COMMONWEALTH CORP. v. CASUALTY CO.

Transcript: 

Argument of Emanuel Harris

Chief Justice Earl Warren: Number 14, Commonwealth Coatings Corporation, petitioner, versus Continental Casualty Company, et al.

Mr. Harris.

Mr. Emanuel Harris: Mr. Chief Justice and may it please the Court.

The question involved on this certiorari is the effect of the failure of a third arbitrator in a tripartite arbitration proceeding in departing to disclose prior business relations between them whether that -- whether an award made in such a proceeding is invalid under the Federal Arbitration Act.

The Act provides that the award may be vacated where the award was procured by corruption or fraud, where there was evident partiality or corruption in the arbitrators or either of them or where the arbitrator is guilty of any other misbehavior by which the rights of any party have been prejudiced.

These -- this case arises out of contracts between the petitioner and the respondents.

The petitioner was a subcontractor of the respondent Samford for the performance of work, painting work on five construction projects in Puerto Rico.

The respondent Samford was the general contractor.

The claims of petitioner was that the Samford, although it received payment from the owner for the work performed by the petitioner failed to make progress payments to the petitioner and therefore the petitioner abandoned the work.

The claim of Samford is that the petitioner abandoned and stopped work on the contracts.

The contracts provided for arbitration of all disputes.

The respondents binding companies were the sureties on Samford's Miller Act bonds.

The contract, as I said, provided for the arbitration of disputes and the respondent bonding companies obtained a stay of the suit against them under Miller Act bonds pending the determination of the arbitration.

Pursuant to the procedure established by the contracts, the petitioner and Samford each appointed one arbitrator.

Those two arbitrators appointed an arbitrator by the name of Capacete.

At the time the arbitrators were designated and prior to the arbitration proceedings, petitioner's attorney, Mr. Romero made an investigation to discover whether any of the arbitrators had prior business relations with any of the parties and he found none and none of the arbitrators informed him of any such prior relations and he states in an affidavit in the record that if he had known about such prior previous relations, he would asked a lawyer, have objected to the arbitrator's capacity.

The respondents state in their briefs throughout their brief that no inquiry was made by the petitioner, totally disregarding this affidavit by Mr. Romero although they devote about five pages in their brief in attempt to discredit Mr. Romero's affidavit.

Furthermore, in their --

Justice Byron R. White: He never asked the arbitrator.

Mr. Emanuel Harris: The affidavit doesn't disclose that he asked --

Justice Byron R. White: Just suppose that he asked --

Mr. Emanuel Harris: No, it doesn't say that -- it does say that none of the arbitrators informed him.

He does not say -- the affidavit does not say that he ask this particular --

Justice Byron R. White: Do you think the arbitrator justified that nobody asked him.

Mr. Emanuel Harris: He did.

However, it was admitted in the respondent's brief that Capacete did discuss possible arbitrators with Mr. Romero at the time a vacancy appeared in the Board of Arbitrators and as a matter of fact, at the time, on the request of Mr. Romero, Mr. Capacete furnished a list of lawyers who knew something about engineering cases and from that list furnished by Mr. Capacete, a third arbitrator was designated to fill the vacancy.

Now, Capacete at that time did not say anything about his prior relations with Samford.

Justice Byron R. White: Well, why gather that your position that it's other misbehavior under the statute?

Mr. Emanuel Harris: No, our position is that the arbitrator and the respondent with whom he had present relations were under a duty to disclose these previous relationships --

Justice Byron R. White: Yes, but the statute which you just quoted to us speaks in terms of certain misbehavior of the arbitrator, doesn't it?

Mr. Emanuel Harris: That's right.

And I -- our position --

Justice Byron R. White: Apart -- apart from the position of the contractor and any duty he may have had.

Did you -- is it your position that the arbitrator in any event was under an affirmative duty or otherwise be guilty of misbehavior, if he did not disclose these relations.

Mr. Emanuel Harris: No, our position is that the very failure to make disclosure constitutes misbehavior to the prejudice of the petitioner.

Justice Byron R. White: Well, that's what I've asked you and this on the part of the -- on the part of the arbitrator.

Mr. Emanuel Harris: On the arbitrator.

Justice Byron R. White: Independently of the other party for the proceeding.

Mr. Emanuel Harris: And also on the part of the respondent, because the statute refers to corruption and fraud.

So that you have a double --

Justice Byron R. White: Well, let me put it to you again.

Mr. Emanuel Harris: Yes.

Justice Byron R. White: Are you submitting to us that without regard to the conduct or the failure of the other party of the arbitration to disclose, it is misbehavior under the statute for the arbitrator not to disclose.

Mr. Emanuel Harris: Yes.

Justice Byron R. White: Alright.

Mr. Emanuel Harris: And we also and we go further and we say that not only was it misbehavior on the part of the arbitrator but that there was a duty on the part of the respondent to disclose these prior relations.

Justice Byron R. White: Where did that duty come from?

Mr. Emanuel Harris: Pardon?

Justice Byron R. White: Where is that duty come from?

Mr. Emanuel Harris: As a matter of law, that when parties submit their controversy to an arbitration board and particularly to a tripartite board that certainly is the duty of the respondent to disclose that the third arbitrator who's suppose to be a neutral arbitrator is in fact not a neutral arbitrator.

Justice Byron R. White: But at least -- at least your other argument is based on the statute.

Mr. Emanuel Harris: That's true, but --

Justice Byron R. White: Is this one?

Mr. Emanuel Harris: Oh, yes.

Because that is within the provisions of the Arbitration Act that the award was procured by corruption and fraud in the concealment of the prior relations, so that it's within the statute and of those provisions that I've referred to.

Now, --

Justice Abe Fortas: Well, the First Circuit does not, Mr. Harris, the -- Mr. Harris, the First Circuit does not deny that in some circumstances, there may be a duty on the part of the arbitrator to make voluntary disclosure.

As I read its opinion, however, it says that it's not clear that in this case, a relationship was officially closed to establish partiality as a matter of law, is that right?

Mr. Emanuel Harris: That's what the Court of Appeals held --

Justice Abe Fortas: In other words, the Court of Appeals affirmed the factual determination by the District Court.

Mr. Emanuel Harris: That's true but the Court also held that the circumstances Mr. Justice Fortas could also held that under the circumstances and facts in this case, it will far better if there had been disclosure.

Now, that answers the argument of the respondents that the relations between these two parties were remote and isolated and insignificant and insubstantial.

In other words, the Court didn't hold that these relations were remote, isolated and insubstantial.

They held that it would've been far better if there had been disclosure and that is the whole gist of this case that this arbitrator and the respondent should have disclosed this relation.

Now, with just coming back to my discussion with reference to inquiring --

Justice Thurgood Marshall: Mr. Harris, what would happen if the arbitrator in good faith forgot and later on remembered, would you upset the whole award?

Mr. Emanuel Harris: Mr. Justice Marshall, it will be impossible for this arbitrator to forget that.

Justice Thurgood Marshall: I'm not talking about this case.

I'm talking about a hypothetical.

Mr. Emanuel Harris: In a hypothetical case, if the circumstances were such as to justify our forgetfulness, there might be some excuse or justifications (Voice Overlap) but not in this case.

Justice Thurgood Marshall: I'm just saying that maybe you're going too far in making just a flat rule that if a neutral arbitrator has at anytime under any circumstances in the past, and any deal as with one of them that in and of itself, is sufficient to offset in the rule.

Mr. Emanuel Harris: I think that you would have to go to the facts in the particular case.

Now, I can't conceive of cases where the mere failure to disclose automatically would not disqualify an arbitrator.

Justice Thurgood Marshall: I'm not asking for pro se rule?

Mr. Emanuel Harris: Pardon?

Justice Thurgood Marshall: You're not asking for automatic pro say rule, are you?

Mr. Emanuel Harris: Not automatic except under the facts of this case.

Now, here's the justification made by the respondents in this case, first they say that the services -- I mean it's undisputed that Capacete rendered services to the respondents for which his company was paid.

He admitted that.

He admitted that he never told the petitioner or the other arbitrators about it.

He admitted that he had -- in fact he testified that he had no reason to disclose.

Now, in the face of that, and referring to the nature of these relations, the respondent went so far as to impose a condition on the petitioner at the time the petitioner was going to fill a vacancy in the board that they could appoint a successor arbitrator without objection, without the consent of Samford subject to the right of Samford to object, if the person selected, had any interest or involvements in the matters arbitrated.

In other words, the very situation -- and Mr. Romero referred to that situation in the District Court as evidence of a guilty conscience that Samford was making sure that the very situation was not present on our side and then the counsel for the respondent says that was a very reasonable and understandable thing to do.

In other words, it was reasonable and understandable for the respondent to fail to disclose prior relations but it was not reasonable and understandable for us, the petitioner, to object when we found out what the circumstances in the evidence was that was not reasonable and understandable for us.

Justice William J. Brennan: Did you say Mr. Harris now many years back it was that these relationships --

Mr. Emanuel Harris: They terminated about a year before the arbitration.

They lasted for five years from about 1959, 1958 to 1961, about five years.

Now, one of the points that the respondents makes with reference to these relations, they say that the services rendered -- by the way, these services aren't the very project, some of them involved in the arbitration and they say that these services were not rendered by Capacete but rendered by his company.

But Capacete himself testified that he personally using the pronoun “I” rendered these services and that he owned this company which they say carried on to these prior transactions.

On examination by respondents counsel, he admitted that he owned 67% of the company.

Now, whether or not that his company performed the services or he performed them for the benefit of his company of course that's no justification for fairly to disclose these relations if the services were performed by him by the benefit of his company.

Certainly, the duty to disclose him arises.

He can't hide behind the public and say I did this for my company so I don't have to tell the petitioner that I have these prior relations.

Also they say that only $12,000.00 was paid to the arbitrator in his companies for all the services rendered.

At what amount does the duty of ours to make disclosure, to do as far as contend that this Court should fix an amount in dollars and cents about $12,000.00 or percentage of income when that duty arises and they also said that the services rendered by the arbitrator were different than the services rendered by the petitioner, the arbitrator having performed services in connection with drilling and investigation of foundations whereas the petitioner's services were for painting on the very same projects.

I mean, could you have a more ridiculous justification or excuse for failing to disclose the relation?

Does -- do the services rendered by the arbitrator have to be exactly the same in kind and character as the other party before he's required to disclose these qualifying relations?

The respondents in their brief attempt to avoid the facts of concealment with euphemistic phrases that they don't have to volunteer.

There's no duty to volunteer information not solicited.

But the Court of Appeals at sum said that there was a difficult line between what has to be volunteered and what may await for inquiry but the Court of Appeals held in this case that the information should have been disclosed.

The line that the respondents argue here is that we didn't conceal, we just didn't volunteer.

I submit to this Court that that certainly is no explanation, excuse or justification to the use of semantics to justify the violation of the obligation to disclose.

Now, principally, with reference to Capacete, he was the third arbitrator.

He is supposed to be neutral.

The courts have made it clear that arbitrators designated by the parties are expected to have relations with the parties, even expected perhaps to favor the parties that designated them.

But the neutral arbitrator is under a strictest standard of impartiality, freedom from bias and prejudice.

Certainly, this state, it requires that when a neutral arbitrator, a third arbitrator is chosen that the least that can be expected of him is that he should disclose facts which show that he's not in truth and in fact neutral.

And the importance of this appears in the record because one of the arbitrators who was appointed at the time a vacancy occurred testified that he relied on Capacete.

He did not examine each and every document himself but relied on Capacete for decisions.

Who can tell from this record whether the prior relations did not affect his decisions?

Justice William J. Brennan: Were these a unanimous award?

Mr. Emanuel Harris: Those are not unanimous award and this arbitrator who testified that he depended on Capacete was one of the lawyers whose names on -- who was on the list given by Capacete to Mr. Romero as an attorney who knew something about engineering services.

Indirectly, Capacete recommended this arbitrator who said that he depended on Capacete for his decisions and that emphasizes the importance of a third arbitrator.

Now, the respondents contend in their brief that an arbitrator is like a judge.

An arbitrator is stronger and a more important position than a judge.

You can appeal from a judge's decision but there's no appeal from an arbitrator on law or fact and that's the reason why the position of the third arbitrator in this case is so important because there's no appeal from the award on questions of law and fact and that's why the strict standard is required, a stricter standard is required of the third arbitrator rather than the other arbitrators.

The respondents in their brief referred to the magnitude and intensity of hidden and active dispute between the parties including many contested and contradicted contentions and complex disputes.

Obviously, if you have a failure to disclose and assuming that Capacete willfully failed to disclose, then certainly, the respondent willfully failed to disclose, naturally, you cannot find in the record positive evidence to show partiality.

The very fact of concealment which is undisputed in the record shows the partiality which makes this award vulnerable under the Federal Arbitration Act.

Now, if Your Honors please, these respondents say that a setting aside of this award would frustrate the purpose of arbitration, which would be to give final and quick relief.

The purpose of an arbitration is to have an honest proceeding.

If there's any frustration of that purpose, the respondents themselves are responsible for the vulnerability and for this tainted award.

They have been responsible for the thousand hours of work that they refer to in their brief and they have subjected the petitioner to the tremendous burden and expense of carrying through an arbitration wholly unaware of the secrecy and the affiliation and the tie-in between this arbitrator and the respondent.

And notwithstanding this failure to work, to disclose these relations and these attempted justification for this failure which absolutely doesn't stand up morally or legally and they object and they say that this -- that setting aside this award would frustrate the purpose of arbitration when they are responsible for the facts which result in this frustration, they actually complain in their brief that we didn't pay our share of Capacete's $3,000.00 fee.

Your Honors, I submit that I never -- it's adding insult to injury, that's the only way to describe it.

I submit that this award is not only immoral, legally untenable and for this Court to sustain contentions that in circumstances like this there is no duty to disclose the prior relations would open the door to corruption, so that you couldn't have an honest arbitration where you had a situation something like this.

I submit that under the facts in this case, you have a dishonest determination which this Court should not permit to stand.

Let me give you an instance of how the record even though it doesn't positively disclose the partiality, how the record discloses that there must have been partiality.

The total amount of these contracts was $350,000.00.

They were paid about $200,000.00 leaving an unpaid balance of $140,000.00.

The petitioner claimed $113,000.00 for work that it did perform, leaving about $28,000.00 of uncompleted work.

The arbitrators allowed Samford $158,000.00 to finish $28,000.00 of work.

Twice, does this record show evidence of partiality?

I submit that it does and I ask this Court to set that award aside.

Chief Justice Earl Warren: Mr. Currie.

Argument of Overton A. Currie

Mr. Overton A. Currie: Mr. Chief Justice and may it please the Court.

We do not come today desiring to stand upon any technical legalism though we do request that the law be applied to our case and we feel that the law in this case will not only produce that which is to be a sustaining of this award but will also do that which is ethical and moral according to the expectations of our society in its highest tradition and in as much as there has been some question raised in the more recent escalation of allegations in the briefs and the pleadings in this particular Court at this level which are new and different from those raised in the lower court.

Some of which not only reflect on our client but the attorneys who have just been admitted to this practice may as an officer of this Court, I invite your deepest questions to the most sensitive areas on my profession and practice and what has occurred in this case in any unreserved, unqualified fashion.

First of all, the merits of the issue have been partly been discussed.

May I respond to that and attempt to address this Court and establish that not only were the arbitrators more than justified in their award but that the procedures followed were also legal and ethical and proper.

The subcontractor, the large painting subcontractor owned by three, the record reveals there are three owners, two from New York, one in Puerto Rico.

Commanded by Maryland Casualty had five contracts involved in excess of $350,000.00.

The painting own five contracts.

It had over $9 million worth of work on Government buildings, the United States Air Force public housing.

We have a box here, over 18 inches thick of records that were introduced in the trial court.

It's only part of the evidence that establishes the back charges, every hour of additional work required when the prime contractor had to perform work that the subcontractor did not perform.

Painting behind the bushes, buildings had been painted the wrong color.

The subcontract required the subcontractor to pay the payments monthly and on time for paint and supplies so there would be liens against the property or claims against this Miller Act bond.

Instead of that, false statements were turned in by the subcontractor saying payments have been made to the suppliers and the contractor discovered there was $40,000.00 to $60,000.00 of such paints.

The arbitrators in short Your Honor, there is more than abundant evidence are in this Court to establish a breach on the part of the subcontractor which provoked the demand by the prime contractor when the sub abandoned the work, even though the contract provided in the event of the dispute, the work would continue and they would immediately have arbitration, each contractor would appoint an arbitrator and those two would appoint a third and the vote of any two would be a controlling vote that would be the majority, that would be binding and enforced within the courts.

They abandoned the work, contrary to that contractual commitment.

We appointed Mr. Chad (ph).

We had a Blue Ribbon Arbitration Board.

For 30 years, he was with the Corps of Engineers as a contracting officer, a graduate engineer.

Opposing counsel appointed a lawyer by the name of Mr. Holman.

They in turn selected Mr. Capacete.

We did not select him.

Mr. Capacete, Professor of Engineering at the University of Puerto Rico, 60% order in the largest foundation testing company in the Island of Puerto Rico, until 1957, the only such construction testing firm on that island, until 1959, one of two and the largest and continues to be the largest.

Since then, Mr. Capacete has become a partner in an architectural firm.

It does over a million dollars a year in gross volume.

He's a senior partner of that firm, leading engineer, so outstanding that the parties have continually -- the petitioner here continually stipulated that he was honorable, competent and we are in this situation Your Honor, there was a complaint filed against us charging many, many things, some 12 or 15 grounds to invalidate the award.

We thought that this matter had been abandoned by judicial stipulation that the parties had abandoned any contention that they had a ground to complain.

The basis for that is that we find in the record and in our brief on page 38 and 39, we have at least some four or five quotations from petitioner's counsel stating for example.

Now, we don't mean to say that we believe the chairman acted improperly in any way another statement from petitioner's attorney.

I would like the record clear that at no time as Mr. Romero or myself accusing any of the arbitrators with anything fraudulent.

They -- another one, for example, this isn't an allegation of fraud against the arbitrators, then there are many others that calls the Court to conclude in its finding counsel for the plaintiff, the petitioners, this claimed any interpretation of bias, partiality or fraud on the part of the arbitrators involved.

He seeks to overthrow the award on the ground that Samford should have informed the plaintiff that the engineering firm will switch the arbitrator involved was connected had in the face done some work to Samford.

In view of the fact that not only has plaintiff failed to offer any evidence showing evident partiality and set arbitrator, it also has expressly disclaimed any such imputation this subjection to the award must be and is hereby overruled.

The trial court heard this case three times.

There were so many objections, there were objections made by the petitioner that the award was void because we met on Labor Day, there were 10 days of testimony.

Why did the arbitrators meet on Labor Day?

Because two of the owners, our petitioner live in New York and needed to return home, decided to return home and asked that we meet on Sunday in Labor Day.

So, at their request and by stipulation of all parties, the arbitrators did us the service of working on weekend.

It was then challenged as being illegal because it had been Sunday work.

Whether it was quasi-judicial and whether allegedly there was no jurisdiction for an arbitration board to work on Sunday.

Justice Abe Fortas: Well, Mr. Currie, if there is a question of law here, I suppose it is -- it has to me a contention that in these circumstances an arbitrator has a duty to come forward and make disclosure whether or not he is asked questions or appropriate questions that they have assigned and then even where you have a unanimous award, there is a per se whatever phrase of Latin or otherwise one wants to use in affirmative duty on the part of an arbitrator to come forward with statements that circumstances that may affect his qualification.

That's the only issue here, as I see, isn't it?

Mr. Overton A. Currie: Yes sir, that is correct Mr. Justice Fortas.

There is in that instance, the very relevant question that was raised earlier where is the source of that duty of the arbitrator to volunteer information not sought or the opposition.

Number one, every case that has spoken of such a duty that we have found has a reason where the parties have themselves imposed a duty to speak without question.

If Mr. Capacete had been asked, “Tell me, have you ever done work for with Samford?

What are your past relations?”

And had he misrepresented it, then having made the request for information, the objection would have been preserved.

No question about that.

Justice Abe Fortas: Who suggested Mr. Capacete for the -- for this, the arbitrator's job?

Mr. Overton A. Currie: The other two arbitrators, Your Honor.

Justice Abe Fortas: The other two, was there -- one must have suggested for the other, I take it.

Mr. Overton A. Currie: I -- I do not know which.

Justice Abe Fortas: Is there anything?

Well, I'll put this way, is there anything in the record to indicate who first proposed Mr. Capacete for the --

Mr. Overton A. Currie: No, sir.

There is a total absence of information on that.

Mr. Holman died.

The attorney appointed by petitioner died.

So -- and prior to that, there had been another arbitrator, Mr. Pont (ph), appointed by the petitioner who resigned.

We were having difficulty getting the petitioner to appoint an arbitrator and those two to select the third.

And I wrote a letter that's in the record.

It's the only contact I ever had or the respondent had.

Every contact we had with the arbitrators was by written letter with copies to all parties and we asked Mr. Capacete to continue to serve when he suggested he had to go to Spain for an engineering institute and we waived the right to go to Court and asked that the vacancy be appointed by the court since Mr. Holman who had been appointed by the petitioners had died, we told him that they could appoint anyone they wanted to so long as they didn't have an interest in the litigation.

Now, Your Honor, with reference to the question of whether or not an arbitrator has a duty to volunteer any alleged disqualifications, the cases cited by petitioner deal with the American Arbitration Association which is used when the parties in their arbitration clause referred to it by reference and the agreement becomes jurisdictional.

We all know that an arbitrator have authority to decide must be vested by the agreement of the parties to be bound.

Everything from the disputes cause and government contracts, your (Inaudible) decision, the Bianca (ph) decision, all arbitration grows out of the parties having consented to as a matter of contract to allow a third person to resolve the dispute and be bound by it and when you impose a condition in that that you will bring forward any information disqualifying that is the equivalent of asking.

That is the equivalent of inquiring but we have found no case where an arbitrator absent either inquiry or absent that form of agreement that you will use the standards or you will use the rules of some association to control any duty imposed on the arbitrator.

More importantly, even here, the parties have expressly stipulated, how can we prove anything?

What greater proof is there in own demand than a judicial stipulation of innocence?

Actually using the word, that Mr. Capacete was guilty of no wrongdoing.

They have relieved him, they have ratified this man even in the course of this litigation.

They then attempted to shift the burden to the respondent.

Now, the work less deals was the evident partiality.

First of all --

Justice Hugo L. Black: May I ask you Mr. Currie?

Mr. Overton A. Currie: Yes, Mr. Justice Black.

Justice Hugo L. Black: Do you think that if a man is called on to act as a judge in a court and he knew, the other side didn't know that he had had close business connections such as was alleged here, whether there is a statute or not that it will be his duty to report to that connection, what would you think?

Mr. Overton A. Currie: I think Your Honor when you indicate close that the present law dealing with a direct interest that is more than insubstantial and present certainly there should be a duty.

And even with better practice --

Justice Hugo L. Black: But they alleged that it was closed.

Mr. Overton A. Currie: Your Honor, in this instance, I would just come into that.

First of all, it was totally unrelated.

Justice Hugo L. Black: There's a difference to me in arguing a defense of what was done if you put it on the basis that a claim, that he was, had been associated but it was not substantial and one which seeks to defend it without saying it was not substantial.

Mr. Overton A. Currie: Yes, I was getting ready Your Honor to deal with that bare question.

First of all, we submit it was insubstantial, it was not close, it was remote, it was casual.

It was hold by a period of some five years.

As the brief makes an analysis, the total amount of some $12,000.00, most of that is for another corporation.

Only some $2,000.00 to $4,000.00 is involved here, this in the constituted less then if you only include the $2,000.00 to $3,000.00 over a six-year period.

It's less than 1%.

If you add all $12,000.00, it gets down to something like one-tenth of 1% of the man's business, Mr. Capacete's gross business, one-tenth.

Justice Abe Fortas: Well, apart from that, the question for us really is whether the courts below find that, I think that's the question.

And isn't it true that the District Court found that there was no prejudice or bias in factors manifested in the course of the proceedings number one and number two, that the relation didn't find that the relationship was not sufficiently close to require a -- the arbitrators to volunteer the information?

Mr. Overton A. Currie: Yes sir, that is absolutely correct.

Justice Abe Fortas: Did the District Court found that?

Mr. Overton A. Currie: The District Court found that there was in fact, not only that the District Court find that there was not imputation even of partiality, much less fraud but the District Court reviewed all the evidence.

We brought, we subpoenaed all three arbitrators, all the record.

Justice Abe Fortas: Next question is, did the District Court find that the relationship was not sufficiently close to require the arbitrator to come forward with a disclosure?

Mr. Overton A. Currie: Your Honor, the District Court held that there was no imputation thus expressed -- disclaim of any impartiality or fraud and then held this.

In closing, I wish to state that the record shows that the arbitrators conducted fair, impartial hearing, that they reached the proper determination of the issues before them and that the plaintiff's objection to represent a situation where the losing party to an arbitration is now collecting it straws in an attempt to avoid the results of the arbitration to which it became a party.

Then the Circuit Court of Appeals, the court Your Honor, the lower court, I believe, thought as we thought that this issue had basically been abandoned because the petitioner's attorney at the last hearing said and it's explained in the brief that the ultimate issue is that they did not have the right to cross-examine or to -- and they objected to certain evidence and the arbitrators nevertheless let it in.

All three arbitrators testified that they remembered otherwise, so the petitioner's attorney said it's a matter of credibility.

I say, that I objected and the arbitrators let it in.

I say that we asked for time and it was not granted.

So, the trial courts asked that the court report to transcribe the record and after reviewing the record, the three arbitrators' was sustained.

There was no request for time.

The petitioner asked for court reporters.

They have never paid them.

They have never even paid their own attorney who served as an arbitrator.

We didn't mention that they have not paid Mr. Capacete alone.

There we asked that the record be studied.

We have attempted to bring forward and just see what it is.

Justice Byron R. White: Mr. Currie would the connections which the arbitrator in question had with your client been such that they would have had to have been disclosed under the commercial rules of the Arbitration Association under Rule 11?

Mr. Overton A. Currie: Your Honor, we believe under the Ilios case and the authority of the Gimbel's case, both which are cited that they would be held to be insubstantial.

It would certainly be a better practice if the information were requested.(Voice Overlap)

Justice Byron R. White: Well, I thought it would have been substantial for purposes of whether he was even qualified but how about the rule on disclosure.

Mr. Overton A. Currie: Well, given the Gimbel case, Your Honor, there is one of the arbitrators was a realtor and Gimbel was a party to arbitration and there was a duty to make such disclosure.

There had been business between parties.

Such disclosure was not made and the award was challenged.

The Court held that first of all, the relationship was casual, remote and not direct in continuum and not such as to suggest that there would be a commitment of loyalty or partiality and that therefore, it was not of the type that is normally disqualified.

So in that instance, holding it would not be disqualifying, then that's the closest.

Justice Byron R. White: But it's the kind that would normally be disclosed.

Mr. Overton A. Currie: I would think under the regulation that it certainly would be better practice if our client had been asked, or we had been asked, “Has it been past business relations?”

We certainly would have revealed.

Justice Byron R. White: Oh, I know but the rule puts on affirmative -- suggest an affirmative duty on the arbitrator.

Mr. Overton A. Currie: That is correct.

It imposes that and in that case, Your Honor, the arbitrator did not do it and it's significant that the Court held that certainly according to arbitration could suspect of a large real estate firm like the one that the arbitrator was connected with could have had business connections or business dealing was a business large as Gimbel and there is the implied imputation of knowledge, construction of knowledge.

And the Ilios Shipping case holds the same ruling that when parties have sufficient knowledge to put them on notice as to possibility of certain relationship, then they are charge with that notice.

Chief Justice Earl Warren: Did I understand counsel who say that this arbitrator had some employment in connection with this total project that is here under consideration?

Mr. Overton A. Currie: This arbitrator's firm, Your Honor.

Chief Justice Earl Warren: Well, let's say, he owned the firm, didn't he?

Mr. Overton A. Currie: He own 60% something of it, majority stockholder and they did --

Chief Justice Earl Warren: But in post-owning, isn't it?

Mr. Overton A. Currie: Yes, sir.

That is -- he did the -- they did testing Your Honor of sand and cement and soils.

Chief Justice Earl Warren: In connection with this same project?

Mr. Overton A. Currie: Not all, only two of them.

Yes, there were five contracts.

They went out and tested concrete boring and we think, Your Honor, that the subcontractor who was on all five contracts who had project superintendents, who had the equivalent of their general manager and executive vice-president down there continually in contact with this contractor, why didn't they testify that they did not know.

There's not one out of order of proof from any officer of the corporation that they did not know of this other relationship which had occurred more than a year before this arbitration which would --

Chief Justice Earl Warren: Is the burden on them to prove this or is the burden on your people --

Mr. Overton A. Currie: Uniform --

Chief Justice Earl Warren: -- to show that the arbitrator was not bias?

Mr. Overton A. Currie: The burden is completely upon them Your Honor by Universal decision.

Chief Justice Earl Warren: I beg your pardon?

Mr. Overton A. Currie: The burden is placed by law and all decisions that we know of upon them.

The one who is attempting to set aside the award and in this instance --

Chief Justice Earl Warren: No matter what the secret relationship might be between the arbitrator and the others, your side?

Mr. Overton A. Currie: It will burden would be upon them to show that they had -- there had been some disqualifying relationship that they had no knowledge of.

It's like a mutual mistake or some other fraud and there was no proof of it that the officers of this company did know this and we as you analyze a small island of Puerto Rico, 35 miles wide and the construction industry there, it's just -- we charge in our pleadings that they did know or should have known and as I indicated, one reason, there's not more proof on this record and I believe a fair reading of the record will reveal that it appeared that this question had been abandoned as other issues had been.

Chief Justice Earl Warren: What you mean by that that it is legally not here?

Mr. Overton A. Currie: I'm saying Your Honor that I believe that it is (Voice Overlap) legally been surrendered so that there are no grounds to object here.

Chief Justice Earl Warren: So, it's not properly here, you say.

Mr. Overton A. Currie: No, sir.

They have appealed and certiorari has been granted and we -- this Court certainly has jurisdiction and is properly here but on the merits of the issue, the party, as you review the record is so stipulated as to the integrity, the absence of misbehavior that we submit on the merits, they have ratified the award and the qualification of the arbitrator.

Justice Hugo L. Black: As I understand here.

Mr. Overton A. Currie: I beg your pardon?

Justice Hugo L. Black: As I understand it, the court below considered that it was not a sufficient case and he called on to announce his interest because it was a small part of his income and you have been -- you have argued that here.

Mr. Overton A. Currie: Yes, sir.

We have used the word that it was remote, past, this contractor that we represent was going out business, had not bid on any major construction for some two years and there was nothing about the relationship.

As we go to --

Justice Hugo L. Black: Are you familiar with Tumey against Ohio?

Mr. Overton A. Currie: I am not, Your Honor.

Justice Hugo L. Black: That's a case where a judge in this arbitrator is a judge.

Of course, he's a judge as much as a judge of a court.

There, this Court because that judge had had a small feel in connection with the case, held that it violated due process for the judge to try a lawsuit.

Mr. Overton A. Currie: In that instance --

Justice Hugo L. Black: Now, why should those arbitrators be up to as high a standard as a judge, he is a judge?

Mr. Overton A. Currie: Your Honor, in that connection, Professor Sturges who was a dean of arbitration for many, many years analogized in a case in our -- cited in our brief that an arbitrator is more appropriately analogized to a juryman than a judge.

Justice Hugo L. Black: Alright, well, I suppose he said juryman.

Mr. Overton A. Currie: And under juryman --

Justice Hugo L. Black: He will -- he was a wise juryman, he knew about lawsuits.

Mr. Overton A. Currie: Under the law, the universal, fundamental law, as we understand it Your Honor a party must ask that this qualifying questions on voir dire in allowing a juryman --

Justice Hugo L. Black: Suppose he was a brother of a party in the case.

Mr. Overton A. Currie: In most states, I think as a matter -- that's a close relation.

It is not remote.

It's definite.

It's so involving that it almost causes him by nature of his very interest to be a party in interest to the litigation.

The suit, very essence of this question.

Mr. Overton A. Currie: This arbitrator was his closest to me if not closer and they -- we held, this Court held that the smallness, no matter how small a trial would be, we refuse those words, the slightest interest was enough and it should be revealed and it should not ask?

I think that is correct when he has a present interest, a small one.

But when it is past, when it's remote and the standards of a judge.

Justice Hugo L. Black: How remote was it?

Mr. Overton A. Currie: Your Honor the party -- pardon?

Justice Hugo L. Black: How remote was it?

How long back?

Mr. Overton A. Currie: By more than a year, in some six and seven years.

Somehow it was five years old.(Voice Overlap)

Justice Hugo L. Black: How many years had he been handling cases?

Mr. Overton A. Currie: He had --

Justice Hugo L. Black: The firm for this.

Mr. Overton A. Currie: He had been making concrete borings on a casual and irregular basis from time to time over a four or five-year period while this contractor was getting started.

He was now going out of business.

The engineer, Architect Capacete, had no doubt in many contracts been designated like a contracting officer in government contracts to serve as the decision maker even though he was paid by the owner there of course he has consent on the party to be bound by the decision and that undoubtedly explains why he didn't recognize there was any duty to volunteer.

He was not acting from any corrupt or improper motive.

Justice Hugo L. Black: I am sure they have been called to your attention by the other side.

I am certainly almost as sure as I can be, as you would have said of course, I don't want this man to ask if they have objected on this ground and you had known that he'd be represented.

Mr. Overton A. Currie: Your Honor, if they had objected, we didn't --

Justice Hugo L. Black: Well, I understand that, it's not your fault.

Mr. Overton A. Currie: With reference to that and the qualifications of the judge because certainly this a proper question, the authorities indicate and Professor Sturges that the parties have no choice.

They are summoned and by force of law are compelled to submit their issues to someone that the law says, the Government says, you shall decide this.

But in this case, what happens, Mr. Romero was in the Rotary Club, the petitioner's attorney and the Rotary with you, lived on the same street, neighbors, went out and talk to him.

The record doesn't show that we had any knowledge that the attorney for the petitioner went out and asked him, “Who do you think that I should appoint as an arbitrator?”

We can find decision saying that that is condemned, then that would upset one.

We didn't know that he was going out talking.

Justice Hugo L. Black: Well, that might be true.

Mr. Overton A. Currie: But -- so the parties have set their standard.

They have imposed their standards of what constitute proper conduct.

Justice Hugo L. Black: Well, may I ask.

Would you say Mr. Currie that Mr. Capacete actually was not chosen by the parties to the lawsuit but rather by the lawyers of the parties to the lawsuit?

Mr. Overton A. Currie: No, sir.

By the arbitrators of the two parties.

We appointed n engineer, Mr. Chapman.

Justice Hugo L. Black: I see.

Mr. Overton A. Currie: Thirty years as Corps of Engineer.

This contractor appointed a lawyer who to service as an arbitrator not as counsel.

Those two men selected as arbitrators then their lawyer died, their arbitrator died and the parties ratified again the appointment of Mr. Capacete after the subcontractor's attorney Mr. Romero went out and talk to him about who should be appointed the following.

Mr. Romero's father was a leading engineer.

The proof shows that he knew exactly what Mr. Capacete did, that they were neighbors, that they were friends, they were in the Rotary Club, that Mr. Romero's father was a good friend of Mr. Capacete, that --

Justice Potter Stewart: Your suggestion is that the petitioner's choice for the board, Mr. Romero.

Does the evidence show that he knew that Mr. Capacete had represented or had done well with the respondent?

Mr. Overton A. Currie: Well, as to the contrary of the evidence Your Honor.

It shows that Mr. Romero says he did not know but the evidence does not show that the contractor did know.

The contractor had project superintendents on this job, they had painters, they had a vice-president, a general manager down there in Puerto Rico.

They were in constant contact, $350,000.00 worth of work is a lot of work to coordinate and the painter was in constant contact with them and I repeat the record, we are having to argue this case by inference because we understood and believe the Court understood that the parties had abandoned this ground.

Chief Justice Earl Warren: So, Mr. Currie without regard to the other merits of the case that it's little difficult for me to see how you can say that after five years of occasional employment of this arbitrator, he was finally employed on this particular job and still you say it's remote, that's difficult for me to see the remoteness of it.

Mr. Overton A. Currie: Your Honor, it was remote in time and it was past like the federal judge --

Chief Justice Earl Warren: But on the same job, how do you come that this person is remote if it's on the same job that is to be arbitrated?

Mr. Overton A. Currie: Alright, I see Your Honor.

He was making soil test and concrete -- they pour concrete, the Government wants to know, is it going to be 5000, unrelated to painting, remote and didn't involve the question of painting.

Chief Justice Earl Warren: No, I wasn't asking about whether it was painting or soil test but it's -- I was talking about the remoteness and they did work for you on this particular job after having worked for you for five years on other jobs.

Now, how can you say that's remote?

Mr. Overton A. Currie: The only answer I can give Your Honor is that his work was that of an independent contractor, irregular, casual, routine testing for which they charge a routine of professional fee of breaking concrete blocks, testing sand materials and his work had occurred before this dispute arose and the arbitration occurred.

He was not involved on the job or their when the painting problems, his work didn't call us in to pre-judge the case, that's what I'm trying to say.

It's remote in the sense that he was not a witness to the accident or the problem, or the painting problem and that I believe would --

Justice Abe Fortas: Mr. Currie, I wonder if you would agree that it comes down to something like this, particularly in view of the knowledge that counsel for the petitioner had Romero had of Mr. Capacete's activities generally that it's reasonable to assume that petitioner deliberately chose not to make inquiry but to rely presumably on Mr. Capacete's general reputation as a skilled man and as a fair man and that in those circumstances, there was no duty on Capacete's part to come forward with a disclosure unless in addition to the standards of the Federal Arbitration Act there is some per se duty.

Is that a fair summary?

Mr. Overton A. Currie: That's a fair summary.

Justice Byron R. White: Well, except I thought you just answered me Mr. Currie that on this record, Romero disclaims any knowledge or whatever of any activity of Capacete for the respondent.

Mr. Overton A. Currie: He disclaims knowledge about these particular past relationships but in answer to Mr. Justice Fortas' question, I believe that is correct that Mr. Romero knew Mr. Capacete so well that he accepted him, he and his client as arbitrator because of their confidence in his professional skill, his integrity, his honesty and his ability and they were not interested in whether or not he may or may not have had some relations.

They -- they didn't even care enough to inquire.

They were so totally confident that he would be fair and competent and they actually came into this Court and repeatedly stipulated those various things.

Justice Byron R. White: And Mr. Currie, do you feel if there's any difference in the standards it ought to apply to any of the arbitrator, any of these three arbitrators?

Mr. Overton A. Currie: Your Honor, the majority rule is that all three are --

Justice Byron R. White: Stand on the same footing?

Mr. Overton A. Currie: -- have stand on the same footing.

New York, the party from that and said that they are recognized functional reality that normally, he is a party, the one they appoint is more of partisan and is partial and if the third is the one that should be neutral (Voice Overlap) --

Justice Byron R. White: You let it be known in this case that you weren't interested in -- your side wasn't interested in the other side replacing its arbitrator with anyone who had any business relationships.

Mr. Overton A. Currie: No, sir, that was anyone who had an interest in the litigation.

Justice Thurgood Marshall: What does that mean?

Before its left, would you find it?

Mr. Overton A. Currie: That that incidentally Your Honor, it was part of the --

Justice Byron R. White: Well, what would you say if -- would you say that --

Mr. Overton A. Currie: We didn't want them to appoint for example, since an arbitrator may be someone employed.

For example, we know on the government the contracting officers or government employee have interest in the contract given the power to decide.

We know in the standard AIA, American Institute of Architects that the owner of the house, the architect placing and in the standard contractor provides the architect can make decisions that are binding on both parties and so disqualifications a brother, you can agree that a brother would serve.

You could agree that a wife would serve, and if you waive that, that's not disqualifying per se, a party has a right to waive it.

Justice Byron R. White: But what about in this kind of a contract?

Mr. Overton A. Currie: In this instance, there was no -- the contractor did not speak so who was qualified or disqualified.

It merely said each party would appoint one, knows to would appoint a third.

Now, the law because of the common law arbitration and it be very similar to that of selection of jury, you have a duty to inquire.

Justice Byron R. White: Your view was of the same standards applies to all three arbitrators when they are appointed as they were or here under this contract?

Mr. Overton A. Currie: Yes, sir.

And that in this instance that a party had the absolute right to make inquiry and if there was some disqualifying relationship, they could object and as a matter of fact, go into equity court and ask that the arbitration be stayed and the arbitrator removed and another arbitrator be forced to or the one party be compelled or allowed to serve.

That one would have been necessary.

All we were trying to get is the correspondent reveals not only that letter but another letter that's in the file that we were simply trying to get that someone.

Justice Byron R. White: That's fine, thank you very much.

Justice Potter Stewart: Am I correct in recalling that Mr. Romero was asked at some point in this hearing what he would have done had he known of Capacete's connection with the subcontractor?

Mr. Overton A. Currie: Yes, sir.

You're correct.

Justice Potter Stewart: What does he answer?

Mr. Overton A. Currie: His answer was that he would not have objected but would have given or probably it wouldn't have forgotten whether it was (Inaudible) or conditional but it was given his client the information for them to decide.

Thank you.

Chief Justice Earl Warren: Thank you, Mr. Currie.

Mr. Harris.

Rebuttal of Emanuel Harris

Mr. Emanuel Harris: May I have a few minutes.

In answer to Mr. Justice Fortas about whether the District Court ever made any ruling with respect to the duty to disclose because of the closeness of relationship.

The opinion of the District Court is printed in the appendix on pages 184 and 185.

The District Court said nothing about that.

It did not disclose, it did not discuss at all the closeness of the relationships and the statement of Mr. Currie that we abandoned that issue is ridiculous.

Our whole case in the District Court, out side of these other objections was the failure to disclose and the Court of Appeals in this opinion said that that was the sole issue on appeal and was based on that point that we ask this Court to grant certiorari.

How can Mr. Currie say that we abandoned that issue?

Now, with reference to Mr. Romero bringing a good friend or Mr. Capacete, Mr. Capacete testified that he was a good friend of Mr. Romero.

He know Mr. Romero's father.

They belong to the Rotary Club and yet Mr. Capacete acting as a most important judge in this proceeding wouldn't even tell his good friend about his relations with Samford.

I ask Your Honors if that relationship should not have been disclosed between good friends, would a judge try a case before with a good friend as an attorney for one of the parties without disclosing a prior relationship.

I submit that that's the situation of this case and the award should be set aside.

Justice Abe Fortas: Are you suggesting, you should have disqualified himself because he was a good friend of your counsel?

Mr. Emanuel Harris: Oh, No.

Not because he was a good friend but because he didn't tell his good friend what his relation was with Samford and furthermore, the mere fact that the two arbitrators designated by the parties shows Capacete, does that relieve Capacete from disclosing his relationship because the other two arbitrators picked him?

But the very fact that the other two arbitrators picked him and that he was employed by Samford should have emphasized his duty to disclose to the petitioner and the petitioner's attorney his relations with the very people who by coincidence, I will assume, he became an arbitrator for in this proceeding because he was chosen by the other two.