Monday, July 18, 2011

Claim that arbitrators exceeded their powers rejected

Dallas Court of Appeals rejects contention that the arbitrators went beyond the scope of their authority:  

Skidmore Energy, Inc. v. Maxus (U.S.) Exploration Company,  
No. 05-09-00402-CV (Tex.App.- Dallas July 12, 2011)

Claim That Arbitrators Exceeded Their Powers


Appellants additionally contend the trial court erred by entering a judgment confirming the arbitration award because the panel majority exceeded its authority. Appellants claim the panel majority exceeded its authority by ruling that Skidmore breached the 1998 Agreement because that specific argument was not advanced by Maxus at the outset of the arbitration. [fact and background section moved to the bottom of this post]

Analysis
Texas law allows for vacatur of an arbitration award if the arbitrators "exceeded their powers." Tex. Civ. Prac. & Rem. Code Ann. § 171.088 (a)(3)(A). An arbitrator's authority is limited to disposition of matters expressly covered by an arbitration agreement or implied by necessity. Gulf Oil Corp. v. Guidry, 327 S.W.2d 406, 408 (Tex. 1959); see also Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 90 (Tex. 2011) (in arbitration conducted by agreement of the parties, rule is well established that an arbitrator derives his power from parties' agreement to submit to arbitration) (citing City of Pasadena v. Smith, 292 S.W.3d 14, 20 (Tex. 2009)); Townes Telecomms. Inc. v. Travis, Wolff & Co., 291 S.W.3d 490, 493 (Tex. App.-Dallas 2009, pet. denied) (arbitrator's authority to decide matters is derived from the arbitration agreement). Arbitrators therefore exceed their authority when they decide matters not properly before them. Travis, Wolff & Co., 291 S.W.3d at 493. When determining whether an arbitration panel has exceeded its powers, any doubts concerning the scope of what is arbitrable should be resolved in favor of arbitration. Id.

When we determine whether claims are within the scope of an arbitration agreement, we examine the terms of the arbitration agreement and the factual allegations pertinent to the claim. Graham-Rutledge & Co. v. Nadia Corp., 281 S.W.3d 683, 690 (Tex. App.-Dallas 2009, no pet.). Because of policy favoring enforcement of arbitration agreements, the ability to arbitrate claims should not be denied "unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue." Marshall, 909 S.W.2d at 899 (quoting Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir. 1984)).

Here the arbitration agreement reflects the parties' desire to submit "all claims asserted in the Lawsuit" to binding arbitration. See Footnote 12 This phrase is broad and may encompass a wide range of issues. See Centex/Vestal, 314 S.W.3d at 685 (noting that "[a]ny claim arising out of or related to the Contract" was subject to arbitration was broad and encompassed a wide range of disputes). When an arbitration clause employs broad language such as the language in the arbitration agreement here, "it is construed as evidencing the parties' intent to be inclusive rather than exclusive." Id. Broad arbitration agreements like that at issue have been held to support awards rendered on a variety of grounds, including those not specifically argued to the arbitrators. See City of Baytown v. C.L. Winter, Inc., 886 S.W.2d 515, 518 (Tex. App.-Houston [1st Dist.] 1994, writ denied) (arbitrators did not exceed powers by awarding damages for changed conditions under contract even though issue of changed conditions was not specifically addressed in parties' briefing); J.J. Gregory Gourmet Servs., Inc. v. Antone's Import Co., 927 S.W.2d 31, 34-5 (Tex. App.-Houston [1st Dist.] 1995, no writ) (arbitrators did not exceed their powers in determining issue the resolution of which was not expressly demanded, because issue was actually discussed during arbitration proceedings).

In their motion to vacate the arbitration award, appellants stated that "at the arbitration and pursuant to the terms of the Arbitration Agreement, the arbitrators were to undertake a 'clarification of the issues.'" The arbitration agreement further provides that in exercising their discretion, the arbitrators "may direct the parties to focus their presentations on issues the decision of which could dispose of all or part of the case." Here, the parties were requested to advise the arbitrator whether either party took the position that the 1998 Agreement had been breached at the time of the closing of the lease assignments.

Appellants contend Maxus stipulated that no party to the arbitration argued a breach of contract occurred when the lease agreements were executed. Appellants argue that the stipulation is dispositive on the question of whether the panel majority exceeded its powers. We disagree. The arbitrator was attempting to clarify a dispositive legal issue and the statement of Maxus regarding its position on that legal issue was not binding on Maxus or the arbitrators. See Footnote 13 The question of when a cause of action accrues is a question of law, not fact. Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 567 (Tex. 2001). Stipulations as to legal conclusions, as opposed to facts, are not binding on courts or parties. Caprock Inv. Corp. v. Fed. Deposit Ins. Corp., 17 S.W.3d 707, 713 (Tex. App.-Eastland 2000, pet. denied); see also Fid. & Cas. Co. of N.Y. v. Horton & Horton Custom Works, Inc.. 462 S.W.2d 613, 618 (Tex. Civ. App.-Fort Worth 1971, writ ref'd n.r.e.) (since question of law would be involved, stipulation could not have operated to control the court and prevent finding on facts which might, when applicable law and legal principles were applied, compel conclusion); Humble Oil & Refining Co. v. Sun Oil Co., 191 F.2d 705, 714 (5th Cir. 1951) (citing Reynolds v. McMan Oil & Gas Co., 11 S.W.2d 778, 785 (Tex. Comm'n App. 1928)) (adoption of the principle by Supreme Court of Texas "that expressions of opinions as to the law of the case by counsel are not binding upon either his client or the court"). See Footnote 14

Skidmore's claim is that Maxus breached the parties' 1998 Agreement by surrendering five oil and gas leases without first giving Skidmore notice and an opportunity to request reassignment of the leases. See Footnote 15 In its answer, Maxus denied the claim and contended Skidmore's claims were barred by waiver, estoppel, and limitations. The parties' arbitration agreement encompassed the question of whether Skidmore breached the parties' agreement and was thereby estopped from pursuing its claim against Maxus. The matter was raised as an affirmative defense in Maxus' pleadings and discussed during the actual arbitration proceedings. In its statement of the case submitted in advance of the arbitration hearing, Maxus stated that whether Skidmore's claims are barred, in whole or in part, by the affirmative defenses of waiver, estoppel and the statute of limitations were issues in the case.

The arbitrators stated the arbitration proceeding would not be closed until the parties provided their closing memoranda. Arbitrator Ratliff, again, raised the legal issue of whether a breach occurred at the time of the closing of the lease assignments when non-conforming assignments were delivered, a matter the parties could address in their closing memoranda. In its closing memorandum to the arbitrators, Maxus addressed the issue of whether a breach of the 1998 Agreement occurred at closing:

Maxus contends that there was no breach at the August 21, 1998, closing because . . . each party had the option at closing of either (i) insisting that the other party present an assignment of the lease(s) using the Exhibit B form, failing which that party could refuse to close, or (ii) waiving the condition and accepting the tendered Assignments. Because the parties closed without insisting on delivery of the Exhibit B form of Assignment, Maxus contends that the use of that form was waived and that the failure to deliver Assignments on that form was therefore not a breach of the Agreement.

If, as Skidmore and Intervenors contend, however, the parties did not waive the use of the Exhibit B form of assignment, then the alternative is that they were still insisting on the use of that form, and since neither party delivered assignments on the Exhibit B form, the Agreement was breached at that point.

* * *

[...]

Appellants asserted in the lawsuit against Maxus that Maxus breached the 1998 Agreement and that Skidmore performed its obligations under the agreement. The affirmative defenses asserted by Maxus-waiver, estoppel, and limitations-were before the arbitration panel. The questions of whether and when there was a breach of the 1998 Agreement were before the arbitration panel. See Centex/Vestal, 314 S.W.3d at 686 (party cannot submit issue to arbitration panel and then, when unfavorable result occurs, claim arbitrators exceeded their authority in deciding the issue).

We conclude the arbitrators decided matters that were properly before them and did not exceed their powers. We overrule appellants' argument to the contrary.

[...]



Wednesday, July 13, 2011

Appellate review of arb award confirmation order: Standard of Review


What is the standard of review used by the reviewing court to determine whether the trial court erred in confirming an arbitration award?

CASELAW SNIPPET FROM RECENT DALLAS COURT OF APPEALS OPINION:

We review the trial court's confirmation of an arbitration award de novo, based on a review of the entire record. Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 567 (Tex. App.-Dallas 2008, no pet.). Arbitration of disputes is strongly favored under both federal and Texas law. Prudential Secs. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (orig. proceeding). 

Arbitration awards are entitled to great deference by the courts. Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied). “In Texas, review of arbitration awards is extraordinarily narrow.” Hisaw & Assocs. Gen. Contractors, Inc. v. Cornerstone Concrete Sys., Inc., 115 S.W.3d 16, 18 (Tex. App.-Fort Worth 2003, pet. denied). 

An arbitration award has the same effect as a judgment of a court of last resort and all reasonable presumptions are indulged in favor of the award. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). The award is conclusive on the parties as to all matters of fact and law. Centex/Vestal v. Friendship W. Baptist Church, 314 S.W.3d 677, 683 (Tex. App.-Dallas 2010, pet. denied).

SOURCE:  
Skidmore Energy, Inc. v. Maxus (U.S.) Exploration Company (Tex. App.- Dallas Jul. 12, 2011) (challenges on the ground of evident partiality of arbitrator and arbitrators exceeding their powers rejected; confirmation of award affirmed) 


Dallas Court of Appeals examines another "evident partiality" claim and finds waiver

Failure to timely object to arbitrator's disclosed business ties resulted in waiver of "evident partiality" as ground for vacature of arbitration award. Confirmation of award affirmed.
 
Skidmore Energy Inc.v . Maxus  (US)Exploration Company
(Tex.App. - Dallas, July 12, 2011)(Opinion by Justice Robert M. Fillmore)

Fifth Court of Appeals rejects claim of evident partiality based on business relationship and stock ownership where complaining party waited until after receiving an adverse arbitration decision to raise the issue. By failing to object prior to entry of an arbitration award by the panel majority, the panel holds, appellants waived the issue. Even if the objection would have been preserved, it should not have been sustained, the court opines in dicta, given that the arbitrator made relevant disclosures regarding the entity which was only tangentially connected to the dispute, and the parties were aware of it. The court also rejects that contention that the arbitrators exceeded their authority. Trial court's confirmation of arbitration award and denial of motion to vacate it is accordingly affirmed.  
OPINION 

        In a single issue, appellants Skidmore Energy, Inc. (Skidmore), and Johnny L. Patton, Jr., Patton Production Company, and Puls, Taylor & Woodson, L.L.P. (collectively referred to as Intervenors) contend the trial court erred by entering a judgment confirming an arbitration award that ordered appellants take nothing from appellee Maxus (U.S.) Exploration Company (Maxus). We affirm the trial court's judgment.

Background
        Skidmore and Maxus are oil and gas exploration companies. Maxus is a subsidiary of Repsol YPF. In 1996, Maxus and Skidmore executed a written agreement to jointly evaluate and acquire oil and gas exploration and production rights relating to offshore leases on federal blocks situated in the Gulf of Mexico (the 1996 Contract). Pursuant to the 1996 Contract, Maxus and Skidmore acquired a working interest in seven offshore leases on Green Canyon Blocks 140, 162, 206, and 492, Mississippi Canyon Blocks 491 and 492, and Garden Banks Block 361.
        On August 15, 1998, Skidmore and Maxus entered into an agreement to alter their business relationship (the 1998 Agreement). Under the 1998 Agreement, Skidmore agreed to assign all of its rights, titles, and interests in leases on Green Canyon Blocks 140, 162, 206, and 492, and Mississippi Canyon Blocks 491 and 492 to Maxus, and Maxus agreed to pay Skidmore $6,500,000 and to assign all of its rights, title, and interest in the lease on Garden Banks Block 361 to Skidmore. According to the 1998 Agreement, at the time of closing Maxus and Skidmore were to execute assignments of the leases using a form of assignment attached to the 1998 Agreement as Exhibit B. The Exhibit B form of assignment provided that in the event the assignee desired to surrender a lease subject of assignment prior to the expiration of the primary lease term, the assignee would give the assignor ninety days' notice of its intent to surrender the lease and offer to reassign the lease to the assignor (the notice and reassignment provision).
        On August 21, 1998, Skidmore executed six separate assignments in which it assigned all of its interests in the leases on Green Canyon Blocks 140, 162, 206, and 492, and Mississippi Canyon Blocks 491 and 492 to Maxus and Maxus executed an assignment of its interest in the lease on Garden Banks Block 361 to Skidmore. Skidmore retained a three percent overriding royalty interest in the oil and gas produced, saved, and marketed from the leases it assigned to Maxus, and Maxus retained the same overriding royalty interest in the oil and gas produced, saved and marketed from the lease it assigned to Skidmore. The assignments executed by Maxus and Skidmore did not contain the notice and reassignment provision.   See Footnote 1  Each of the assignments stated, “[t]his Assignment is expressly made and accepted subject to the following: . . . (2) The terms and provisions of that certain Agreement dated August 15, 1998 between Assignor and Assignee.”
        In October 1999, Skidmore surrendered the lease on Garden Bank Block 361 before the expiration of its primary term. Skidmore did not provide Maxus prior notice of its intent to relinquish the lease; nor did Skidmore offer to reassign the lease to Maxus. Maxus surrendered its interests in the leases on Green Canyon Blocks 162 and 206 in December 2002, its interests in the leases on Mississippi Canyon Blocks 491 and 492 in June 2002, and its interest in the lease on Green Canyon Block 140 in July 2002. Maxus did not give Skidmore prior notice of its intent to relinquish any of those leases; nor did Maxus offer to reassign any of those leases to Skidmore. 
        In November 2004, Skidmore learned Maxus relinquished its interests in the five leases. Skidmore notified Maxus of Skidmore's contention that Maxus had breached the 1998 Agreement. In May 2005, Skidmore filed suit against Maxus for breaching the terms of the 1998 Agreement by surrendering five of the leases subject of the agreement without giving Skidmore prior written notice of its intention to surrender the leases or providing Skidmore the opportunity to have the leases reassigned to it. Intervenors asserted the same breach of contract claim against Maxus.   See Footnote 2  Maxus asserted affirmative defenses of waiver, estoppel, and limitations, as well as a counterclaim for declaratory judgment that Maxus was not obligated to provide Skidmore notice and an opportunity to request reassignment prior to the relinquishment of any of the assigned leases. 
        Pursuant to a written arbitration agreement entered into after the lawsuit was filed, Skidmore, Intervenors, and Maxus submitted the claims asserted in the lawsuit to binding arbitration.   See Footnote 3  A majority of the three-member arbitration panel entered an award in favor of Maxus. Skidmore and Intervenors moved to vacate the award on the grounds that (1) two of the arbitrators, Martin McNamara and Shannon Ratliff, failed to make necessary pre-arbitration disclosures, and (2) the arbitration panel majority exceeded its authority. Maxus moved for judgment confirming the panel's award. The trial court denied the motion to vacate the arbitration award and signed a judgment confirming the award. Skidmore and Intervenors appeal the trial court's judgment confirming the arbitration award.

Standard of Review
        We review the trial court's confirmation of an arbitration award de novo, based on a review of the entire record. Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 567 (Tex. App.-Dallas 2008, no pet.). Arbitration of disputes is strongly favored under both federal and Texas law. Prudential Secs. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (orig. proceeding). Arbitration awards are entitled to great deference by the courts. Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied). “In Texas, review of arbitration awards is extraordinarily narrow.” Hisaw & Assocs. Gen. Contractors, Inc. v. Cornerstone Concrete Sys., Inc., 115 S.W.3d 16, 18 (Tex. App.-Fort Worth 2003, pet. denied). An arbitration award has the same effect as a judgment of a court of last resort and all reasonable presumptions are indulged in favor of the award. CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002). The award is conclusive on the parties as to all matters of fact and law. Centex/Vestal v. Friendship W. Baptist Church, 314 S.W.3d 677, 683 (Tex. App.-Dallas 2010, pet. denied).
Claim of Arbitrator's Evident Partiality
        Appellants contend the trial court erred when it denied the motion to vacate the arbitration award because of arbitrator McNamara's evident partiality. Appellants assert the arbitration award should have been vacated because McNamara failed to disclose material financial and business relationships with Maxus which manifested a reasonable impression of McNamara's partiality. 
        For an appellate court to have jurisdiction to review an arbitration award, an appellant must allege a statutory or common law ground to vacate the award. Hisaw, 115 S.W.3d at 19. The Texas Legislature has decreed that, on application of a party, a court shall vacate an award if the rights of the party were prejudiced by evident partiality of an arbitrator appointed as a neutral arbitrator. Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A) (West 2011). A neutral arbitrator selected by the parties or their representatives exhibits evident partiality if he does not disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator's partiality. Burlington N. R.R. Co. v. TUCO Inc., 960 S.W.2d 629, 636 (Tex. 1997).   See Footnote 4  The court emphasized that “evident partiality is established from the nondisclosure itself, regardless of whether the nondisclosed information necessarily establishes partiality or bias.” Id. (citing Commonwealth Coatings Corp. v. Cont'l Cas. Co., 393 U.S. 145, 147 (1968)). This standard reflects the supreme court's determination that courts should not undertake evaluations of partiality that are better left to the parties. TUCO, 960 S.W.2d at 636. When choosing a neutral arbitrator, the parties must weigh the competing factors of the arbitrator's knowledge and experience against his potential conflicts; parties can only perform that analysis if they have access to all of the information that could reasonably affect the arbitrator's partiality. Id. at 635. When disclosure is complete, the parties can make their determination concerning potential bias before the arbitration begins, a process that is more desirable than a court making the determination after an award is in place. See id. “While a neutral arbitrator need not disclose relationships or connections that are trivial, the conscientious arbitrator should err in favor of disclosure.” Id. at 637.
FACTUAL BACKGROUND
Factual Background
        According to the terms of the arbitration agreement entered into by appellants and Maxus, appellants appointed arbitrator Kit Cooke, and Maxus appointed arbitrator McNamara. After the two party-appointed arbitrators were selected, appellants proposed Ratliff as the third arbitrator, and Maxus accepted Ratliff as the third arbitrator.   See Footnote 5  Appellants and Maxus disagree as to whether party- appointed arbitrator McNamara was a neutral arbitrator and, consequently, whether evident partiality is an applicable statutory basis for review of the arbitration award. See Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A).
        Appellants contend all of the arbitrators, including McNamara, were intended to be neutral arbitrators. Maxus contends that, as its party-appointed arbitrator, McNamara was not intended to be a neutral arbitrator. While there is nothing in the arbitration agreement that expressly indicates the party-appointed arbitrators were to be considered neutral arbitrators, the agreement specifies that “there shall be no ex parte communications at any time by any party or its representative with any of the arbitrators, except that each party may confer with its own party-appointed arbitrator with respect to selection of the third arbitrator.” McNamara testified at the hearing on Maxus' motion to confirm the arbitration award that he believed he was a neutral arbitrator.
        The arbitration agreement required the arbitrators to disclose all actual or perceived conflicts of interest and business relationships involving the dispute or the parties, including any professional or social relationships, past or present, with any party or its affiliates, and provide an oath or undertaking of impartiality in accordance with the “Code of Ethics for Arbitrators in Commercial Disputes promulgated by [the] joint committee of the American Arbitration Association and of the American Bar Association” (the AAA Code). The arbitration agreement provided that the arbitrators could have no affiliation or interests with either party and no financial or personal interest in the outcome of the arbitration.
         In accordance with the arbitration agreement, McNamara issued disclosures. He stated he had no direct or indirect financial or personal interest in the outcome of the arbitration. In addition to providing information obtained through the computerized conflicts system of the law firm at which he was employed, including information concerning past litigation in which his firm represented a client adverse to Skidmore, McNamara disclosed the following:
With respect to personal or professional relationships, while I do not believe it would affect my impartiality or independence as an arbitrator, I serve with Roberto Monti as a member of the Board of Directors of Transocean, Inc. Mr. Monti will be leaving that Board when a pending combination closes with Global SantaFe, which is expected to occur before year end. Prior to 2002, Mr. Monti served as CEO of YPF and, after the acquisition of YPF by Repsol, as EVP of Repsol YPF. To my best recollection, I have never had any discussion with Mr. Monti about the business of Maxus (U.S.) or any matters related in any way to the dispute in the present arbitration. To my best recollection, I am not acquainted with anyone else who is or has been in a position of responsibility with respect to any of the parties here.
McNamara stated his belief that none of the relationships he disclosed would affect his impartiality or independence as an arbitrator.   See Footnote 6  McNamara also signed an oath that he would faithfully and fairly hear, entertain, determine and make an award based upon his review of the law and evidence. He represented that he had “fully and completely made those disclosures that are required under the Code of Ethics for Arbitrators,” and that apart from those disclosures he was aware of no past or present relationship with the parties or their counsel, whether financial or professional, that required disclosure.
        During the course of the arbitration, certain demonstrative exhibits and testimony indicated that drilling equipment owned by Transocean, Inc. (Transocean) had been utilized by Maxus in 1999 in connection with the drilling of a well referred to as “Haymaker” on Green Canyon Block 162, a lease subject of the arbitration. On the third day of the four-day arbitration, Maxus' witness Delmar Rumph testified regarding the length of time required to obtain necessary studies, authorizations, and equipment and to drill a deepwater offshore oil well. Rumph illustrated his point by discussing the twenty-one month period required for planning, permitting and drilling the Haymaker well. In connection with his explanation of this process, Rumph utilized four slides showing a semi- submersible mobile offshore drilling unit (MODU) with the caption “Transocean Amirante Rig” appearing next to the Maxus logo. Rumph explained that Maxus leased the Transocean Amirante MODU from Transocean at a cost of about $150,000 per day. Rumph testified that Maxus contracted with Advanced Drilling Technologies, Incorporated (ADTI) to drill the Haymaker well ulitizing the Transocean Amirante MODU. According to Rumph, a pre-drilling meeting included Maxus, ADTI, and Transocean.
        No party or attorney objected or raised a question about McNamara's service as an arbitrator when the slides depicting the Transocean Amirante MODU were shown or when Rumph testified regarding use of the MODU in the context of drilling the Haymaker well. After the arbitration award, appellants asserted evident partiality of McNamara due to his service on the board of directors of Transocean, a company that had done intermittent business with Maxus and its parent company, Repsol YPF. Appellants also asserted after the arbitration award that while McNamara disclosed his membership on the Transocean board of directors, he should also have disclosed that he owned Transocean stock.         
        McNamara was deposed by appellants in post-award discovery. He indicated that at the time he made his pre-arbitration disclosures, he had no knowledge of any business relationship between Transocean and Maxus or Repsol YPF, but did not initiate an investigation into any relationship Transocean might have with Skidmore or Maxus. McNamara understood at the time of the arbitration that Maxus was a wholly-owned subsidiary of Repsol YPF. He indicated that he did not recall Skidmore or Maxus ever having been mentioned in connection with any Transocean board matter or included in any Transocean list of material clients. He testified that Transocean was and is the largest drilling company in the world with a market capitalization of about fifty billion dollars and a backlog of contracts worth between forty-two and forty-three billion dollars. McNamara would have assumed Transocean had done business with, or could have had some relationship with, almost any company involved in the offshore oil and gas business. However, he thought the potential for Transocean to have had a substantial relationship with a party to the arbitration as remote and not having an affect on him as an arbitrator. McNamara testified that if anyone had a concern about his service as an outside director of Transocean, he would have expected the concern to be raised in response to his disclosures. McNamara indicated that he assumed anyone knowing he was a director of Transocean, a publicly-held company, would have anticipated he owned stock in the company. 
        McNamara further testified that he was unaware of Transocean's involvement in drilling the Haymaker well until he saw the slides depicting the Transocean Amirante MODU in the arbitration hearing. McNamara did not think there was any point to mentioning again his relationship with Transocean; he assumed all of the parties knew of the Transocean involvement in the drilling of the Haymaker well because the well was drilled on a lease that was jointly held or that had “gone back and forth” between Maxus and Skidmore, and because the information would have been known to the parties by virtue of discovery exchanged in connection with the litigation. McNamara noted that there was no reaction or demonstration of surprise from the parties regarding the slides or Rumph's testimony referencing the Transocean Amirante MODU. Further, he testified that the fact the Transocean Amirante MODU was used in connection with drilling the Haymaker well was not relevant to the principal points being made by Rumph in his arbitration testimony. Rather, McNamara understood the purpose of Rumph's testimony about the Haymaker well was to describe the amount of time required to drill a deepwater offshore oil well in the Gulf of Mexico. McNamara testified that if he had not already made disclosure of his relationship with Transocean, he might have viewed the need for disclosure at the time of Rumph's testimony differently.   See Footnote 7                   
            Eric Brown, a senior vice president and general counsel of Transocean was deposed in the post-award discovery. Brown testified that prior to the arbitration, the 1999 Transocean Amirante MODU contract between Transocean and Repsol YPF, the parent of Maxus, would never have been discussed with McNamara in his capacity as an outside director of Transocean. Brown testified that Maxus and Repsol YPF were not significant clients of Transocean in terms of revenue, either at the time of his deposition or at the time of the arbitration in 2007. Brown testified that the compensation Transocean received from Maxus and Repsol YPF from 2003 through 2007 was a relatively small percentage of its total revenues. In 2003, Transocean received compensation from Maxus and Repsol YPF in the amount of $ 2.96 million, which represented 12/100 of 1 percent of Transocean's total revenues. From 2004 through 2006, Transocean received no compensation from Maxus or Repsol YPF. In 2007, Transocean received compensation from Maxus and Repsol YPF in the amount of $8,387,000, of which $779,000 is in dispute, which represented either 12/100 or 14/100 of 1 percent of Transocean's total revenues.
        At the hearing of the motion to vacate the arbitration award, Kelly Puls, attorney for Intervenors, testified that he was aware from McNamara's disclosures that McNamara was on the board of directors of Transocean. He testified that he would never have agreed to an arbitrator who had a financial and business relationship with Maxus or Repsol YPF. When questioned about a 1999 email regarding the status of the Haymaker well, Puls confirmed that the Maxus arbitration exhibit was also designated as appellants' exhibit. That exhibit referenced ADTI finalizing the MODU contract with Transocean, and a meeting to be conducted with “ADTI, Transocean, and YPF-Maxus” personnel. Puls confirmed he knew before arbitration that a contractor used by Skidmore and Maxus had rented the Transocean Amirante MODU. When McNamara disclosed that he was a director of Transocean and Puls realized that Transocean had done business previously with Maxus, it did not concern Puls because he thought the business relationship was remote in time. Puls, who was also the attorney who filed the 2001 Fort Worth litigation, acknowledged that discovery produced by Maxus in that litigation indicated Maxus and Transocean had a business relationship.        
        In support of their motion to vacate the arbitration award, appellants also elicited testimony from Richard Faulkner as a tendered expert. Faulkner testified he has been active in the arbitration field for thirty years. In Faulkner's opinion, based on the AAA Code, McNamara did not make the disclosures that were required of a neutral arbitrator. Faulkner acknowledged that no statute in Texas codifies or incorporates the AAA Code, and that the code is aspirational for arbitrators conducting arbitrations in Texas.   See Footnote 8
         Faulkner was aware of McNamara's testimony that he did not know of any business relationship between Transocean and Maxus or Repsol YPF when he was appointed as an arbitrator. Faulkner acknowledged he had not seen anything that indicated knowledge on the part of McNamara concerning a relationship between Transocean and Maxus or Repsol YPF. Faulkner acknowledged that appellants did not ask for additional information from McNamara based on his disclosures and that, based on their knowledge of the prior business relationship between Transocean and Maxus or Repsol YPF, appellants could have objected to McNamara as an arbitrator at the time of his appointment. Faulkner acknowledged that McNamara could not disclose what he did not know, but Faulkner stated that he would expect McNamara, as a member of the board of directors of Transocean, to make a reasonable inquiry of the company before serving as an arbitrator and to ascertain whether or not the company was involved directly or indirectly with a party to the arbitration. Despite appellants' knowledge of Transocean's business relationship with Maxus/Repsol YPF based on the discovery in the 2001 Fort Worth litigation and appellants' designated exhibits in the arbitration, Faulkner stated that McNamara had a continuing duty to disclose a business relationship between Transocean and Maxus or Repsol YPF at the time the slides were presented by Rumph depicting the Transocean Amirante MODU used in connection with drilling the Haymaker well.

Findings of the Trial Court
        The trial court found that even if appellants were deemed to have asserted statutory grounds for vacating an arbitration award, appellants failed to establish those grounds, including the ground of evident partiality.   See Footnote 9  In addition to its finding of fact that arbitrator McNamara was not evidently partial and its conclusion of law that Skidmore failed to establish evident partiality as to McNamara, the trial court signed the following findings of fact:
15. Prior to the arbitration, Mr. McNamara disclosed that he serves on the Board of Directors of Transocean, Inc. (“Transocean”), a public company not involved in this lawsuit. He also disclosed that Robert Monti, a former officer of Maxus' parent company, Repsol YPF, also served on that Board. [Skidmore] and Intervenors did not object to Mr. McNamara despite these disclosures. Now, however, [Skidmore] and Intervenors complain that Mr. McNamara's failure to disclose his stock ownership in Transocean and his failure to disclose that Transocean has done business with Repsol YPF establish his evident partiality. Prior to the arbitration hearing, however, Mr. McNamara had no knowledge of any business relationship between Transocean and either Repsol YPF or Maxus, and had no knowledge of any connection between Transocean and the leases involved in this case.
16. [Skidmore] and Intervenors also complain that during the course of the arbitration hearing certain demonstrative exhibits were displayed that indicated Transocean had been the drilling contractor on a well drilled for Maxus in 1999 on one of the Federal Leases in this case, and that this should have caused Mr. McNamara to make a disclosure at that time of a possible business relationship between Transocean and Maxus. However, [Skidmore] and Intervenors were equally aware of the demonstrative exhibits and their implications, but did not object or raise any question relating to Mr. McNamara's continued service as an arbitrator. Moreover, at the hearing on the motion to vacate and the motion for judgment confirming arbitration award, the evidence established that [Skidmore] and Intervenors and their counsel had been aware of these facts for several years.          
Appellants have not raised specific challenges to the trial court's findings of fact.See McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex. 1986) (When findings of fact are filed and unchallenged, they occupy same position and are entitled to the same weight as the verdict of a jury. They are binding on an appellate court unless the contrary is established as a matter of law or there is no evidence to support the finding.). Appellants assert, however, that evident partiality of McNamara warranted the trial court's vacating the arbitration award. We will construe that argument as attacking the trial court's findings of fact that arbitrator McNamara was not evidently partial.
Analysis
        On application of a party, a court shall vacate an award if the rights of the party were prejudiced by evident partiality of an arbitrator appointed as a neutral arbitrator. Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A). The arbitration agreement of the parties does not explicitly indicate that the party-appointed arbitrators were to be considered neutral arbitrators. However, the arbitration agreement specifies that “there shall be no ex parte communications at any time by any party or its representative with any of the arbitrators, except that each party may confer with its own party-appointed arbitrator with respect to selection of the third arbitrator.” McNamara testified he believed he served in the capacity of a neutral arbitrator. While the trial court did not find that McNamara was a neutral arbitrator, the court's findings of fact nevertheless addressed appellants' contention of evident partiality on the part of McNamara. Assuming, without deciding, that McNamara was a neutral arbitrator, we likewise address appellants' contention of evident partiality on the part of McNamara under applicable law. See Tex. Civ. Prac. & Rem. Code Ann. § 171.088; TUCO, 960 S.W.2d at 636.
        Appellants suggest McNamara had an undisclosed interest in the arbitration because Transocean, on whose board of directors McNamara served, had a business relationship with Maxus/ Repsol YPF, and McNamara owned Transocean stock. McNamara served as an outside director on the board of Transocean, a company that had, unknown to McNamara at the time of his disclosures, done intermittent business with Maxus and its parent Repsol YPF. It is undisputed that appellants and their counsel had been aware for years prior to the arbitration that Maxus had done business with Transocean, including contracting with Transocean to utilize the Transocean Amirante MODU in connection with drilling the Haymaker well on one of the leases at issue in the arbitration. Despite the fact appellants had actual knowledge of the prior business dealings between Transocean and Maxus/Repsol YPF, appellants made no objection upon receipt of McNamara's disclosures or during the arbitration when the evidence referred to those business dealings. Further, as pointed out by Maxus, information concerning McNamara's ownership of Transocean stock, as a member of its board of directors, was publicly available in Transocean's periodic filings with the United States Securities and Exchange Commission and appellants were capable of obtaining that information at the time McNamara made the disclosure of his relationship with Transocean. Again, appellants made no objection upon receipt of McNamara's disclosures or during the arbitration concerning McNamara's Transocean stock ownership. 
        Appellants did not raise an objection of evident partiality of arbitrator McNamara until after the arbitration award by the panel majority. A party who knows or has reason to know of an arbitrator's alleged bias but remains silent pending the outcome of the arbitration waives the right to complain. Bossley v. Mariner Fin. Grp., Inc., 11 S.W.3d 349, 351-52 (Tex. App.-Houston [1st Dist.] 2000), aff'd, 79 S.W.3d 30 (Tex. 2002). “A party may not sit idly by during an arbitration procedure and then collaterally attack that procedure on grounds not raised before the arbitrator when the result turns out to be adverse.” Bossley, 11 S.W.3d at 351-52 (citing Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W. 225, 232 (Tex. App.-Houston [14th Dist.] 1993, writ denied)); see also Myer v. Americo Life, Inc., 315 S.W.3d 72, 76 (Tex. App.-Dallas 2009, pet. filed); Kendall Builders, Inc. v. Chesson, 149 S.W.3d 796, 806 (Tex. App.-Austin 2004, pet. denied) (having elected to proceed with arbitration in face of their knowledge regarding arbitrator, parties could not later complain after arbitration award). “[A] party who learns of a conflict before the arbitrator issues his or her decision must promptly object to avoid waiving the complaint.” TUCO, 960 S.W.2d at 637 n.9; Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 806 (Tex. App.-Dallas 2007, pet. denied). We agree with the trial court that appellants have waived their complaint concerning McNamara's alleged evident partiality by failing to raise the issue prior to issuance of the arbitration award.
        But even if appellants had not waived their complaint, we conclude based upon the entirety of this record that McNamara did not fail to disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator's partiality. See TUCO, 960 S.W.2d at 636. McNamara properly disclosed at the outset of the arbitration that he served on the Transocean board of directors. The undisputed evidence is that McNamara was unaware of an intermittent business relationship between Transocean and Maxus/Repsol YPF at the time he made his pre-arbitration disclosures. At the point during the arbitration that McNamara viewed demonstrative exhibits and heard testimony concerning a business relationship between Transocean and Maxus/Repsol YPF, it was apparent that the parties to the arbitration were aware of the business relationship. The intermittent business relationship between Transocean and Maxus/Repsol YPF produced compensation to Transocean that constituted no more than a very small portion of Transocean's annual revenue in 2003 and 2007. The trial court properly concluded that appellants' failed to establish evident partiality of McNamara. We conclude the trial court did not err in confirming the arbitration award in favor of Maxus and in denying appellants' motion to vacate the arbitration award based on appellants' claim of arbitrator McNamara's evident partiality. We overrule appellants' argument to the contrary in their sole issue.
[omitted --  click hot-line to go to separate blog post]   
Conclusion
        We overrule appellants' sole issue. We affirm the trial court's judgment.        

CASE DETAILS AND LINK TO DOCKET SHEET  
05-09-00402-CV AFFIRM - Docket Sheet
Skidmore Energy, Inc. Patton Production Co., Johnny L. Patton, Jr. and Puls, Taylor; Woodson, LLP
v. Maxus (U.S.) Exploration Company
Opinion by:
Justice Robert M. Fillmore
Case Type:
CONTRACT  

Monday, July 11, 2011

Arbitrator Bias: Dallas Court of Appeals finds evident partiality in case involving arbitrator who did not disclose pre-existing relationship with counsel

Confirmation of multi-million dollar award reversed

Karlseng v. Cooke (Tex.App.- Dallas - June 28, 2011)(Opinion by Justice FitzGerald)
("Our examination of the entire record in this case shows a direct, personal, professional, social, and business relationship between arbitrator and [counsel for one party]. The facts demonstrating this relationship “might, to an objective observer, create a reasonable impression of the arbitrator's partiality” if not disclosed by the arbitrator. Thus, [ arbitrator's ] duty of disclosure was triggered as to that relationship.[...]. His failure to disclose the relationship constitutes evident partiality.

OPINION

This is an appeal from an order confirming an arbitrator's award of approximately $22 million in favor of appellee. Appellants raise four issues on appeal. In their first issue, they contend that their rights were prejudiced by the evident partiality of the arbitrator because the arbitrator failed to disclose his close personal and professional relationship with appellee's counsel. See Footnote 1 We conclude the first issue is dispositive of this appeal. For the reasons discussed below we reverse the trial court's confirmation order and final judgment, vacate the arbitration award, and remand the case for further proceedings.

Procedural Background

This is a partnership dispute. See Footnote 2 The parties agreed to arbitrate their dispute under the rules of JAMS, a provider of alternative dispute resolution services. They selected Robert Faulkner, a former federal magistrate judge, as their single arbitrator. Appellee was represented in the arbitration by the firm of Fish & Richardson, P.C. and, specifically, by attorneys Elizabeth Bedell and Geoffrey Harper. Faulkner made certain disclosures using the JAMS form. Faulkner disclosed that he had, within the preceding five years, served as a neutral arbitrator in another arbitration involving appellee's lawyer Harper. Faulkner answered "No" to all other questions posed to him on the disclosure form.

Attorney Brett Johnson of Fish & Richardson first appeared in the arbitration on behalf of appellee four days after Faulkner made his disclosures; he was identified as lead counsel on appellee's claim for relief. Faulkner did not supplement his initial disclosures following Johnson's appearance. Following a five-day arbitration hearing, Faulkner ruled in favor of appellee and awarded appellee approximately $22 million, including more than $6 million in attorney's fees.

Appellee moved to confirm the award. Appellants sought a continuance, arguing they had not had adequate time to develop grounds for vacating the award. Among the grounds appellants wished to investigate was evident partiality, based on Faulkner's undisclosed relationship with Johnson. After appellants offered preliminary evidence concerning their claim of evident partiality, they sought more time to develop their theory, but the trial court denied the continuance and confirmed the arbitration award. They appealed. This Court concluded appellants should have been allowed an adequate opportunity to investigate the evident-partiality issue and, thus, the trial court abused its discretion in denying the continuance. Karlseng v. Cooke, 286 S.W.3d 51, 58 (Tex. App.-Dallas 2009, no pet.). We reversed the trial court's judgment confirming the arbitration award and remanded the cause. Id.

On remand, the trial court held another evidentiary hearing, which commenced on June 30, 2009. The court and the parties agreed this hearing would be an extension of the initial continuance hearing. Accordingly, the evidence from the initial continuance hearing was before the trial court along with the evidence presented after remand. Once again, the trial court confirmed the award.

The Relationship Between Arbitrator Faulkner and Fish & Richardson Lawyer Brett Johnson

The record of the hearings held February 22, 2008 and June 30, 2009 provides a description of the nature and development of the relationship between arbitrator Robert Faulkner and Cooke's attorney Brett Johnson. The events are summarized in chronological order, beginning with Johnson's clerkship and continuing well after confirmation of the arbitration award in this case.

1. Johnson's clerkship years

Johnson testified about his relationship with Faulkner. He characterized his relationship with Faulkner as a friendship "in a business, professional type of way." The professional, collegial aspect of the relationship began when Johnson clerked for Judge Brown in Sherman, Texas from August 1994 through September 1996. When Johnson began his clerkship, Faulkner was the only magistrate judge for Sherman and Texarkana. Johnson saw Faulkner in the hallway on a weekly basis and would say hello, but they did not socialize during this time.

2. Early socializing

Johnson's ex-wife Katie was briefly questioned See Footnote 3 about Faulkner and the contacts she and Johnson had with Faulkner. After Katie testified that she knew Faulkner, she was asked whether the nature of the relationship between Johnson and Faulkner was trivial. Katie responded that Johnson and Faulkner were friends and that she and Johnson socialized with Judge Faulkner and his wife Sheila.

Twice during 2002, Johnson, Katie, and their child traveled to Sherman to visit Judge Brown. On one of these trips, Johnson ran into Faulkner, and they exchanged greetings. Johnson testified that he had not visited Sherman with the intent of seeking out Faulkner. Faulkner testified that he did not recall this meeting.

3. Private Capital Grille dinner celebrating Faulkner's retirement

When his clerkship ended, Johnson entered private practice. He joined the law firm of Fish & Richardson in 2000. He maintained contact with Judge Brown.

Shortly after Faulkner retired in February 2003, See Footnote 4 Johnson and Katie invited Faulkner and his wife Sheila to a private dinner at the Capital Grille to celebrate Faulkner's retirement. They discussed Faulkner's future plans concerning his becoming an arbitrator. Faulkner testified that he did not remember this dinner until he heard the opening statements in the hearing to vacate the arbitration award. Johnson and Katie later divorced. In the fall of 2005, Johnson and his then-girlfriend Kimberly ran into Faulkner and Sheila at a fundraiser. Johnson testified the two couples exchanged greetings and brief introductions. Faulkner testified he remembers the fundraiser and meeting Kimberly.

4. Private affair at Arbitrator Faulkner's home and Stonebriar Country Club, February 2006

Johnson married Kimberly in January 2006, and on February 10, 2006, Faulkner hosted and paid for a dinner at the Stonebriar Country Club. Faulkner, Johnson, and their wives were in attendance. Johnson testified that he and Kimberly went to the Faulkners' house before dinner, and either he or Kimberly had a drink while the Faulkners finished getting ready. One purpose of this dinner was to discuss Kimberly's interest in how one became a United States magistrate judge. Kimberly, an attorney, was expecting a child and wondered "how you did that." At some point during the evening, Johnson invited Faulkner to attend a Dallas Mavericks basketball game.

5. Numerous business calls and personal emails exchanged between Johnson and arbitrator Faulkner, including those setting up Mavericks game April 2, 2006.

On February 13, 2006, Faulkner sent Johnson an email thanking him for attending the dinner on February 10. Faulkner wrote that he and Sheila enjoyed the visit and that Kimberly was "quite a woman." He also proposed some dates for the Mavericks game and thanked Johnson for inviting him to the game-a "very generous offer." Johnson replied, "Thank you for having us out. We had a terrific time. You and Sheila were the perfect hosts." Johnson said he would get back to Faulkner about the dates and also proposed some dates of his own. Faulkner confirmed that April 2 would be a good day to attend the Mavericks game. This email series is not unique; the parties often communicated by email. Faulkner used his personal email account; Faulkner, Sheila, and Johnson used their first names. The tone and content of these emails is personal. Johnson acknowledged that he and Faulkner were "friends, generic friends and business colleague friends . . . at a minimum." Johnson also estimated that he "talk[s]" to Faulkner "probably six times a year on the telephone" about business. See Footnote 5

6. Arbitrator Faulkner and wife's recommendations on wineries, restaurants, and marketplaces to visit on Johnsons' California vacation.

On March 1, 2006, Johnson emailed Faulkner, saying, "Judge: Hope all is well. Am leaving for wine country tomorrow and wanted to see what restaurants and vineyards you reccomended [sic]? Looking forward to our Mavs game on 4/2." Faulkner and Sheila each responded. Faulkner replied, "Brett, I will try to get the names of restaurants before you leave if I can, but be sure and stop at the Viansa winery and Italian Marketplace. . . . A fun place to brouse [sic], eat and drink. Bob." Sheila responded, "Brett, this is Sheila. Another favorite restaurant of ours is Mustard's Grill north of Yountsville. . . . Ya'll have a great time!!!!" Faulkner stated that he did not remember any of the conversations in these emails until his wife reminded him. Faulkner testified that he receives numerous emails and may have responded but did not recall responding to any particular emails.

7. The Busking arbitration

The so-called Busking arbitration grew out of a pair of lawsuits involving the law firm of Fish & Richardson in roughly mid-2004. The law firm sued a former client and its principals for nonpayment of fees, and the former client filed a separate lawsuit against the law firm and Geoff Harper, an attorney at the law firm, for malpractice. The parties agreed to send their dispute to arbitration. Demand for arbitration was filed in approximately January 2006. Faulkner was the arbitrator. The arbitration hearing was scheduled to begin in April 2006. It would last several days. Terry Garrett represented the former client. Harper apparently appeared as a party defendant and also counsel but did not act as primary legal counsel at the hearing because he was a named defendant. Johnson was a principal at Fish & Richardson at the time. In May 2006, Faulkner rendered his award in the Busking arbitration in favor of Fish & Richardson in the amount of $220,000 for attorneys fees. The award was confirmed on November 20, 2006.

Garrett testified that at some point during the Busking arbitration hearing, Harper told him how he thought Faulkner would rule. See Footnote 6 Garrett became concerned because the way Harper talked about what Faulkner would do sounded to him like Harper and Faulkner "knew each other pretty well." Garrett immediately sent a written request to Faulkner inquiring into Faulkner's relationship with Harper, "because it seemed they were awfully friendly." Garrett had a phone conversation about Garrett's letter and was told that Faulkner did not have a relationship with Harper. See Footnote 7 Garrett testified that at the time of the phone conversation, Johnson had not yet made his appearance in the Busking arbitration, so Garrett did not inquire about any relationship between Johnson and Faulkner. Garrett testified that he did not think he saw Johnson in the case until it was set for arbitration or "maybe even the day of arbitration." Faulkner, Johnson, the law firm, and JAMS never made any disclosures about any relationship between Faulkner and Johnson. According to Johnson, he appeared as counsel shortly before the hearing. He and Faulkner agreed that they should not go to the April 2, 2006 basketball game they had planned, and that it would be the wrong thing to do on the eve of an arbitration hearing. They canceled their plan to attend the game. Johnson did not believe Faulkner should have disclosed their relationship, even though he and his firm were counsel of record in the arbitration and his firm was one of the parties as well. Johnson testified it was appropriate for him to renew contact with Faulkner after the post-award modification period expired.

David Newman, who was one of Fish & Richardson's and Harper's opponents in the Busking arbitration, testified he did not have independent knowledge of the Faulkner-Johnson relationship until learning of the Karlseng v. Cooke case before this Court. Newman also testified the attorney-arbitrator relationship would not necessarily have disqualified Faulkner, but he would have liked to have known about the contacts between the men.

8. Arbitrator Faulkner's private Tower Club function with Johnson, his wife and child, September or October, 2006.

Sometime in September or October of 2006-after Faulkner made his award in Busking but before it was confirmed-Faulkner hosted Johnson, Kimberly, and their four-month-old son for a meal at the Tower Club in Dallas.

9. Emails rescheduling Mavericks game.

In October, the men exchanged emails rescheduling their earlier plan to attend a Mavericks game. Faulkner wrote: "Brett, thanks for the note. We would love to go with you guys to one of the games, the Dec. 1 date sounds great to us. . . . We will see you in Galveston. Thanks again. Bob." See Footnote 8

10. Arbitrator Faulkner and wife and Johnsons' sponsored Mavericks game and Capital Grille private dinner.

On December 1, 2006, the Johnsons and the Faulkners attended the rescheduled Mavericks game and again ate dinner at Capital Grille. The game tickets (paid for by Johnson) had a face value of $1,200. The dinner (also paid for by Johnson) cost approximately $428. After consulting with his wife, Faulkner recalled attending the Mavericks game and having dinner with the Johnsons. Faulkner testified that he has attended two other Mavericks games with another attorney, but did not remember the Mavericks game with Johnson until his wife refreshed his memory.

11. Johnsons' gift of wine basket to arbitrator Faulkner and wife

Also in December 2006, the Johnsons sent the Faulkners a Christmas card and a basket of wine valued at $75. The Johnsons received a handwritten thank-you card signed by Sheila for the Christmas wine basket. Faulkner testified that he does not recall ever receiving a Christmas card or gift from Johnson; rather, his wife opens and enjoys the Christmas gifts.

12. Faulkner selected as arbitrator in Cooke's case. Arbitrator Faulkner made no disclosure of Faulkner-Johnson relationship.

In February 2007, a demand was made for arbitration in appellants' case. The parties agreed to arbitrate under the rules of JAMS. Faulkner was appointed their single arbitrator on April 5, 2007. The JAMS rules require neutral arbitrators to make certain disclosures. The disclosure obligation continues throughout the arbitration process. JAMS Ethical Guideline V recommends that the arbitrator "ensure that he or she has no known conflict of interest regarding the case," and it provides that the arbitrator "should endeavor to avoid any appearance of a conflict of interest." Guideline V.A further recommends the arbitrator "promptly disclose, or cause to be disclosed all matters required by applicable law and any actual or potential conflict of interest or relationship or other information, of which the Arbitrator is aware, that reasonably could lead a Party to question the Arbitrator's impartiality." Faulkner made certain disclosures using the JAMS form on or around April 5, 2007. He described the disclosure process as a "very quick and hurried event." As previously noted, Faulkner disclosed that he had, within the preceding five years, served as a neutral arbitrator in another arbitration involving appellee's lawyer Harper. Faulkner answered "No" to all other questions posed to him on the disclosure form, including:

* Arbitrator or a member of arbitrator's family has or has had a significant personal relationship with any party or lawyer for a party?

* Arbitrator or arbitrator's family has or has had any other professional relationship with a party or lawyer for party, including as an expert witness or consultant?[ See Footnote 9 ]

* Is there any other matter that [m]ight cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial?

In the disclosure form signed by Faulkner, he represented he had "made a reasonable effort to inform myself of any matters that could cause a person aware of the facts to reasonably entertain a doubt that as the proposed Arbitrator, I would be able to be impartial. In addition, I have disclosed all such matters to the parties." Similar representations were made to the parties in a JAMS notification letter. Finally, Faulkner affirmed his "responses to the questions . . . are true and correct to the best of my knowledge."

Johnson first appeared in the arbitration shortly after Faulkner made his disclosures, around April 9, 2007. Johnson was identified as lead counsel on appellee's original claim for relief. Faulkner did not supplement his initial disclosures following Johnson's appearance. Faulkner testified that the reason for his failure to supplement was because he was "kind of hostile that morning to JAMS about the facilities that they put [the parties to the Cooke arbitration] in, and so [he] may not have focused."

13. Undisputed evidence Arbitrator Faulkner and Johnson acted as "strangers" when they introduced themselves to each other at the Cooke arbitration on or about December 10, 2007

Appellant Jacques LeBlanc testified that he did not have independent knowledge of the Faulkner-Johnson relationship. LeBlanc testified that he was talking to the court reporter for the Cooke arbitration about the spelling of his name when Johnson entered the room and moved to his spot. At that point, Faulkner said, "I see we have another attorney or a new attorney . . . on the case." Johnson leaned over and said "yes, judge." He reached out his hand and said "Brett Johnson." Faulkner extended his hand and said "Robert Faulkner." LeBlanc testified that at that time it did not strike him as odd because he was completely ignorant of any relationship between Faulkner and Johnson and thought they were strangers, but in light of the testimony, it definitely seemed unusual to him. There was an objection to LeBlanc's testifying as to whether he would have approved Faulkner if he had known of the relationship. The trial court allowed the testimony as some-but not binding-evidence of what an objective person would believe. LeBlanc testified he would "absolutely not" have approved Faulkner if he had known about his relationship with Johnson. Neither arbitrator Faulkner nor Johnson contradicted LeBlanc's testimony.

14. Johnson's temporary suspension of wine-basket gift to arbitrator Faulkner

That particular year, 2007, Johnson decided not to send a Christmas card or gift to Faulkner because of the pending arbitration. On January 31, 2008, Faulkner ruled in favor of appellee and awarded appellee approximately $14.6 million in damages, attorneys' fees "equal to 45% of the award," and prejudgment interest of about $1.3 million. On February 12, 2008, Faulkner signed an amended award reducing appellee's damage award to approximately $14.3 million, specifying the amount of attorneys' fees as roughly $6.4 million, and again awarding about $1.3 million in prejudgment interest. 15.

Arbitrator Faulkner made no effort to determine whether he should disclose his relationship with Johnson in order to assure his impartiality after Johnson appeared in case

Faulkner's testimony regarding the Cooke arbitration was significantly limited by the trial court. Faulkner testified that most of his current recollection is a result of having consulted with his wife prior to the hearing on remand or having heard appellants' opening statements in that hearing. The following question was posed to Faulkner: "What efforts did Arbitrator Faulkner make to inform himself or to refresh his memory of his relationship with Brett Johnson when he first saw Brett Johnson come into the arbitration room on the Karlseng arbitration?" Faulkner replied, "I didn't make any." He conceded he "didn't go through any thought process of What do I know, or when did I go or have dinner with [Johnson]?" But when asked if he recognized Johnson when he saw him at the hearing, Faulkner testified: "Oh, yes, sir, absolutely." Johnson confirmed that Faulkner would have remembered him. Johnson was asked, "Is there any way in the world th[at] Judge Faulkner would forget who you are?" and he answered, "No, sir."

16. Continuation of Faulkner-Johnson dinners: the $1,000 Mansion dinner, March/April 2008.

Johnson testified that the men's relationship continued after the Cooke arbitration. For example, shortly after the proceeding was over, Faulkner invited the Johnsons and one other couple to join the Faulkners for dinner at the Mansion in Dallas. See Footnote 10 The bill was estimated to be $1000 for dinner for the three couples. Faulkner testified that after hearing of this event on the first day of the proceedings in the present case, he remembered hosting the dinner at the Mansion and that the dinner was expensive. 17.

The JAMS New York business development roundtable planned by arbitrator Faulkner, who solicited Fish & Richardson firm's attendance, in spring 2008

In April 2008, Faulkner called Johnson. Faulkner was planning roundtable lunches for JAMS and "wanted to know who in the New York office he should contact regarding inviting anyone from Fish & Richardson who would want to come." Faulkner testified he recalled this phone call to Johnson. Johnson initially characterized the JAMS program as "professional improvement" or "peer review" for JAMS. He later conceded the program "had a business development aspect to it." On April 25, 2008, Johnson attended one of those lunches at which Faulkner spoke. Johnson testified he said hello to Faulkner at the lunch. Faulkner testified that he did not remember seeing Johnson at this lunch but was sure that Johnson attended because he remembered Johnson's name being on the invitation list.

18. Johnson's wine-basket gift to Faulkner and wife resumed

In December 2008, Johnson resumed sending the Faulkners a Christmas card and wine basket. Again, Faulkner testified that he does not recall receiving a Christmas card or gift from Johnson in 2008.

19. Testimony regarding the propriety of the nondisclosure of Faulkner and Johnson's relationship

As to whether contacts like those between Johnson and Faulkner should be disclosed, Johnson testified he would not want to know about them as an attorney, but his clients might potentially want to know. Indeed, he testified he could imagine circumstances where clients might want to know some of the contacts between him and Faulkner. And he agreed that if he were his opposing counsel, he would want to know. He testified, hypothetically, if he knew an arbitrator and attorney had planned to attend a basketball game and then canceled the game because of the pending arbitration, he would "probably" tell his client. He "would not affirmatively hide it." He also conceded that he "could see" how clients might want to know about dinners between arbitrators and attorneys, basketball games, and other such contacts.

Harper, appellee's only witness, testified he knew nothing about the Faulkner-Johnson relationship. He asked Johnson to work on this arbitration because "as a team" they had done well on the Busking arbitration. Harper stated that, to the best of his knowledge, he had never had a meal with a full-time neutral arbitrator. He stated that as an attorney there were some contacts on the chronology that he would want to know about. He conceded that some clients would want to know about the kind of relationship evidenced by the chronology; some would not.

Robert Wood, offered as an expert witness, testified to his many years practicing law and teaching arbitration at Texas Tech law school. Under the circumstances described in this case, Wood opined Faulkner had an obligation to disclose his relationship with Johnson as well as Johnson's law firm, Fish & Richardson, under JAMS rules and Texas arbitration practices, the moment Faulkner realized the attorney or his law firm were involved in the arbitration. He also opined Johnson had a similar obligation. Wood further testified he would teach his students to disclose gifts, sports tickets, and expensive meals, which indicate to him that the relationship is more than casual or trivial. Were he serving as an arbitrator, Wood would disclose a relationship that included a Christmas gift valued at $75 and attendance at a sporting event. Wood testified that temporarily stopping the described interactions between arbitrator and lawyer during an arbitration would never justify nondisclosure of the relationship. The relationship must be disclosed regardless of contemporaneous interactions. In Wood's opinion, Faulkner was required to disclose the relationship as soon as Johnson appeared or Faulkner realized Johnson had appeared. See Footnote 11 Wood also believed that Johnson was required to disclose the nature of his and Faulkner's relationship even if Faulkner did not.

Evident Partiality

Arbitration of disputes is strongly favored under both federal and Texas law. Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995). And arbitration awards are entitled to great deference by the courts. Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.-Dallas 2004, pet. denied). We review the trial court's decision to confirm an arbitration award de novo, and we review the entire record. Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 567 (Tex. App.-Dallas 2008, no pet.). But we may not merely substitute our judgment for that of the arbitrator. See id. at 568.

Despite the narrowness of review of the award itself, the Texas Legislature has decreed that-on application of a party-a court shall vacate an award if the rights of the party were prejudiced by evident partiality of an arbitrator appointed as a neutral arbitrator. Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a)(2)(A) (West 2011). The supreme court adopted the following test to determine "evident partiality": a neutral arbitrator selected by the parties or their representatives exhibits evident partiality if he does not disclose facts that might, to an objective observer, create a reasonable impression of the arbitrator's partiality. Burlington N. R.R. Co. v. TUCO Inc., 960 S.W.2d 629, 636 (Tex. 1997). See Footnote 12 The court emphasized that "evident partiality is established from the nondisclosure itself, regardless of whether the nondisclosed information necessarily establishes partiality or bias." Id. (emphasis in original). This test was explicitly intended to be an "objective" one, with "the consequences for nondisclosure . . . directly tied to the materiality of the unrevealed information." Mariner Fin. Group, Inc. v. Bossley, 79 S.W.3d 30, 32 (Tex. 2002).

While the courts have primarily addressed issues related to business and financial transactions, they are not unaware of other important relationships that certainly impact an arbitrator's judgment, such as personal and social relationships. Information about the existence and extent of each of these relationships is essential to the fair and impartial nature of the arbitration process, particularly in view of the substantial discretion invested in an arbitrator to decide both law and facts and the limited appellate review of these decisions. Commonwealth Coatings Corp. v. Cont'l Cas. Co., 393 U.S. 145, 149 (1968); TUCO, 960 S.W.2d at 633, 635.

The supreme court observed that the standard of disclosure mandated in TUCO was in accord with Canon II of the Code of Ethics for Arbitrators in Commercial Disputes, a portion of which it quoted:

A. Persons who are requested to serve as arbitrators should, before accepting, disclose:

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(2) Any existing or past financial, business, professional, family or social relationships which are likely to affect impartiality or which might reasonably create any appearance of partiality or bias . . . .

TUCO, 960 S.W.2d at 636. The carriers in TUCO next approached the type of relationship which must be at issue before the question of "evident partiality" arises. The carriers contended an arbitrator is evidently partial "only if the arbitrator fails to disclose a direct financial or business relationship with a party or its agent." Id. at 637 (internal quotations omitted). Cooke likewise argues the relationship "must involve a pecuniary interest," that a personal/social relationship standing alone is insufficient to create a reasonable impression of the arbitrator's partiality. The supreme court specifically disagreed with such a restrictive standard. On the contrary, the supreme court stated: "[T]he parties should have access to all information that might reasonably affect the potential arbitrator's impartiality. This could obviously include, for example, a familial or close social relationship." Id. at 637 (emphasis added).

Further, this Court's prior opinion recognized the significance of information regarding "a familial or close social relationship" when it cited to this language in TUCO. See Karlseng v. Cooke, 286 S.W.3d 51, 56 (Tex. App.-Dallas 2009, no pet.) (citing TUCO, 960 S.W.2d at 636); see also Amoco D.T. Co. v. Occidental Petroleum Corp., No. 14-09-00651-CV, 2011 WL 1843527, at *4 (Tex. App.-Houston [14th Dist.] May 17, 2011, no pet. h.) (quoting TUCO's reference to "familial or close social relationship[s]").

This standard reflects the supreme court's determination that courts should not involve themselves in evaluations of partiality that are better left to the parties. TUCO, 960 S.W.2d at 636. When choosing a neutral arbitrator, the parties must weigh the competing factors of the arbitrator's knowledge and experience against his potential conflict. Parties can gauge the neutrality of an arbitrator only if they have access to all the information that could reasonably affect the arbitrator's partiality. Id. at 635. When disclosure is complete, the parties can make their determination concerning potential bias before the arbitration begins, a process that is much more desirable than a court's having to make the determination after an award is in place. See id. "While a neutral arbitrator need not disclose relationships or connections that are trivial, the conscientious arbitrator should err in favor of disclosure." Id. at 637. Finally, the court emphasized the articulated disclosure standard was a continuing obligation of the parties, to extend "during the course of the arbitration proceedings." Id.

Analysis

We review the entire record. See Williams, 244 S.W.3d at 567. And we view the record from the perspective of an objective observer, to determine whether the relationship should have been disclosed. See TUCO, 960 S.W.2d at 636. We do not merely count contacts. Instead, we assess all the contacts between the individuals as evidence of their relationship. JAMS required Faulkner to disclose any significant personal relationship with Johnson, and business relationship with Johnson, and any other facts that might cause a person reasonably to doubt Faulkner's ability to be impartial.

The Faulkner-Johnson relationship appears to have started in 1994 with the occasional contacts of people who work in the same building. Faulkner was a United States Magistrate Judge for a United States District Judge, and Johnson was a law clerk for the same United States District Judge. Thus, they saw each other on a weekly basis. Johnson's clerkship ended in 1996. According to Johnson, their friendship grew over the years. Shortly after Faulkner's formal retirement party, Johnson and his wife took Faulkner and his wife out for a private dinner to celebrate Faulkner's retirement where they discussed Faulkner's future plans to become an arbitrator. In 2005 Johnson divorced and remarried. After that, Faulkner and Johnson ran into each other at seminars and fundraising events, but it is apparent the men also purposefully sought out social interaction with each other. The relationship was not one-sided: both men hosted expensive social events. For example, in 2006, Johnson treated the Faulkners to a dinner and basketball game at a total cost of over $1,600. Their spouses actively participated in their socializing. The contacts among the foursome included drinks at the Faulkners' home as well as career and vacation advice. Johnson sent Christmas gifts to Faulkner. Moreover, the social relationship between Faulkner and Johnson clearly had business overtones. Johnson testified he spoke to Faulkner about six times a year for business reasons. Faulkner testified, albeit more generally, that he tried whenever possible to take attorneys he was working with or would like to work with to meals at a downtown restaurant. Shortly after the arbitration, Faulkner called Johnson for help in making contacts within Johnson's firm for business- development purposes. This contact, while occurring after the arbitration, does further evidence the nature of the relationship itself.

Under TUCO, we must examine this relationship for its effect on an objective observer. Both Newman and LeBlanc testified they would have wanted to know about the relationship. Both Johnson and Harper testified that their clients might want to know about it as well. Wood's uncontroverted expert testimony was that the relationship should have been disclosed.

Cooke contends the arbitrator's lack of knowledge and recollection of specific facts is "decisive" in determining no disclosures were necessary. Cooke relies on arbitrator Faulkner's testimony that he did not recall certain events until his wife refreshed his memory shortly before he gave testimony pursuant to this Court's previous decision. It is beyond any question that an arbitrator has a duty of disclosure. Such a duty is predicated upon the enormous power, responsibility, and discretion vested in the arbitrator and the very limited judicial review of the arbitrator's decisions. So often, significant sums of money are at stake. And, of course, an experienced arbitrator whose livelihood depends upon his reputation and skill, always recognizes there is a competitive market for such services. Thus, the duty of disclosure requires a certain degree of introspective reflection or what is commonly known as due diligence. While an arbitrator need not launch a full investigation into his past, an arbitrator must make a reasonable effort, consistent with the effort and care ordinarily exercised by a person who seeks to satisfy a legal obligation, to inform himself/herself of the interests, contacts, and/or relationships that are required to be disclosed. Cf. Amoco D.T. Co., 2011 WL 1843527, at *8 n.7 ("[A]n arbitrator cannot intentionally fail to determine whether information known to him is trivial or material and later claim, when accused of evident partiality, that he was unaware of the nature of the information.").

Our record reflects that when arbitrator Faulkner was given an opportunity to explain what efforts he made to inform himself or refresh his memory as to the relationship he had with Johnson, he responded that he had done absolutely nothing. Faulkner's admission completely undermines the argument Cooke makes in this Court See Footnote 13 that the arbitrator should not be expected to make any disclosures because he later testified he either did not know or could not recall specific facts until his memory was refreshed by, among others, his wife.

The record establishes that arbitrator Faulkner and Johnson were friends. Both Faulkner and Johnson acknowledged Faulkner would immediately have known who Johnson was the moment he presented himself at the arbitration hearing. Cooke stresses Faulkner testified he did not recall specific times, dates, places, and the like. The record clearly shows Faulkner recalled many of these events when, facing the prospect of giving testimony, he took measures to refresh his memory. The situation called for a simple solution: disclose at a minimum the general nature of his friendship with Johnson, of which appellants were entirely ignorant, and thus permit the parties to further investigate this relationship before proceeding with the hearing. Faulkner failed to make any effort to reflect on the interests, contacts, and relationship he enjoyed for many years with Johnson, in order to assure the appellants of his impartiality and to safeguard the integrity of the arbitration process. Cooke's reliance on Mariner Financial Group, Inc. v. Bossley, 79 S.W.3d 30 (Tex. 2002), is misplaced. In Bossley, an appeal from a summary judgment, the arbitrator had not disclosed any relationship with an expert witness for the Bossleys, the parties that eventually lost at arbitration. The expert herself only remembered after the arbitration that she had testified against the arbitrator in a malpractice action more than two years earlier. Id. at 32. In her affidavit, the expert stated that the arbitrator did not attend her deposition and that she never met or saw the arbitrator before the arbitration; she had no further involvement with the malpractice case against the arbitrator after that deposition. The case was settled and the settlement documents were sealed. The Bossleys alleged evident partiality, and Mariner Financial, the winning party, moved for a traditional summary judgment. The trial court granted the summary judgment. Id. The supreme court stated that Mariner Financial had to establish the arbitrator was not evidently partial as a matter of law and concluded there was a fact issue on evident partiality because the summary-judgment record was silent as to whether the arbitrator knew or remembered the expert when he failed to disclose their relationship. Id. at 33. Cooke contends Bossley supports his argument that Faulkner had no obligation to disclose forgotten contacts. However, JAMS-like Bossley, 79 S.W.3d at 35-requires disclosure of relationships. And although Faulkner claimed he had forgotten specific contacts with Johnson, he had not forgotten their relationship. Indeed when asked if he remembered Johnson when Johnson appeared at the arbitration hearing, Faulkner replied that he "absolutely" did. And when Johnson was asked whether there was any way in the world Faulkner would forget who he was, he replied "No, sir." Bossley does not support Faulkner's failure to disclose the known relationship he had with Johnson. TUCO, however, is a closer fit to the facts and supports appellants' position. In TUCO, the arbitration panel's neutral arbitrator accepted a business referral from a partisan arbitrator's law firm during the arbitration. 960 S.W.2d at 631. In TUCO, there was no question the neutral arbitrator knew about the relationship. Similarly, in the instant case, there is no question arbitrator Faulkner knew about his relationship with Johnson.

Cooke also argues disclosure is required only if the relationship contains a substantial business or pecuniary aspect, and that social relationships standing alone are insufficient. The Texas Supreme Court has expressly rejected this standard as being too narrow. The duty of disclosure is not limited to direct financial or business relationships. Id. at 637. Instead, "the parties should have access to all information that might reasonably affect the potential arbitrator's impartiality." Id.

The record in this case reflects substantial evidence of a personal, social, and professional relationship between arbitrator Faulkner and Johnson. This relationship grew over a long period of time, commencing in 1994. It involved private dinners at restaurants and country clubs. The meals were expensive. Cooke's claim that Faulkner "has never been to Mr. Johnson's home" is not compelling in view of the evidence that Johnson and his wife were, in fact, entertained in Faulkner's home. Cooke's claim that neither Johnson nor Faulkner has confided in one another about personal, financial, or career matters nor exchanged gifts (or even cards) is not impressive in view of the evidence that Faulkner discussed his career plans to become an arbitrator with the Johnsons, Johnson and Faulkner did have private telephone conversations about business through the years, the Johnsons did send gifts and cards to the Faulkners, and the Johnsons did have a conversation with the Faulkners about how one could become a federal magistrate, certainly a discussion with career overtones. They also discussed recommendations about vacation plans.

In addition, we are also troubled by Cooke's blanket assertion that the record shows neither arbitrator Faulkner nor Johnson had any business connections from which "either would derive a pecuniary benefit." The record shows over a period of years both individuals exchanged telephone calls over what was generally described as "business." The record also shows the Busking arbitration was a dispute which involved Fish & Richardson's claim for substantial legal fees. Harper and Johnson were principals of this firm. Opposing counsel testified about concerns that were generated by Harper's remarks as to how Faulkner would rule, which in turn caused opposing counsel to ask Faulkner in writing if he had any sort of relationship with Harper. The evidence shows that while the Busking arbitration was ongoing, Johnson conducted substantial contacts with arbitrator Faulkner in February and September at Faulkner's home and at an expensive restaurant, and Johnson solicited advice from Faulkner regarding Johnson's California vacation plans. A Mavericks basketball game they both planned to attend April 2, 2006 was canceled because of the imminent arbitration hearing. It was rescheduled and took place December 1, 2006, less than two weeks after the award was confirmed. Faulkner ultimately awarded $220,000 in attorneys' fees to Fish & Richardson. Thus, arbitrator Faulkner ruled on the merits of a case involving Fish & Richardson and Harper as parties while engaging in undisclosed, behind-the-scenes social meetings with Johnson, a principal of Fish & Richardson. To this date, Johnson and Fish & Richardson claim they and Faulkner had no duty to disclose these contacts.

In the Cooke arbitration, Faulkner and Johnson presented themselves at the commencement of the arbitration hearing as complete strangers. This attitude was a dramatic turnabout from the friendly attitude exhibited by Fish & Richardson counsel during the prior Busking arbitration. Opposing counsel in the Busking arbitration testified he was caught by surprise to learn of the recently discovered Faulkner-Johnson relationship through evidence developed in the Cooke case. Cooke completely failed to dispute this evidence. In a case of this magnitude, in which Cooke requested over $6 million in attorneys' fees See Footnote 14 and in which arbitrator Faulkner and Johnson did not disclose the nature of their relationship, the evidence of the relationship between arbitrator Faulkner and Johnson is particularly alarming. The record also shows the formula for computing attorneys fees sought in the Cooke arbitration was revised shortly before the arbitration hearing. According to Fish & Richardson, after the firm had represented Cooke for over two years, it determined its legal-fee contract was not enforceable and changed the arrangement to a contingency-fee contract. This revision preceded the award of over $6 million to Fish & Richardson.

We further conclude the post-award conduct of arbitrator Faulkner and Johnson is both relevant and enlightening. They engaged in an expensive dinner at the Mansion, said to approach $1,000, immediately after the award; and Johnson resumed his annual wine-basket gift to the Faulkners. Equally important, arbitrator Faulkner solicited Fish & Richardson lawyers to attend a business-development roundtable in New York in the spring of 2008. This evidence continues to show the same substantial pattern of personal social contacts and potential business relationships.

Our conclusion that the relationship between arbitrator Faulkner and Johnson was significant is further supported by their own conduct during arbitration proceedings. Faulkner and Johnson did not suspend their activities during the Busking arbitration between January and November 2006. See Footnote 15 Faulkner, Johnson, and their wives had dinner together in February 2006, and Johnson then invited Faulkner to a basketball game. The two men exchanged emails and confirmed April 2, 2006 as the date for their basketball outing. In March, Johnson and the Faulkners corresponded by email about Johnson's vacation plans and the Faulkners' suggestions. Then Johnson and Faulkner agreed to cancel their April 2 basketball outing, which would have been very shortly before the Busking hearing. In September or October 2006, Faulkner hosted Johnson and his family for a meal at the Tower Club in Dallas, and the two men rescheduled their basketball game.

The Cooke arbitration commenced in February 2007 and did not result in a final award until February 2008. There is no evidence of social outings during 2007, but we are mindful of Johnson's testimony that he talked to Faulkner on the telephone probably six times a year on business. Johnson sent the Faulkners a Christmas gift in 2006, refrained from doing so in 2007, and then sent them another Christmas gift in 2008. After Faulkner rendered the amended award in February 2008, he treated the Johnsons to dinner at the Mansion in March or April, and in April he called Johnson for assistance in identifying a Fish & Richardson person to contact about a JAMS roundtable lunch.

Cooke contends contacts such as these are "expected and accepted" among attorneys practicing in the same community. However, Harper testified otherwise, stating he had never had a meal with a full-time neutral. Further, the test is whether the facts might create a reasonable impression of partiality in the mind of an objective observer. The objective observer may include an attorney but it is not limited to an attorney. See TUCO, 960 S.W.2d at 636.

Our examination of the entire record in this case shows a direct, personal, professional, social, and business relationship between arbitrator Faulkner and Johnson. The facts demonstrating this relationship "might, to an objective observer, create a reasonable impression of the arbitrator's partiality" if not disclosed by the arbitrator. Thus, Faulkner's duty of disclosure was triggered as to that relationship. See id. at 639. His failure to disclose the relationship constitutes evident partiality. See id. We decide appellants' first issue in their favor.

Conclusion

Because we have resolved the first issue in favor of appellants, we need not address their remaining issues. We reverse the trial court's order confirming arbitration award and judgment, vacate the arbitration award, and remand the case for further proceedings.

KERRY P. FITZGERALD

JUSTICE

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Footnote 1

Appellants also contend that the trial court erroneously limited questioning of the arbitrator concerning that relationship; the trial court erroneously denied appellants' request for a jury trial; and the award is not appropriate on substantive grounds.

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Footnote 2

The facts underlying the parties' substantive dispute are set forth in detail in this Court's 2009 opinion. See Karlseng v. Cooke, 286 S.W.3d 51, 52-53 (Tex. App.-Dallas 2009, no pet.). Because we do not reach the merits of the dispute, we do not repeat those facts here.

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Footnote 3

She appeared under subpoena.

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Footnote 4

Johnson testified that in February 2003 he was invited to and attended Faulkner's retirement party. The formal ceremony was held at the courthouse in Sherman; the reception followed afterward at the Stonebriar Country Club. Johnson testified that his invitation was not unique; rather, all of Judge Brown's former law clerks were invited. Faulkner testified that a multitude of family, friends, and colleagues were invited by his secretarial staff and that he did not recall Johnson's attendance.

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Footnote 5

The record contains no evidence concerning the nature of the "business" that spurred an average of six calls a year. Johnson did testify that once, when Faulkner had called him about another case, Faulkner asked about the status of the Karlseng matter. But that is the single reference we find concerning a specific business call.

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Footnote 6

According to Harper's testimony, his conversation with Garrett concerned Faulkner's ruling on a motion for death-penalty sanctions.

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Footnote 7

The record is not entirely clear whether this telephone conversation was with Faulkner or with someone else at JAMS.

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Footnote 8

Johnson and Faulkner separately attended an annual Bar conference in Galveston from October 12-13, 2006. On one of the days of the conference, Johnson and Faulkner ran into each other and spoke briefly-less than five minutes. Kimberly and Sheila, also in attendance, independently ran into each other as well. Faulkner testified that he attends the Bar conference every year, so he could not confirm that Johnson also attended the conference in 2006.

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Footnote 9

This question speaks to "any other" professional relationship. The question follows questions requiring the arbitrator to disclose (1) recent service as an arbitrator or mediator for the parties or attorneys, and (2) an attorney-client relationship with the parties or attorneys.

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Footnote 10

In his deposition, Johnson testified the dinner was in February of 2008. At trial, he testified he thought it was "more like March or April." There was no documentation from the dinner.

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Footnote 11

There was some discussion during Wood's testimony concerning whether ABA and AAA arbitration standards should apply in this case. The parties agreed to arbitrate under JAMS rules, so we look solely to the issues posed by the JAMS disclosure form. Of course, we look to Texas law when analyzing those disclosure issues.

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Footnote 12

The TUCO opinion resolved conflicts within Texas and federal courts concerning the proper standard for identifying evident partiality. See TUCO, 960 S.W.2d at 632-37. Both section 171.088 and TUCO date from 1997. Accordingly we look to Texas authority from that date forward in analyzing the issue before us.

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Footnote 13

Cooke asserts in his appellate brief, "Absent a recollection of these events, Judge Faulkner cannot be condemned for not having disclosed them in connection with the underlying arbitration."

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Footnote 14

After the hearing, Cooke submitted a proposed arbitration award. The proposed award included awards of attorneys' fees totaling over $6.5 million.

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Footnote 15

The Busking arbitration commenced in January 2006, was heard in April 2006, and resulted in an award in May 2006. The award was judicially confirmed in November 2006.

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CASE DETAILS:
Case Number: 05-09-01002-CV
Click Cause Number to View Full Docket Sheet
Robert C. Karlseng, Karlseng Law Firm et al v. H. Jonathan Cooke
Date Filed: 08/21/2009 Original Proceeding (Y/N): N
Type Case: OTH CIV
Trial Cause#: DC-06-02783
Trial Court: 193RD DISTRICT COURT Trial Court ID: 320570193
Trial Court Judge: Ginsberg, Carl County: DALLAS