Disclose Does Not Mean “Disqualified”

Mediators and arbitrators are required to disclose to potential parties any facts that might make them appear impartial. The arbitration statute in Michigan requires potential arbitrators to disclose “any known facts that a reasonable person would consider likely to affect the impartiality of the arbitrator…” including a financial or personal interest in the outcome of the arbitration, or an existing or past relationship with any party, their counsel, a witness, or another arbitrator. MCL 691.1692. Mediators are required, pursuant to the Michigan Standards of Conduct for Mediators, to disclose conflicts of interest and grounds of bias or partiality reasonably known to the mediator. Standard III.C. A conflict of interest is defined as “a dealing or relationship that could reasonably be viewed as creating an impression of possible bias or as raising a question about the impartiality or self-interest on the part of the mediator.” Standard III.A. Michigan’s Standards of Conduct for Mediators are very similar to the Model Standards.

The paradigm is that the potential neutral discloses sources of possible bias, then the parties decide whether the connection disclosed is so tenuous as to be irrelevant, or so serious as to disqualify the person from serving as their neutral. In sum, the neutral’s job is to disclose; the parties’ job is to decide whether to appoint (or to remove, if the disclosure occurs when the process is already underway).

The Court of Appeals seems to have gotten this confused in an arbitration case, Wilson v Builders, unpublished per curiam opinion of the Michigan Court of Appeals, issued November 19, 2020 (Docket No. 351560). The case involved a construction dispute; each side was represented by counsel, and each side selected an arbitrator, then the local judge appointed the “neutral” arbitrator. The neutral arbitrator, Mr. Darbee, had a long-standing friendship with defendant builder’s attorney, Mr. Sheppard, which Mr. Darbee apparently failed to disclose. Over the previous ten years, they had frequently engaged in group lunches and occasional social events through the local bar association. They had gone together with a local orthodontist to a couple of college basketball games. Their paths had crossed when Darbee was on the municipal zoning board of appeals and Shepherd was city attorney. When Darbee had a dispute with his water bill, his attorney selected Shepherd as their neutral case evaluator. The two were rumored to have lunch together in local restaurants, and indeed, they lunched together during the arbitration proceedings.

The plaintiff evidently did not learn of any of this until after the award (he won, but he received less than a quarter what he had demanded). Plaintiff asked the trial court to vacate the award due to the arbitrator’s bias. He said he never would have agreed to Mr. Darbee had he known all this. The trial court refused, noting that Bay City was “a small community” where “lawyers rub shoulders and change sides on a daily basis,” concluding that Darbee was impartial. (Recall that the trial judge is the one who appointed Mr. Darbee to this panel.) The plaintiff appealed.

The Court of Appeals affirmed. The Court agreed that Arbitrator Darbee had a “relationship” with Attorney Sheppard, but determined that the “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.” The court opined that interpreting the statute broadly to include professional relationships “would prohibit most attorneys from acting as arbitrators and would discourage attorneys from participating in bar events.”

No, it wouldn’t. All the statute requires is disclosure, not disqualification. Neutral discloses, parties decide. The plaintiff here might well have determined that, all things being equal, Mr. Darbee was still the best candidate for the job. But the plaintiff was deprived of the opportunity to make that decision.

In a twist of logic, the Court of Appeals says that the fact that the arbitrator had lunch with defense counsel during the proceedings is evidence that their association did not affect the arbitrator’s impartiality, because neither party objected. Impartiality is not proven by whether a party objected. If plaintiff’s counsel knew at the time the extent of their friendship, perhaps he would have objected. Lacking context, he may have decided to overlook this one incident to avoid jettisoning the arbitration. Far from being evidence of impartiality, it’s further evidence that there was a friendship here that should have been disclosed at the outset.

The Court of Appeals’ comments about how a broad interpretation of “relationship” would mean that no one in the bar could serve as a neutral are similar to the concerns expressed by the Attorney Discipline Board (ADB) in a case regarding a mediator’s failure to disclose a close friendship with one side’s attorney. The ADB worried that, “In the legal profession, an ‘appearance of conflict of interest’ can be found wherever anybody looks,” so requiring neutrals to disclose every connection would discourage the collegial relationships that enable attorneys to resolve their differences amiably.

The ADB, like the Court of Appeals, confuses disclosure with disqualification. In fact, following this logic, if all attorneys disclosed their relationships, they would all have the same “disadvantage” and the playing field would be leveled. The Court of Appeals almost sounds patronizing when it quotes the trial judge’s observation that “lawyers are able to separate themselves and act professionally and make professional decisions without being affected by personal relationships.” Both courts sound like they’re saying that attorneys don’t need to disclose friendships because they can be trusted to do the right thing.

No, they can’t, and that’s why we have rules compelling disclosure. Neutral discloses, parties decide.

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