Arbitration|Courts|Ethics

Attorney Disqualification: Arbitration

Two recent court decisions have bubbled through the cyber-community of ListServes and blogs.  Both address attorney disqualification — one in the context of a mediation and the other in the context of an arbitration.  The latter is featured here and the former will be described in a subsequent posting.

In Northwestern National Insurance Company v. Insco, Ltd, 11 Civ. 1124 (SAS) (S.D.N.Y. October 3, 2011), the court granted a motion  to disqualify the law firm of Freeborn & Peters LLP from continuing to represent its client Insco in an ongoing arbitration.   In deciding the motion the court (a) found that it, and not the arbitration Panel, was the proper forum for such relief, and (b) determined that Freeman’s solicitation, receipt, study and use of approximately 130 e-mails between the Panel members, some containing deliberations of the Panel, was an egregious breach of its ethical duties, meriting disqualification.

 Northwestern had commenced the underlying arbitration to recover amounts allegedly due from a reinsurance contract between the parties.  Northwestern and Insco each appointed Panelists, and the Chair was selected by lottery.  At an organizational meeting, the Panel made disclosures and the parties agreed upon procedural matters.  Among these were that parties could communicate with their appointed Panelists until a motion was fully briefed and pending, at which time no further ex parte communications were permitted.

Insco became concerned about the adequacy of the disclosures made by Northwestern’s appointee, and supplemental disclosures were made.  Dissatisfied, Insco demanded that the Panel resign because of “evident partiality.”  A few days prior to this demand, Insco’s counsel had received certain private e-mail communications from its appointed Panelist.  Insco’s appointee resigned but the other Panelists did not.  The now-departed Panelist conferred with Insco’s counsel and subsequently provided over 182 pages of Panel e-mails, approximately 30 of which were from the Panel Chair.

Northwestern eventually suspected that communications including Panel deliberations had been disclosed when Insco’s correspondence began to refer to them.  Then Northwestern received motion papers that included the communications as an attachment.  When Northwestern’s counsel realized the nature of these documents it refused to read them, and instead engaged a third law firm to review them and prepare a report as to their date, author, recipient, general subject matter, and so on.  It also moved in federal district court for an order to disqualify Insco’s counsel.

The court first determined that it, and not the Panel, should decide the motion, reasoning that “Courts, rather than insurance industry experts, decide issues of attorney discipline.”

It then determined that “Freeborn’s actions in obtaining and hiding panel deliberations in an ongoing arbitration constituted a serious violation of arbitral guidelines, as well as ethical rules.”  It cited the ARIAS Code of ConductCanon VI, which states that “it is not propoer at any time for arbitrators to… inform anyone concerning the contents of the deliberations of the arbitrators,” as well as the ABA/AAA Code of Ethics for Arbitrators in Commercial Disputes, providing at Canon VI(c) that “it is not proper at any time to inform anyone about the substance of the deliberations of the arbitrators.”  

Challenges to the Panel’s impartiality were not a justification for such disclosures, as they are properly heard by the Court after issuance of an award, in the course of a motion to vacate.  Questions of the probity of the communications at issue were deemed irrelevant, since at least some addressed delberations on pending motions.  Suggestions that Northwestern should also read the e-mails and thus “even the playing field” were dismissed as risible.

Concluded the Court:

In an age in which electronic communications play a central role in arbitrator deliberations, it is imperative that such communications remain as protected as all other forms of private panel interactions.  Deliberate action to obtain such records is a disservice to the integrity of the adversarial process, and is strictly and unambiguously prohibited.  Allowing parties to obtain confidential panel deliberations would provide an unfair advantage in the legal proceedings and have a chilling effect on the ability of arbitrators to communicate freely. … For the foregoing reasons, plaintiff’s motion to disqualify counsel Freeborn from representing Insco is granted.”  (Slip op. at 32)

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