HOW "FINAL" IS BINDING ARBITRATION IN TEXAS: A TEXAS APPELLATE COURT FINDS PARTIALITY OF AN ARBITRATOR CONTROLLING IN REVERSING A PRIOR ORDER DENYING A PETITION TO VACATE ARBITRATION AWARD
by George Edwards III
Mr. Edwards is a fifth year associate at PHILLIPS*AKERS*WOMAC who graduated with a degree in chemistry from Rice University and holds a law degree from Howard University School of Law in Washington, D.C. He has represented many business entities and individual parties, and his practice areas include commercial litigation, premises liability, insurance litigation, products liability, nonsubscriber actions, and general liability cases.
Many practitioners believe that binding arbitration clauses are beasts too powerful and too expensive to overcome or invalidate in a Texas court. While it is true that there exists a presumption favoring arbitration, Texas law requires that the party requesting said arbitration meets its burden in establishing: (1) the existence of an arbitration agreement; and (2) that the asserted claims fall within the scope of the agreement. See In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999) (orig. proceeding). The Federal Arbitration Act (FAA) requires that a defendant seeking to compel arbitration must establish the existence of an arbitration agreement and that the claim falls within the scope of the arbitration agreement. The FAA states:
A written provision…shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
See 9 U.S.C. §2; see also Doctor's Assocs v. Casarotto, 517 U.S. 681, 687-688 (1996) ("Thus, generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening §2"). Other common defenses to compelled arbitration include waiver, inadequate consideration, the non-existence of interstate commerce, and prevention of enforcement by failure to satisfy the additional requirements of the Texas Arbitration Act (TAA). A far less commonly utilized defense to compelled arbitration is the failure of an arbitrator to be truly impartial. The FAA further provides:
(a) In any of the following cases the United States court in and for the district where the award was made may make an order vacating the award upon the application of any party to the arbitration---
***(2) where there was evident partiality or corruption in the arbitrators, or either of them;
9 U.S.C. §10(a)(2). Historically, to ensure that arbitration remains a viable alternative to litigation and to hold parties accountable to their agreements, the FAA severely restricts judicial review of awards. See Positive Software Solns, Inc. v. New Century Mortg. Corp., 476 F.3d 278, 280 (5th Cir. 2007). Additionally, the party moving to vacate an arbitration award has the burden of proof. See Lummus Global Amazonas S.A. v. Aguaytia Energy del Peru S.R. Ltda., 256 F. Supp.2d 594, 604 (S.D. Tex. 2002). Evidence of partiality can be based on nondisclosure of information by an arbitrator if it involves a significant compromising connection to the parties. See Positive Software Solns at 282-83.
This provision was re-examined in the recent decision by the Dallas Court of Appeals, Fifth District in Alim v. KBR-Halliburton. See 2011 Tex. App. LEXIS 112 (Tex. App. Dallas Jan. 10, 2011).
In Alim, Plaintiff-Appellant was an employee of Halliburton before becoming employed by KBR. See Alim v. KBR-Halliburton at 1. Appellant filed an arbitration claim for employment discrimination and breach of contract under a dispute resolution plan that was expressly governed by the FAA. See id at 2. The arbitrator who was eventually selected to oversee the matter answered "no" to the question of whether any party or party representative in the instant matter ever appeared before said arbitrator in a prior matter. Id. At the beginning of the arbitration hearing, the allegedly impartial arbitrator affirmed before the parties that he was "truly neutral" and that he had no interest favoring either party. See id at 3. In reality, the arbitrator had presided over a prior arbitration proceeding involving the same KBR party representative. Perhaps not surprisingly, the arbitrator denied all of Appellant's claims. Appellant notified the American Arbitration Association of the conflict and filed a petition to vacate the award. Alim at 4. KBR responded that any such basis to vacate had been waived, and it sought confirmation of the award. Id. The trial court affirmed the award and denied the motion to vacate same. Alim at 5.
In reversing the trial court's denial of the petition to vacate and remanding the proceedings, the Court of Appeals, Fifth District, reasoned that the failure to disclose a non-trivial relationship between an arbitrator and a party representative, as in a case where the same representative appeared at a prior arbitration, creates a reasonable impression of partiality rising to the level of evident partiality, and violates the arbitrator's duty to continually check for conflicts and make disclosures of those conflicts throughout the proceedings. Alim at 8.
In light of Alim, a practitioner should thoroughly investigate and inquire into past relationships between party representatives/parties and potential arbitrators. Reviewing questionnaires filled out by said arbitrators is a good start, but one should directly engage the candidate or ask that he or she provide a supplemental brochure outlining his or her background in the particular area of law governing the case and a complete list of proceedings presided over by the candidate-arbitrator. In any event, it appears that the "finality" of binding arbitration in Texas is becoming less certain, one case at a time.