By Correy E. Stephenson
BridgeTower Media Newswires
DETROIT — An arbitration award should not be vacated just because a member of an arbitration panel is social friends with a lawyer in the case, a panel of the Michigan Court of Appeals has held.
The two men had worked in bar associations together and ate lunch together, although their families never socialized. This professional relationship did not require disclosure to the parties in the case, the court said.
The “admission of friendship is merely a reflection of their mutual professional respect and mild affinity for one another, rather than a declaration of unrelenting, reciprocal loyalty,” the court wrote. “The friendship at issue in this case is not the type of association that a reasonable person would expect to affect [one of the panel member’s] impartiality.”
But the unsuccessful defendant is considering an appeal to let the Michigan Supreme Court provide guidance on disclosures required by the Uniform Arbitration Act.
The unpublished per curiam opinion is Wilson v. Louis D. Builders. The members of the panel were Judges James Robert Redford, Michael J. Riordan and Jonathan Tukel.
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‘Loose professional association’
Michael Wilson hired Louis Kaczynski and his company, Louis D. Builders, to perform various remodeling and construction projects at his home and his business, Riversbend Rehabilitation Inc. Some services were performed but Wilson refused to pay, citing the poor quality of the work.
Kaczynski and his company filed a complaint in Bay Circuit Court alleging three counts of breach of contract; Wilson and Riversbend filed a counterclaim alleging negligence and breach of contract.
The parties agreed, pursuant to the Uniform Arbitration Act to submit the matter to a three-member arbitration panel. Each party selected one member and the trial court selected William H. Darbee.
In a unanimous decision, the panel awarded Wilson and Riversbend $146,642 of the requested $850,000 in damages and nothing to the Kaczynski, who asked for $43,526.
Wilson and Riversbend then filed a complaint to vacate the arbitration award due to Darbee’s alleged bias toward Kaczynski and Sheppard, his attorney.
The plaintiffs argued that over the course of several years, Darbee, Kaczynski and Sheppard held public/municipal positions together, worked on various township legal matters and interacted socially.
These interactions constituted substantial and material relationships that were not disclosed to the parties prior to the arbitration proceeding, the plaintiffs told the court.
In response, the defendants moved for summary disposition. Darbee testified in a deposition that he had known Sheppard for almost 25 years through the local bar association, where they frequently engaged in group lunches and the occasional social event. Darbee also testified that he considered Sheppard a friend, but that their families never interacted and their relationship existed almost entirely through the local bar association.
Sheppard testified that he considered Darbee a friend and attended two college basketball games with him, both as guests of a local orthodontist.
The trial court granted summary disposition in favor of the defendants and the plaintiffs appealed. They argued that the alleged social relationship between Darbee and Sheppard required the court to vacate the arbitration.
But the court disagreed.
Binding arbitration was agreed to by the parties pursuant to the UAA, which provides that the court shall vacate an arbitration award where there was “(1) evident partiality by an arbitrator appointed as a neutral arbitrator, (2) corruption by an arbitrator, or (3) misconduct by an arbitrator prejudicing the rights of a party to the arbitration proceeding.”
Individuals who have “a known, direct, and material interest in the outcome of the arbitration proceeding or a known, existing, and substantial relationship with a party” are prohibited from appointment by MCL 691.1691(2).
In addition, the statute provides that before accepting an appointment, an individual “shall disclose to all parties ... any known facts that a reasonable person would consider likely to affect the impartiality of the arbitrator in the arbitration proceeding...”
The trial court properly applied the objective, reasonable person standard in the case and determined that Darbee acted in conformity with that standard, the court said.
“Darbee and Sheppard admitted that they often ate lunch at the same table for many years,” the court wrote. “However, as the trial court pointed out, this does not imply, or prove, that Darbee and Sheppard had an existing relationship requiring disclosure. Darbee and Sheppard admitted that they were friends, but did not visit each other’s houses or families, or socialize outside of professional association events and infrequent sporting events with a mutual acquaintance.”
Although the dealings between Darbee and Sheppard could arguably fall under the dictionary definition of “relationship,” so could the association of all other attorneys who are members of the State Bar of Michigan or any attorneys who share a local bar association membership, the court pointed out.
“Such a broad interpretation would prohibit most attorneys from acting as arbitrators and would discourage attorneys from participating in bar events,” the court wrote. “It is unlikely the legislature intended this result. Moreover, subsection MCL 691.1692(a) indicates that the type of relationship contemplated by the statute is one implicating a personal or financial interest, rather than the loose professional association between Darbee and Sheppard.”
Further, MCL 691.1692(5) creates a presumption of partiality when a neutral arbitrator fails to disclose “a known existing, and substantial relationship with a party.”
“This presumption does not apply here where the allegation is limited to an alleged relationship with a party’s attorney,” the court said. “This does not mean that plaintiffs could not otherwise demonstrate partiality, but ... plaintiffs do not present evidence which a reasonable person would consider likely to affect Darbee’s impartiality.”
Alternatively, the plaintiffs contended that Darbee’s impartiality was compromised due to his relationship with Kaczynski, because they served on a municipal board together.
To rebut this allegation, the defendants submitted an affidavit by the town clerk that there was no overlap between Kaczynski’s service and the representation by Darbee’s firm, and Darbee testified that he had no personal interaction with Kaczynski.
“Thus, the evidence plaintiffs offer is insufficient to demonstrate that there exists a ‘known, existing, and substantial relationship’ between Darbee and Kaczynski sufficient to impute a presumption of partiality pursuant to MCL 691.1692(5),” the court wrote. “Nor does it constitute a fact that a reasonable person would consider likely to affect Darbee’s impartiality during the arbitration proceedings.”
The court affirmed summary disposition in favor of the defendants.
Richard C. Sheppard, an attorney at Smith & Brooker in Bay City, represented the defendants.
“The appellate judges recognized that, had they found the relationship here was one that a reasonable person would expect to impact impartiality where an active bar association exists, they would never be able to get local attorneys to act as arbitrators,” Sheppard said.
Caro attorney Phoebe J. Moore represented the plaintiff and noted that her client is “strongly considering” appealing the outcome, particularly as there is not a Michigan Supreme Court decision since the enactment of the Uniform Arbitration Act in 2013 that discusses the parameters of statutory arbitration and when it should be set aside due to partiality.
“Any reasonable person would believe that he was likely to be impartial based upon these facts, and thus, the arbitrator was required to disclose this before the arbitration,” she said in an emailed statement. “Justice was not served here; efficiency won out over fairness and the rule of law.”
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