## Facts

- Applied Industrial Materials Corp. (AIMCOR) and Ovalar Makine Ticaret Ve Sanayi, A.S. (Ovalar) formed a joint venture in which AIMCOR purchased and transported petroleum coke to Ovalar for distribution in Turkey.
- Their contract required arbitration in New York, with a three-member panel and a disclosure rule barring arbitrators from serving if they or their current employer had a direct or indirect interest in the outcome and requiring disclosure of any circumstance that could impair impartiality.
- A profit-distribution dispute arose, and the parties proceeded to arbitration; Charles Fabrikant, a senior executive of Seacor Holdings, was selected as the presiding arbitrator and initially disclosed no business relationship with either party.
- During the arbitration, the panel was informed that AIMCOR was being acquired by Oxbow Industries.
- Fabrikant learned that a Seacor division had recent or ongoing business negotiations with Oxbow concerning petroleum-coke shipping, creating at least a potential corporate business relationship connected to AIMCOR’s new parent.
- Fabrikant chose to insulate himself from learning more about Seacor’s dealings with Oxbow but did not disclose either the potential relationship or his decision not to investigate.
- The panel issued a liability award against Ovalar and its chairman, with Fabrikant providing the deciding vote.
- Before damages were determined, Ovalar discovered Seacor’s division and Oxbow had entered a high-value contract that predated the liability decision; Ovalar sought Fabrikant’s recusal, which he refused.

## Issues

1. Whether an arbitrator’s failure to investigate or disclose a known potential business relationship between the arbitrator’s employer and a party (or its acquiring parent) constitutes “evident partiality” under FAA § 10(a)(2).
2. Whether an arbitrator has a continuing duty to disclose conflicts or potential conflicts that arise or become known after initial disclosures, particularly where the parties’ arbitration agreement imposes disclosure obligations.

## Decision

- The Second Circuit affirmed the judgment vacating the liability award under 9 U.S.C. § 10(a)(2).
- The court held that Fabrikant’s failure either to conduct a reasonable inquiry into the potential Seacor–Oxbow relationship or to disclose his decision to avoid learning more constituted evident partiality.
- The court emphasized that the parties’ agreement required disclosure of circumstances potentially impairing impartiality and that nondisclosure deprived the parties of the ability to object or seek recusal before the award.

## Legal Principles

- Under FAA § 10(a)(2), an award may be vacated for “evident partiality” when a reasonable person would have to conclude an arbitrator was partial to one side.
- Arbitrators must disclose nontrivial business dealings or relationships that could create an appearance of bias; actual bias need not be proven.
- When an arbitrator becomes aware of facts suggesting a material potential conflict, the arbitrator must either make a reasonable inquiry or disclose the relevant facts (including any decision to limit inquiry) so the parties can make informed choices about waiver or recusal.
- Contractual disclosure provisions in an arbitration agreement can heighten and clarify an arbitrator’s disclosure obligations; failure to comply can justify vacatur.

## Conclusion

The court vacated the arbitration liability award because the presiding arbitrator knew of a potential corporate business relationship involving the acquiring parent of a party, yet neither investigated nor disclosed the situation or his self-imposed ignorance, creating evident partiality under the FAA and violating the parties’ disclosure expectations.


Applied Indus. Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., 492 F.3d 132 (2d Cir. 2007)