The Attorney as Third-Party Neutral: Navigating Ethical Obligations John M. Delehanty Partner Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C. Washington, D.C. April 20, 2012
Sources of Ethical Rules Arbitration The Code of Ethics for Arbitrators in Commercial Disputes (ABA/AAA Code) Federal Arbitration Act (FAA, 9 USC 1-14) Uniform Arbitration Act (UAA) Revised Uniform Arbitration Act (RUAA), in force in 14 states and D.C. Mediation Model Standards of Conduct for Mediators (ABA/AAA/ACR Model Standards) All Forms of ADR Model Rule for The Lawyer as Third-Party Neutral (CPR Model Rules)
I. Disclosure Requirements & Conflict Checks II. Future Relationships with the Parties & Imputed Conflicts of Interest III. Confidentiality IV. Competence
I. Disclosure Requirements & Conflict Checks
Duty to Disclose: Arbitration ABA/AAA Code, Canon II Attorneys who are requested to serve as arbitrators must disclose: Direct or indirect financial/personal interest in the arbitration s outcome; Past and existing financial, business, professional, family or social relationships with any of the parties, their lawyers, or co-arbitrators; and Any prior knowledge of the dispute to be arbitrated. Consider familiarity with parties and their products, patents or specific technology involved, and industry news. The duty to disclose is ongoing for the duration of arbitration. After full disclosure, parties may consent to an arbitrator s service.
Duty to Disclose: Arbitration Arbitrators should disclose to the parties any dealings that might create an impression of possible bias. Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 149 (1968). Case law is unclear on the extent of disclosures an arbitrator must make, with the exception of the point that arbitrators should not be held to a higher standard of judicial decorum than Article III judges are. Positive Software Solutions, Inc. v. New Century Mortgage Corp., 476 F.3d 278, 285, (5th Cir. 2007), cert. denied, 127 S. Ct. 2943 (2007)). 1 1 For standards applicable to Article III judges, see 28 USC 455.
Duty to Disclose: Mediation ABA/AAA/ACR Model Standard III Attorneys serving as mediators shall disclose actual and potential conflicts of interest that could be seen as raising a question about the mediator s impartiality. Account for imputed relationships. Consider mediator s prior work on cases involving similar technology, or a similar type of dispute, to avoid predispositions. The duty to disclose is ongoing for duration of the mediation. After full disclosure, parties may consent to a mediator s service.
Duty to Disclose: All Forms of ADR CPR Model Rule 4.5.3: A lawyer serving as a neutral shall disclose to the parties all circumstances why the lawyer might not be perceived to be impartial. Consider past and existing financial, business, professional, family or social relationships with any of the parties, their lawyers, or co-neutrals. Account for imputed relationships. The duty to disclose is ongoing for the duration of ADR.
Duty to Disclose: Practice Tips Make disclosures at the earliest time practicable. Construe the duty to disclose broadly so that the parties can realistically assess the neutral s ability to remain impartial. When in doubt, disclose. Avoid creating conflicts of interest during the course of ADR. If you become aware of a conflict during ADR, disclose it immediately. Withdraw from service as a neutral if you find that you cannot remain impartial (notwithstanding the fact that the parties have consented).
Failure to Disclose Conflicts: Consequences Leaves arbitration awards, which are subject to a court s confirmation, open to collateral attack. May sully the neutral s reputation, as well as those of his partners, associates, and firm. May subject the neutral to professional discipline, depending on the jurisdiction and operative ethical rules.
Judicial Review of Arbitration Awards Under the FAA, a reviewing court may vacate an arbitration award upon finding that the arbitrator exhibited evident partiality toward one party. 9 USC 10(a)(2). Partiality may be inferred from an undisclosed relationship combined with an arbitrator s preferential treatment of a party. RUAA 12(d), in force in 14 states and D.C., makes failure to give required disclosures a specific ground to vacate an arbitration award. But, [a]n award may not be vacated because of a trivial or insubstantial prior relationship between the arbitrator and the parties to the proceeding. Positive Software Solutions, Inc. v. New Century Mortgage Corp., 476 F.3d 278, 285, (5th Cir. 2007), cert. denied, 127 S. Ct. 2943 (2007)).
Examples of Insubstantial Prior Relationships Arbitrator s law firm represented company that indirectly caused the arbitrated dispute (ANR Coal Co. v. Cogentrix of N.C., Inc., 173 F.3d 493 (4th Cir. 1999)). Arbitrator s former law firm represented party to the arbitration on unrelated matters (Al-Harbi v. Citibank, N.A., 85 F.3d 680 (D.C. Cir. 1996)). Arbitrator knew one of the parties, had worked in the same office with him 20 years ago, and saw him about once a year since (Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673 (7th Cir. 1983)). Arbitrator and law firm representing a party had clients in common. Requiring vacatur under such facts would request that potential neutral arbitrators sever all ties with the business world (Ormsbee Dev. Co. v. Grace, 668 F.2d 1140 (10th Cir. 1982)).
Prior Relationships Requiring Grants of Vacatur Business relationship between arbitrator and party was repeated and significant ; the party to the arbitration was one of the arbitrator s regular customers ; the relationship even went so far as to include the rendering of services on the very projects involved in the lawsuit (Commonwealth Coatings). Arbitrator was a high-ranking officer in a company that had a substantial ongoing business relationship with one of the parties (Olson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 51 F.3d 157 (8th Cir. 1995)). Arbitrator s law firm represented parent company of a party for decades, including within 2 years of the arbitration (Schmitz v. Zilveti, 20 F.3d 1043 (9th Cir. 1994)). Arbitrator s father was General President of the union involved in arbitrated dispute (Morelite Constr. Corp. v. N.Y. City Dist. Council Carpenters Benefit Funds, 748 F.2d 79 (2d Cir. 1984)).
Judicial Review of Mediated Settlement Agreements Because settlement agreements are usually drafted by the parties, and ostensibly not coerced by the mediator, they are generally enforceable under basic principles of contract law. The argument that a mediator s bias overcame the parties autonomy in drafting a settlement agreement will usually not be strong enough to undermine judicial enforcement of such an agreement. To this end, mediators should limit their roles to assisting the parties in crafting final agreements rather than drafting the agreements themselves. This will also help protect mediators from liability for professional negligence if an important term is not incorporated into the final agreement.
II. Future Relationships with the Parties & Imputed Conflicts of Interest
Arbitrator-Party Relationships After Arbitration ABA/AAA Code, Canon I Arbitrators should avoid entering into business, professional, or personal relationships with the parties, or acquiring financial or personal interests in the parties, for a reasonable period of time after arbitration has concluded. This protects the integrity of the arbitration process by avoiding the creation of any appearance of partiality on the arbitrator s behalf.
Mediator-Party Relationships After Mediation ABA/AAA/ACR Model Standard III Mediators should not establish any relationships with the participants in a mediation after it has concluded that would raise questions about the mediation s integrity. Mediators should consider the following factors in making their assessments: Time elapsed following the mediation; The nature of the relationships established; and The nature of the services the former mediator will offer the party or that the party will offer the former mediator.
Neutral-Party Relationships After ADR CPR Model Rule 4.5.4(a): Neutrals cannot later represent any party to an ADR proceeding in the same or a substantially related matter, unless all parties consent after full disclosure. Neutrals cannot represent a party adverse to a former ADR party where the lawyer-neutral has acquired confidential information, without the consent of the former ADR party. Neutrals cannot acquire any interest in an ADR party or represent that party in a unrelated matter for a reasonable period of time after conclusion of ADR, unless all parties consent after full disclosure.
Imputation of Neutral s Conflicts of Interest to Firm Neither the ABA/AAA Code for arbitrators nor the ABA/AAA/ACR Standards for mediators address the subject of imputed conflicts. In In re County of Los Angeles, 223 F.3d 990, 997 (2000), the Ninth Circuit held that a neutral s law firm was not disqualified from representing a party to settlement negotiations in a substantially related matter if the neutral was adequately screened from participation in the matter. CPR Model Rule 4.5.4(b) expands upon the Ninth Circuit s holding in In re County of Los Angeles and applies it to neutrals involved in all forms of ADR proceedings.
Imputation of Neutral s Conflicts of Interest to Firm Under the Model Rule, attorneys affiliated with a neutral who is personally disqualified from representing a former party to an ADR proceeding are also disqualified from representing the parties in substantially related or unrelated matters, unless the neutral is: Screened from any participation in the matter; Apportioned no fee from the matter; and All affected parties and tribunals are notified of the screening. In the firm context, is it practicable to ensure that the neutral is not apportioned part of the fee? Note that the Model Rule does not allow for law firm representation in the same matter, even with screening.
Imputation of Firm s Conflicts of Interest to Neutral ABA/AAA Code Canon II, ABA/AAA/ACR Model Standard III, and CPR Model Rule 4.5.3 each require arbitrators, mediators, and other neutrals to disclose the conflicts of their partners and associates prior to an ADR proceeding. In all cases, the neutral may participate in the arbitration, mediation, or other ADR proceeding after full disclosure of imputed conflicts and with the consent of all parties.
III. Confidentiality
Confidentiality vis-à-vis the Public A major advantage of arbitration and mediation over litigation is that the public does not have access to the proceedings. Confidentiality is particularly important for parties involved in intellectual property disputes, which often concern trade secrets and other proprietary information. If this information were made public, it could seriously damage the parties by affecting their business prospects or influencing investors.
Confidentiality vis-à-vis the Public: Arbitration ABA/AAA Code, Canon IV Arbitrators must not leverage their relationships with the parties to gain personal advantage, help another gain personal advantage, or cause the detriment of another. Arbitrators should hold all matters relating to the arbitration proceedings and decision confidential. The arbitration award should be drafted in a way that does not disclose proprietary information regarding the intellectual property involved in the dispute.
Confidentiality vis-à-vis the Public: Mediation ABA/AAA/ACR Model Standard V Mediators shall maintain the confidentiality of all information obtained in mediation, unless otherwise agreed to by the parties or required by applicable law. Mediators may report to the overseeing court whether the parties appeared at a scheduled mediation and whether or not the parties reached a resolution, but should not communicate to any nonparticipant how the parties acted in the mediation.
Confidentiality vis-à-vis the Public: All Forms of ADR CPR Model Rule 4.5.2(a) Neutrals shall maintain the confidentiality of all information acquired in the course of service, unless required or permitted by law or agreement of the parties to disclose such information. In the context of ADR, the general rule that lawyers may divulge confidences within their law firm does not apply. However, neutrals may discuss fact patterns with other ADR practitioners at their firms so long as they omit specifics that would allow the party or dispute to be identified. Neutrals may use confidential information acquired over the course of an ADR proceeding if necessary to defend the neutral from a charge of misconduct. Neutrals may discuss confidential information that has become publicly known through means other than the neutral s disclosure of the information.
Confidentiality vis-à-vis the Public: All Forms of ADR CPR Model Rule 4.5.2(b) Neutrals may disclose confidential information obtained during a proceeding where necessary to prevent: 1. Death or serious bodily injury from occurring; or 2. Substantial financial loss from occurring in the matter at hand as the result of crime or fraud that a party has committed or intends to commit. Before making a disclosure that is not required by law, a neutral must make a good faith effort to persuade the party or its counsel not to act in a way that would cause the adverse party harm, or at least to warn those who might be harmed.
Confidentiality vis-à-vis the Parties: Mediation ABA/AAA/ACR Model Standard V Mediation often consists of joint sessions where both parties are present, and private sessions where the mediator counsels the parties individually. Mediators who hold private sessions must not convey the substance of those meetings to any person not present at the session, without consent of the disclosing party. This rule is very important in the IP context to promote the parties forthrightness by protecting the integrity of trade secrets and other proprietary information.
IV. Competence
Competence: Arbitration ABA/AAA Code, Canon I Arbitrators should accept appointment only if fully satisfied that they are competent to serve. In making this determination, potential arbitrators should consider: Previous experience as an arbitrator; Familiarity with the type of dispute to be arbitrated (e.g., patent infringement or theft of trade secrets); and The level of sophistication of the arbitrator s understanding of the subject in dispute. Must the arbitrator be an expert on the particular technology involved to resolve the dispute? ABA/AAA Code, Canon VI Arbitrators may obtain help from their associates in reaching decisions so long as the associates follow proper conflict check procedures and agree to maintain the confidentiality of the arbitration.
Competence: Mediation ABA/AAA/ACR Model Standard IV Mediators must not serve unless they have the competence to satisfy the reasonable expectations of the parties. Competence includes training, experience in mediation, skills, cultural understandings and other understandings. Mediators must make relevant biographical information available to the parties. The Model Standard does not address technical competence regarding the subject matter of the dispute. Mediators may request appropriate assistance during the course of a mediation if they cannot otherwise conduct the mediation competently, with the parties consent.
Competence: All Forms of ADR CPR Model Rule 4.5.1, Cmts. 5 & 6 Neutrals should only serve in cases where they have sufficient knowledge and skill regarding the process and subject matter to be effective. Relevant factors include: The preparation a neutral is able to give to the matter; and The feasibility of employing experts or co-neutrals with required substantive or process expertise (subject to conflict screening protocols). Neutrals may accept assignments where the requisite level of competence can be achieved by reasonable preparation.