Arbitration: Connecticut Supreme Court Vacates Award for Refusal to Consider Evidence (Web)
June 7, 2006
In a matter involving politics, bribery and arbitration, the Connecticut Supreme Court vacated an arbitration award because the arbitrator refused to consider material evidence. City of Bridgeport v. The Kasper Group Inc., SC-17470, 2006 WL 1476109 (Conn. June 6, 2006)(available at http://www.jud.state.ct.us/external/supapp/Cases/AROcr/CR278/278CR71.pdf).
The facts of the case were relatively simple: defendant Kasper, a design firm, was 99% owned by Paul Pinto. In 2000, it was notified by Bridgeport, Conn., that it had been selected as the design firm for a new elementary school. A contract was negotiated and signed by the defendant, but not the city. The city subsequently changed the elementary school from kindergarten through sixth grade to K-8, and decided to rebid the project. Kasper filed suit, and the parties agreed to American Arbitration Association arbitration.
During the arbitration, Bridgeport claimed that if a contract existed, it was void ab initio, having been procured by illegal means. It was undisputed that just prior to the start of the arbitration, Pinto had entered into a plea agreement admitting in part having engaged in a bribery and kickback scheme with Bridgeport’s mayor to obtain city contracts.
The city sought to compel Pinto's testimony in the arbitration, but his attorney indicated he would invoke his Fifth Amendment privilege. The parties agreed that the city would submit an offer to proof with suggestions of adverse inferences.
The arbitration proceeded with 12 days of hearings over 19 months. The mayor's criminal trial--at which Pinto testified--started after the arbitration had begun.
Two weeks after the last day of hearings, the city moved to stay a post-hearing briefing schedule until the criminal trial testimony had concluded. Bridgeport wanted to supplement the record with Pinto’s trial testimony, as well as testimony of other Kasper employees. The arbitrator denied the motion.
With its post-hearing brief, the city also filed a motion to submit additional evidence in the form of attached transcripts of Pinto's criminal trial testimony. The arbitrator denied the motion and refused to consider the testimony.
The arbitrator awarded the defendant a monetary award of nearly $156,000 without an opinion. On appeal, the trial court vacated the award on the ground that under Connecticut law, in denying the city's motions to submit additional evidence, the arbitrator had committed misconduct.
Defendant Kasper argued that the standard for misconduct was not met because Pinto's testimony was irrelevant and cumulative and of minimal probative value. The city claimed that Pinto's testimony was relevant to rebutting the defendant's course-of-dealing evidence of a long history of legally obtained contracts.
The Supreme Court began its de novo analysis with all of the presumptions in favor of enforcing arbitral awards, and noted that arbitrators are afforded substantial discretion in admitting evidence. Nevertheless, the Court concluded that the trial court was correct in vacating the award for arbitrator misconduct.
The standard for arbitrator misconduct is clear: To establish arbitrator misconduct for failure to receive or consider evidence, the party challenging the award must prove that by virtue of that failure it was deprived of a full and fair hearing. This requirement includes showing substantial prejudice.
The Court noted that in the few federal cases vacating on similar grounds, the evidence that was precluded was decisive and central to the disputed claim or defense. The Court reviewed the evidence admitted, and the Pinto evidence at the criminal trial. It determined that the excluded evidence was relevant and not cumulative.
The Court then examined whether Bridgeport was substantially prejudiced. It concluded that it was prejudiced, because the result likely would have been altered had the evidence been considered.
The Court finished by alluding to the fact that perhaps higher scrutiny was required in matters involving public contracts:
Undue judicial intervention inevitably could judicialize the arbitration process and thereby defeat the objective of providing an alternative to judicial dispute resolution. Therefore, we do not superintend arbitration proceedings. We also are mindful, however, that the arbitration under review is complicated by the fact that it involves public funds and the question of whether the city had a full and fair opportunity to contest the use of such funds for purposes of illegal dealings. Although we do not advocate different rules to govern such arbitrations, we must remain vigilant in ensuring that the efficiency and economics generally associated with arbitrations do not swallow the public interest that has been compromised as a result of the arbitrator's misconduct.
–Helena Tavares Erickson, CPR Senior Vice President., Committees, Research & Education