## Facts

- Merit Insurance Company and Leatherby Insurance Company entered a 1972 reinsurance agreement containing an arbitration clause.
- Merit sued in federal court (diversity jurisdiction) alleging Leatherby fraudulently induced the contract.
- The district court compelled arbitration under the Federal Arbitration Act; arbitration proceeded under AAA procedures.
- Each party selected an arbitrator, and the parties jointly selected a third arbitrator, Jack Clifford, from an AAA list; the panel agreed all three would act as neutrals.
- After a lengthy arbitration, the panel unanimously awarded Merit $10,675,000 on December 1, 1980.
- Merit moved to confirm the award; Leatherby opposed confirmation on asserted bias grounds unrelated to Clifford’s past business ties.
- The district court confirmed the award and added prejudgment interest at 8% from December 1, 1980.
- After the award, Leatherby discovered that, in the late 1950s and early 1960s, Clifford had been an officer of a small insurance company in which the father of Merit's president (and later the president himself) had invested and served as a director; the connection ended around 1966 and there was no evidence of later contact.
- On Leatherby’s Rule 60(b) motion, the district court set aside the confirmation judgment, finding Clifford’s nondisclosure violated AAA ethical norms and justified vacatur.

## Issues

1. Whether an arbitrator’s nondisclosure of a remote, limited prior business relationship with a party principal constitutes “evident partiality” under 9 U.S.C. § 10 sufficient to vacate an award.
2. Whether Rule 60(b) may be used to reopen a judgment confirming an arbitration award absent a statutory vacatur ground under the Federal Arbitration Act.

## Decision

- The Seventh Circuit reversed the order vacating the award and directed reinstatement of the judgment confirming the arbitration award (including the interest component as previously entered to that date).
- The court held that Clifford’s nondisclosure of a long-ended, attenuated business relationship did not establish evident partiality.
- The court concluded the district court abused its discretion by using Rule 60(b) to set aside confirmation on such a minimal showing.

## Legal Principles

- Under 9 U.S.C. § 10, vacatur for “evident partiality” requires more than a technical or idealized disclosure violation; the undisclosed connection must be substantial enough that a reasonable, well-informed observer would infer bias.
- A remote, terminated business association—without ongoing dealings, personal closeness, or evidence of favoritism—generally does not create an actionable appearance of partiality.
- Arbitration’s finality and the limited scope of judicial review counsel against vacating awards based on post-award discovery of insignificant or dated contacts.
- Rule 60(b) relief from a confirmation judgment must be anchored to the narrow vacatur grounds permitted by the Federal Arbitration Act, not general dissatisfaction or speculative fairness concerns.

## Conclusion

The court reinstated the confirmed arbitration award, holding that an arbitrator’s failure to disclose a decades-old, limited business connection—absent evidence suggesting bias—does not constitute “evident partiality” and cannot justify vacatur through Rule 60(b).


Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673 (7th Cir. 1983)