 (9th Cir.1995), cert. granted sub nom. Brian J. Degen v. United States, --- U.S. ----, 116 S.Ct. 762, 133 L.Ed.2d 707 (1996).

II. ALLEGED BIAS OF THE ARBITRATORS

Section 10(a)(2) of the FAA provides that the court may vacate an arbitration award "[w]here there is evident partiality ... in the arbitrators." 9 U.S.C. § 10(a)(2) (1994). See Schmitz v. Zilveti, 20 F.3d 1043, 1047 (9th Cir.1994) (standard for determining partiality for arbitrators differs from standard for judges). The party challenging the arbitration decision has the burden of showing partiality. See Sheet Metal Workers Int'l Ass'n Local 420 v. Kinney Air Conditioning Co., 756 F.2d 742, 745 (9th Cir.1985). Evident partiality has been found in nondisclosure cases and actual bias cases. See Schmitz, 20 F.3d at 1045.

In nondisclosure cases, vacatur is appropriate where the arbitrator's failure to disclose information gives the impression of bias in favor of one party. See Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 149, 89 S.Ct. 337, 339-40, 21 L.Ed.2d 301 (1968) (holding that impression of bias is sufficient to vacate arbitration award pursuant to 9 U.S.C. § 10(a)(2)); Schmitz, 20 F.3d at 1047 (stating that standard for determining evident partiality in nondisclosure cases is whether there is a "[r]easonable impression of partiality"). A reasonable impression of bias sufficiently establishes evident partiality because the integrity of the process by which arbitrators are chosen is at issue in nondisclosure cases. Id. ("The parties can choose their arbitrators intelligently only when facts showing potential partiality are disclosed."). Whether the arbitrator's decision itself is faulty is not necessarily relevant. Id.

In contrast, the integrity of the arbitrator's decision is directly at issue in actual bias cases. Id. "The appearance of impropriety, standing alone, is insufficient" to establish evident partiality in actual bias cases, Kinney, 756 F.2d at 746, because a reasonable impression of partiality does not necessarily mean that the arbitration award was the product of impropriety. Schmitz, 20 F.3d at 1047. This court has acknowledged that use of the reasonable impression of bias language from Coatings (a nondisclosure case) in Kinney (an actual bias cases) is "confusing." Id. We noted in Schmitz, however, that because "[f]inding a 'reasonable impression' of partiality is not equivalent to, nor does it imply, a finding of actual bias" and the court must find actual bias in actual bias cases, " 'reasonable impression' means something different in an actual bias case than it means in nondisclosure cases under Commonwealth Coatings." Id. Therefore, "the party alleging evident partiality [in actual bias cases] must establish specific facts which indicate improper motives." Kinney, 756 F.2d at 746.

In the instant case, the district court applied the legal standard used in actual bias Woods contends that the court applied the wrong legal standard and that the arbitrators' alleged financial dependence on Saturn provides...