b. The Panel's Denial of a Hearing on the Merits
Water Street also argues that the panel majority committed
misconduct in refusing its "repeated, justified, and good faith
requests for a hearing on the merits of its claims and defenses."
Def. Mem. at 9. However, this argument is somewhat misleading.
Water Street never directly raised its substantive defenses in:
(a) its initial letter to the arbitrators describing the
controversy, O'Donnell Aff. Ex. D; (b) the organizational meeting
of the arbitration panel with both counsel, id. Ex. F; or (c)
its brief in opposition to the security award, id. Ex. H. Water
Street's counsel only ever obliquely referred to alleged
obstacles to BICC's ability to prove its case. See O'Donnell
Aff. Ex. D (admitting that "there are probably some sums due to"
BICC by Water Street but that BICC had not provided sufficient
documentation). See also Letters of Peter H. Bickford, appended
to Def. Notice as Exs. E, G (referring only to BICC's difficulty
in proving its case "on the merits").
At the same time, the panel's decision to order a security as
substantial as $1.7 million dollar without any evidence that it
even considered Water Street's facially credible statute of
limitations defense does raise concern with regard to the
question of whether Water Street has been denied "fundamental
fairness." This is particularly true given the panel's order
precluding the conduct of discovery aside from the panel's
independent disclosure of Water Street's confidential financial
information. See, e.g., Home Indemnity Co., 1997 WL 773712, at
*4-5 (vacating a panel's award where it had precluded discovery,
refused to examine whether there was a meritorious claim, and
denied the losing party a "fundamentally fair hearing"). A
federal court would not issue such sweeping preliminary relief
without engaging in some analysis of the merits of the case. See
Reno v. American-Arab Anti-Discrimination Comm., 525 U.S. 471,
494, 119 S.Ct. 936, 142 L.Ed.2d 940 (1999) (Stevens, J.
concurring) (noting that an "essential element" of a federal
court's issuance of a preliminary injunction is a finding of
likelihood of success on the merits); Federal Express Corp. v.
Federal Espresso, Inc., 201 F.3d 168, 173 (2d Cir. 2000)
(reciting the requirement that a party seeking preliminary relief
in federal court must show a likelihood of success on the
merits); Landau v. Vallen, 895 F.2d 888, 893 (2d Cir. 1990)
("Every court considering an application for prejudgment
attachment . . . examines the likelihood of success on the
We confirm the panel majority's threshold decision concerning
the security award nevertheless because if we were to rule, as
Water Street urges, that it was denied due process for the sole
reason that the panel would not hear its substantive defenses in
advance of its decision on the security, then any such interim
security provision would be subject to reversal on its face if it
were issued before a full hearing on all defenses. It must be
remembered that the arbitration clause entered into by Water
Street did provide that arbitrators would be "relieved of all
judicial formalities." Def. Notice Ex. B, Art. XVI, ¶ B. "[U]ndue
judicial intervention would inevitably judicialize the
arbitration process, thus defeating the objective of providing an
alternative to judicial dispute resolution." Tempo Shain, 120
F.3d at 19.
However, the analysis would not necessarily be the same if
plaintiff were seeking confirmation of a final award in this case
based on the present record. Although we find the panel's
security order to be "colorable," in and of itself, it is an
insufficient basis for the resolution of the underlying
controversy. Our concern about the adequacy of the record is
based on the following: (1) Water Street has offered at least a
facially valid statute of limitations defense given the gap
between its 1989 disclaimer of liability and BICC's 1997 demand
for arbitration; (2) the extremely large amount of the security
ordered by the panel may make it impossible for Water
Street to obtain a resolution on the merits; (3) the panel's
early foreclosure of discovery on the merits;*fn13 (4) the
panel's continued issuance of merits-based orders,*fn14 even
though the members are aware that the parties have both
voluntarily subjected the initial security order to federal
review and that Water Street is exercising its right under the
FAA to do so. In sum, it is these facts which would present
issues of fundamental fairness if a final award were issued
without the development of an additional record on the merits.
See Areca, 960 F. Supp. at 54 (finding that if an arbitrator
refuses to hear material and pertinent evidence, prejudicing one
of the parties, the award may be set aside); Konkar Maritime,
668 F. Supp. at 271 ("All parties in an arbitration proceeding are
entitled to . . . an opportunity to be heard [and] must be
allowed to present evidence without unreasonable restriction.")
(quoting Totem Marine Tug & Barge, Inc. v. North American
Towing, Inc., 607 F.2d 649, 651 (5th Cir. 1979)).
c. The Disclosure of Water Street's Records
Third, Water Street contends that misconduct may be found in
the panel majority's decision to disclose its confidential
financial documents to its competitor in the reinsurance
industry. "Misconduct typically arises where there is proof of
either bad faith or gross error on the part of the arbitrator."
Shamah v. Schweiger, 21 F. Supp.2d 208, 214 (E.D.N.Y. 1998)
(internal citation omitted). Here, defendant was justified in its
belief that its current financial data was more relevant to the
then ostensibly resolved security issue than it was to the
underlying decade-old dispute and that, consequently, BICC's need
for the information was limited.
Were this matter before us, we would have been reluctant to
have disclosed this information without a greater showing of
necessity, without notice to Water Street of our intention, and
certainly without a specific restriction limiting the use of the
information to litigation purposes. The decision to disclose
after the panel had rendered its security decision raises
additional questions. However, given the limited role of in
camera submissions in formal court proceedings, we cannot
conclude that this act by the arbitrators rises to the level of
bad faith or gross error that would warrant vacation of the
decision. See Postlewaite v. McGraw-Hill, Inc., No. 98 Civ.
0611, 1998 WL 751687, at *4 (S.D.N.Y. Oct. 28, 1998) (noting that
"arbitrators have an `affirmative duty . . . to ensure that
relevant documentary evidence in the hands of one party is fully
and timely made available to the other side'"). Further, Water
Street's submission does not satisfy its burden of demonstrating
us how it was specifically harmed by the disclosure. See Konkar
Maritime, 668 F. Supp. at 273-74 (refusing to find misconduct
where defendant "has failed to show any prejudice stemming from"
the arbitrator's act).
3. Evident Partiality
Water Street next argues that the panel is guilty of evident
partiality under section 10(a)(2) of the FAA.
9 U.S.C. § 10(a)(2). Water Street correctly cites the proposition that a
court may overturn an arbitrator's decision "[w]here a reasonable
person would have to conclude that an arbitrator was partial to
one party to the arbitration." Def. Mem. at 10 (citing inter
alia, Morelite Construction Corp. v. New York District Council
Carpenters Benefit Funds, 748 F.2d 79, 84 (2d Cir. 1984)).
"While evident partiality or corruption by the arbitrator is a
valid ground for vacating an arbitration award, there is a high
standard in order to prevail on such a claim." Sunoco Overseas,
69 F. Supp.2d at 504-05 (citing 9 U.S.C. § 10(a)(2)). "Courts are
reluctant to set aside an award based on a claim of evident
partiality, and will do so only if bias of the arbitrator
is direct and definite; mere speculation is not enough." Id.
(quoting Sofia Shipping Co., Ltd. v. Amoco Transport Co.,
628 F. Supp. 116, 119 (S.D.N.Y. 1986)).
Defendant argues that the arbitrator's partiality is
the entire course of conduct of the panel majority,
including refusal to hold any hearings, compelling
Water Street to submit confidential financial
records, releasing those records to opposing counsel
at a time when they not [sic] required for any
legitimate purpose, and imposing a crippling punitive
financial burden on Water Street.
Pet. Mem. at 10-11. However, we have already examined these
rulings and have not found them to be a basis to set aside the
Moreover, adverse rulings are not enough to establish evident
partiality. See Konkar Maritime, 668 F. Supp. at 275 (finding
that "speculation [of evident partiality based on adverse
rulings] is clearly insufficient to warrant vacatur of the
[arbitration panel's] award") (citing Bell Aerospace, 500 F.2d
at 923). See also United States v. International Brotherhood of
Teamsters, 170 F.3d 136, 147 (2d Cir. 1999) (requiring that a
finding of evident partiality be based on more than the
"appearance" standard applicable to judges); Sunoco Overseas,
69 F. Supp.2d at 505 (finding no evident partiality where there
was no direct evidence of improper ex parte communication and
any connection between the parties and the arbitrators was too
"attenuated"). Since defendant can offer nothing but adverse
rulings to support its claim of partiality, its allegations are
nothing more than "mere speculation," insufficient to constitute
grounds for overturning the arbitrator's award.
4. Underlying Defenses
Finally, Water Street contends that, pursuant to section 3 of
the FAA, this Court has the authority to dismiss BICC's claims
against it based on its statute of limitations and estoppel
defenses. Def. Mem. at 16-19. In other words, after conceding the
arbitrability of the dispute, Water Street now seeks to have this
Court resolve its statute of limitations and estoppel defenses.
See Tr. 19; Stipulation dated Oct. 18, 1999, appended to
O'Donnell Supp. as Ex. 1. "Once a court determines that the
parties agreed to arbitrate a dispute, then that dispute must be
submitted to the arbitrator." Thomas James Assoc. v. Jameson,
102 F.3d 60, 68 (2d Cir. 1996) (quoting Local Union No. 370 of
the International Union of Operating Engineers v.
Morrison-Knudsen Co., 786 F.2d 1356, 1358 (9th Cir. 1986)).
BICC's reliance on 9 U.S.C. § 3 is misplaced. Section 3
provides only that a federal court has the power to stay a case
before it until after an arbitration "has been had" if the case
is "referable to arbitration."*fn15 This section does not give
this Court the power to divest the arbitration panel of its
authority and decide the case on the merits. See Moses H. Cone
Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1,
24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) (stating that the FAA
"establishes that, as matter of federal law, any doubts
concerning the scope of arbitrable issues should be resolved in
favor of arbitration, whether the problem at hand is the
construction of the contract language itself or an allegation of
waiver, delay, or a like defense to arbitration").
Moreover, it is a clearly established principle of arbitration
law that "it
is up to the arbitrators, not the court, to decide the validity
of time-bar defenses." Shearson Lehman Hutton, Inc. v. Wagoner,
944 F.2d 114, 121 (2d Cir. 1991). See also Consolidated Rail
Corp. v. Metropolitan Transportation Authority, No. 95 Civ.
2142, 1996 WL 137587, at *13 (S.D.N.Y. Mar. 22, 1996) (same);
Domon v. Warsitz, No. 92 Civ. 721S, 1993 WL 152079 (W.D.N Y
Apr. 36, 1993) (confirming an arbitrator's award where defendant
did "not explain why the arbitrators' decision not to apply the
[statute of limitations] bar would have been a manifest disregard
of the law or why such an exercise of discretion would have been
beyond the powers of the arbitrators").*fn16 The same is true of
the defense of estoppel. Local 333, United Marine Division, ILA,
AFL-CIO v. McAllister Brothers, Inc., 671 F. Supp. 309, 312
(S.D.N.Y. 1987) (citing Local 370, 786 F.2d at 1358).
To recapitulate, "once a court has answered questions of
arbitrability . . . the court must refrain from deciding the
validity of any asserted `defenses rather than [referring] their
resolution to an arbitrator.'" Thyssen, Inc. v. M/V Markos N,
No. 97 Civ. 6181, 1999 WL 619634, at *8 (S.D.N.Y. Aug. 16, 1999)
(quoting Conti-commodity Services, Inc. v. Philipp & Lion,
613 F.2d 1222, 1224 (2d Cir. 1980)). Here, Water Street itself
conceded that the matter was subject to arbitration and cannot
credibly assert to the contrary now.
Having considered and rejected Water Street's arguments for
vacatur, the Court grants BICC's motion to confirm the December
15, 1999 pre-hearing security award, and denies Water Street's
cross-motion to vacate the award. Defendant Water Street is
directed to provide the ordered security as directed by the panel
in its December 15, 1999 Order, or its February 1, 2000
supplement. The issues raised by the motions to confirm and to
vacate having been resolved, the Clerk of the Court is directed
to close this case without prejudice to either party's reopening
the case to move to confirm or vacate the panel's final award.
IT IS SO ORDERED.