Michigan Court Weakens Ethical Standards for Arbitrators

By Michael L. Murphy, Bailey & Glasser LLP

Today, an arbitrator resolves many legal disputes that used to be resolved by a judge. Many contracts contain little-noticed provisions requiring arbitration, and the U.S. Supreme Court has issued several pro-arbitration rulings in recent years.

That makes a recent Michigan Court of Appeals ruling all the more disturbing.

In Bigfoot Towing v. City of Flint, 2014 WL 1616418 (Mich. App., Apr. 22, 2014), the Michigan Court of Appeals recently found that an arbitrator should not be held to the same high ethical standard as judges.

The court held that even though a judge may be disqualified for “impropriety and [the] appearance of impropriety,” an arbitrator may only be disqualified for the former. This decision is more than a little troubling, given that so many cases are being forced into arbitration.

In Bigfoot Towing, the arbitrator inadvertently sent an email from her private practice to plaintiff’s counsel. The email was not related to the arbitration proceeding. As a result of receiving this confidential information, which could subject the arbitrator to a legal malpractice case in which plaintiff’s counsel could be a witness, plaintiff’s counsel requested that the arbitrator recuse herself. She refused to do so.

The parties jointly filed a complaint for declaratory relief and the defendants subsequently filed a motion to dismiss.

In response to the motion to dismiss, the plaintiff argued that the arbitrator had exhibited “actual bias” by failing to rule on a question of law and that plaintiff’s counsel was a potential witness in a legal malpractice case that could be filed based on the inadvertent disclosure of the confidential information.

The defendant responded that the arbitration panel was unanimous on the legal issue being challenged and that since no malpractice case had been filed “any appearance of impropriety was speculative at best.”

The trial court recognized that even though the email at issue did not relate to the arbitration, the fact that a malpractice case could be filed was sufficient to disqualify the arbitrator. The trial court denied a motion for reconsideration and the defendant subsequently appealed.

On a motion for disqualification, the court of appeals noted that it reviews “trial court’s factual findings for an abuse of discretion, but the application of the facts to the law is reviewed de novo.”

The court of appeal started its analysis by noting that the arbitration agreement did not “address the grounds for disqualification” and that “the parties have relied on the standards applicable to judicial disqualification set forth in MCR 2.003,” which states codifies the “actual bias” and “appearance of impropriety” standards.

In describing the judge’s role in our society, the appellate court noted it is a bedrock principle that a judge “must not only be independent and honest, but, equally important, believed by all men to be independent and honest.”

Surprisingly, the court of appeals then added that “arbitrators are not similarly situated to judges; thus, we conclude that ‘the appearance of impropriety standard’ applicable to judges does not apply to arbitrators.”

Apparently recognizing that it unnecessarily reached this conclusion, the court went on to state, “even if it applied, an unintentional email sent to a party’s attorney that disclosed irrelevant information, as occurred here, does not constitute a violation of this standard.”

Given that arbitration decisions are subjected to limited judicial review, this decision lowering the bar for an arbitrator’s “ethical standards” is especially problematic.

In the commercial context, parties would be well served to expressly include the standards for disqualification and incorporate the relevant judicial code of conduct in arbitration agreements. However, in the consumer context with the prevalence of contracts of adhesion, this is simply not realistic.

With the string of unabashedly pro-arbitration decisions from the Supreme Court over the past few years — Stolt-Nielsen, 130 S. Ct. 1758 (2010); Concepcion, 131 S.Ct. 1740 (2011); Italian Colors, 133 S.Ct. 2304 (2013) — this is one more decision that tips the scales further in the wrong direction. This troubling development should be watched carefully over co

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