Commonwealth Coatings Corp. v. Continental Casualty Co.

Background

A subcontractor sued the sureties on the prime contractor’s bond to recover money for a painting job. The contract required arbitration. Each side appointed an arbitrator and those two picked a third, supposedly neutral, arbitrator who had done repeated consulting work for the prime contractor. That relationship involved about $12,000 in fees over four or five years and included work on the very projects in dispute. The subcontractor did not know of these ties until after a unanimous arbitration award was issued; lower courts refused to set the award aside, and the case reached the Supreme Court.

Reasoning

The Court asked whether basic demands of impartiality vanish when parties choose arbitration. Reading Section 10 of the federal Arbitration Act, the Court held that awards may be vacated for corruption, fraud, undue means, or "evident partiality." Even without proof of actual bias, an arbitrator’s undisclosed substantial business ties with a party can create an appearance of bias and justify vacating the award. The opinion relied on the principle that even the slightest financial interest can undermine confidence in a tribunal and stressed that arbitrators have broad authority with limited appellate review.

Real world impact

Arbitrators must disclose significant past or ongoing business dealings that could suggest bias. Parties who know about such ties can accept or reject an arbitrator; courts may set aside awards when disclosure is absent and the relationship is substantial. The ruling aims to protect the fairness and appearance of fairness in private dispute resolution without demanding impossibly broad disclosures.

Dissents or concurrances

A concurring opinion agreed but warned trivial ties need not disqualify and urged parties to police arbitrator choice; a dissent argued no evidence of actual bias existed and cautioned the decision may unduly destabilize consensual arbitration.