GUEST-POST | Texas Court of Appeals Vacates $22 Million Dollar Arbitration Award Due to Failure to Disclose Social Contacts by Arbitrator

By Glen M. Wilkerson

The facts and holdings in Karlseng v. Cooke, Tex. App. – – Dallas, June 28, 2011 (Cause # 05-09-01002-CV) are instructive technically in ethics, in the law of “evident partiality” in arbitration law, and as an illustration how influence is peddled sub rosa through out judicial / legal system. What is alarming is that this case shows how the Rule of Law with a relatively non-partisan decision maker is ultimately fragile and subject, seemingly on a moment’s notice, to disintegration.

In Karlseng, a $22 million dollar award was vacated in that the lead arbitration lawyer for the victor and the sole arbitrator neutral had a long relationship going back to the lawyer’s federal clerkship’s days when the arbitrator was the magistrate judge in the same federal district court. The contacts included social contacts, dinners, $1,200.00 Dallas Mavericks tickets, and $1,000.00 dinners after the arbitration award in December of 2007. None of this was disclosed.

The victor’s lead lawyer – – though with the same Firm – – appeared in the arbitration case after the conflict partiality disclosures had been made by the neutral. No supplementation of the JAMS disclosure forms were made by the Arbitrator after the lawyer friend appeared for the Plaintiff victor. Victor’s lawyer had followed the same practice involving the same neutral in a prior victorious case – – enter case after original disclosures were made with no supplementation.

The arbitration hearing took place in December of 2007. Four and a half years later, the award was vacated by the Dallas Court of Appeals. The losing Defendant showed incredible perseverance and determination. The trial court first denied Defendant any meaningful discovery. Defendant had to appeal, have the award vacated, and discovery on partiality permitted. See Karlseng v. Cooke, 286 S.W. 3d 51 (Tex. App. – – Dallas 2009, no pet.). Back in the trial court and after discovery and a much longer hearing, the trial court again confirmed the award. This time – – June 28, 2011 – – the award was vacated as the Dallas Court held that, as a matter of law, “evident partiality” had been shown.

In my opinion, this case should never have reached the Court of Appeals. That it did raises a red flag as to how low we have stooped in terms of permitting favoritism or the appearance of partiality to become so rampant as to be the “new normal” and hence permissible.

The Dallas Court of Appeals applied the Rule that vacatur is required where the neutral arbitrator exhibited evident partiality by failing to disclose facts which might, to an objective observer, create a reasonable impression of his partiality, relying on Burlington v. TUCO, 960 2d 626, 629 (Tex. 2007) (award vacated). See similar discussion on all issues in Amoco D.T. Co. v. Occidental Petroleum Corp., — S.W.3d —-, 2011 WESTLAW 1843527 (Tex. App. – – Houston [14 Dist.] May 17, 2011) (award vacated). Full discussion and reliance on Justice Black’s and Justice White’s opinion in Commonwealth Coatings v. Continental Casualty, 393 U.S. 145 (1968). See Merrick T. Rossein & Jennifer Hope, Disclosure and Disqualification Standards for Neutral Arbitrators: How Far to Cast the Net and What Is Sufficient to Vacate Award, 81 St. John’s L. Rev. 203, 212–13 (2007) (discussing split among federal circuits). See the lead case in the Fifth Circuit, Positive Software Solutions, Inc. v. New Century Mortg. Corp., 476 F.3d 278, 281–83 (5th Cir.2007) (en banc) (9-6) (award not vacated on partiality grounds and explaining that the majority of federal circuits have concluded that Justice Black’s opinion is a non-binding plurality decision and the opinion of Justice White with “less rigor” should control).

Any fair reading of the opinion of the Court of Appeals make it crystal clear that the neutral was grossly at fault in not supplementing the JAMS disclosures to reveal the social contacts, the lavish dinner / Mavericks games etc. The outcome is not surprising to an objective observer. What is striking is that a trial court did not agree, and that the loser at arbitration had to go to these lengths to get relief. Hopefully this is over, and the parties can start from scratch, this time in a fair fight.

Technorati Tags: law, ADR, arbitration

Glen M. Wilkerson is Of Counsel at Davis & Wilkerson, P.C. where he focuses on the areas of Personal Injury Law, Insurance Law & Litigation, Construction Law & Litigation, Commercial Litigation, Civil Litigation, and Professional Liability. Mr. Wilkerson holds a J.D. from The University of Texas and a B.S. from The University of Texas-Arlington. He may be reached at: gwilkerson@dwlaw.com.