## Facts

- Neptune Plus Corp., an affiliate of Tempo Shain Corp., contracted with Bertek, Inc. in a transaction involving a licensed patented process for treating materials to enhance repellency, with Bertek to manufacture treated material for Neptune to sell.
- Disputes arose, and Neptune initiated arbitration alleging fraudulent inducement and breach of contract; Bertek asserted counterclaims for fraudulent inducement and breach of contract.
- Bertek intended to call Wayne Pollock, former president of Bertek’s Laminated Products Division, as a principal witness regarding negotiations and dealings; Pollock was the only negotiator for Bertek and the only witness who could rebut certain fraud allegations.
- Pollock became temporarily unavailable due to a family medical emergency; he remained willing to testify later, in person or by deposition, but the duration of unavailability was uncertain.
- Bertek requested that the arbitration panel postpone or keep the record open to obtain Pollock’s testimony; Neptune conceded no other witness could testify in his place.
- The panel declined to postpone and closed the hearings without Pollock’s testimony, treating the anticipated testimony as cumulative of documents and other testimony.
- The panel issued an award for Tempo Shain/Neptune and denied Bertek’s counterclaims.
- Tempo Shain/Neptune petitioned to confirm the award in federal district court; Bertek moved to vacate under FAA § 10(a)(3) based on refusal to postpone and refusal to hear material evidence.
- The district court confirmed the award and denied vacatur; Bertek appealed.

## Issues

1. Whether the arbitrators’ refusal to postpone or reopen the hearing to receive Pollock’s testimony constituted “misconduct” or “misbehavior” under FAA § 10(a)(3).
2. Whether excluding Pollock’s testimony deprived Bertek of a fundamentally fair opportunity to present material, noncumulative evidence on fraudulent inducement.

## Decision

- The Second Circuit vacated the district court’s confirmation order and vacated the arbitration award.
- The court held that the panel’s refusal to postpone or otherwise hear Pollock’s testimony amounted to misconduct under FAA § 10(a)(3).
- The court remanded for further proceedings consistent with its opinion, requiring a procedure that allows receipt of the excluded material testimony.

## Legal Principles

- FAA § 10(a)(3) permits vacatur where arbitrators are guilty of misconduct in refusing to postpone a hearing upon sufficient cause shown, or other misbehavior that prejudices a party’s rights.
- Arbitrators must provide each party an adequate opportunity to present evidence and argument; refusal to hear evidence that is pertinent and material to the controversy can require vacatur.
- Although arbitrators have broad discretion over scheduling and evidentiary matters, that discretion is limited by the requirement of fundamental fairness.
- Excluding testimony may constitute misconduct where the witness is uniquely positioned to address central disputed facts and the testimony is not cumulative of other evidence.

## Conclusion

The Second Circuit set aside the arbitration award because the panel unreasonably refused to delay proceedings to obtain testimony from the only witness who could address key fraudulent inducement allegations, rendering the arbitration fundamentally unfair under FAA § 10(a)(3).


Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16 (2d Cir. 1997)