In re the Arbitration between J. P. Stevens & Co. & Rytex Corp.

Capozzoli, J. The usefulness and strength Of the arbitration process is found in the fact that, generally, persons appointed as arbitrators are those with definite and important ties with the business world. Arbitrators do not ordinarily rely, for their livelihood, on fees received while serving as such. More often than not they are in the very business which has led to the controversy between the adverse parties and are selected because of their experience in that particular business. Of course, irrespective of how knowledgeable and competent an arbitrator may he, he must “ possess the judicial qualifications of fairness to both parties so that he may render a faithful, honest and disinterested opinion ”. (Matter of American Eagle Fire Ins. Co. [N. J. Ins. Co.], 240 N. Y. 398, 405.) So, once again, this court is called upon to test the validity of an arbitration award in the light of the business relations between two of the arbitrators and the respondent. In Commonwealth Corp. v. Casualty Co. (393 U. S. 145, 148-149) the court said: “ It is true that arbitrators cannot sever all their ties with the business world, since they are not expected to get all their income from their work deciding cases, but we should, if anything, be even more scrupulous to safeguard the impartiality of arbitrators than judges, since the former have completely free rein to decide the law as well as the facts and are not subject to appellate review.” A fundamental requirement before one can qualify as an arbitrator is-that he disclose any facts or information which might disqualify him as an impartial arbitrator. Again, in Commonwealth Corp. v. Casualty Co. (supra, p. 149) the court said: “ We can perceive no way ip which the effective [17] ness of the arbitration process will be hampered by the simple requirement that arbitrators disclose to the parties any dealings that might create an impression of possible bias.” (Also, see, Matter of Milliken Woolens [Weber Knit Sportswear], 11 A D 2d 166, affd. 9 N Y 2d 878: Matter of Shirley Silk Co. [Amer. Silk Mills], 257 App. Div. 375.) It is true that mere proof of prior business relations with a party is insufficient to disqualify an arbitrator where that relationship is known to the opposing party. “ Thus, knowledge, on the part of a party, of the existence -of a disqualifying relationship between the opposition and an arbitrator, coupled with, a failure to make timely objection, will be deemed a waivgr of the right to press the objection. * * * Since waiver is a matter of intention * * * the touchstone in these arbitration cases is the knowledge, actual or constructive, in the complaining party of the tainted relationship or interest of the arbitrator.” (Matter of Milliken Woolens, supra, pp. 168-169). In Matter of Friedman (215 App. Div. 130, 136) the court said: “Nothing should be permitted tp throw suspicion even upon the entire impartiality of arbitrators. The finality of an award of arbitrators as compared with the reviewable decision of a judge or a referee makes this all the more important, and that the tribunal which is to pass upon the rights of the parties be not subject to the slightest suspicion as. to its fairness.” In the case at bar it appears from the affidavit of Jules J. L. Hessen, one of the attorneys for petitioner-respondent, that “ in relation to the volume of business which J. P. Stevens & Go. Inc. [hereinafter called Stevens] does on an annual basis, its total annual business dealings with Kenyon and with Deering never amounted to more than approximately % of 1% of its annual volume ”. Earlier, in the same affidavit, there appears the statement that the annual volume of business of Stevens is between eight hundred million to one billion dollars. On the basis of these facts respondent-appellant concludes, and justifiably so, that the sales to Stevens amount to approximately two and one-half million dollars annually. When it is considered that arbitrator Gerald Lincer is the sales manager of Kenyon, which sells to Stevens, one can understand the anxiety and dissatisfaction of the appellant. It is not difficult to believe that the appellant would have refused to accept Mr. Lincer as one of the arbitrators if the facts were made known to it. In Commonwealth Corp. v. Casualty Co. (supra, p. 150) the court said: “ This rule of arbitration and this canon of judicial ethics rest on the premise that any tribunal permitted by [18] law to try cases and controversies not only must be unbiased but also must avoid even the appearance of bias.” (Also, see, the opinion by Mr. Justice McGivehn, writing for the majority of this court, in Matter of Baar & Beards (Oleg Cassini, Inc.) (37 A D 2d 106, revd. on other grounds 30 N Y 2d 649.) Under the rules of the American Arbitration Association, pursuant to which this arbitration was held, the arbitrators were under an obligation to disclose whatever relationship there existed with any party and any circumstances likely to create a presumption of bias. It is true that there is no evidence of impropriety on the part of any of the arbitrators involved in this proceeding. Howevei, this does not overcome the requirement that an arbitration tribunal must not only be unbiased, but must also avoid even the slightest appearance of bias. In view of the conceded business activity between Kenyon and Deering, on the one hand, and Stevens on the other, we simply cannot agree with the dissent that 1 ‘ the relationship of which Rytex complains was, at most, remote, peripheral, superficial or insignificant ’ ’. As was stated by this court at pages 169 to 170 in Matter of Millihen Woolens (supra) “ these purchases constituted a regular course of dealings running into transactions amounting to millions of dollars. They may not be regarded as the casual and occasional dealings which might be expected where arbitrators are chosen because of familiarity with an industry ”. The judgment appealed from should be reversed, on tbe law, with costs, and the arbitrators’ award vacated. A new proceeding .shall proceed before different arbitrators.