The Dallas Court of Appeals, in a case decided August 20, 2012, held that a litigant in arbitration who had information relevant to its post arbitration claim of “evident bias” waives that argument by failing to object to bias during the arbitration process. Ponderosa Pine Energy, LLC v. Tenaska Energy, Inc., No. 05-10-00516-CV, 2012 Tex. App. LEXIS 6915 (Tex. App. Dallas Aug. 20, 2012, nph). The Fifth Circuit reached a similar conclusion a week earlier in Dealer Computer Servs. v. Michael Motor Co., No. 11-20053, 2012 U.S. App. LEXIS 17162 (5th Cir. Tex. Aug. 14, 2012) (unpublished).
Post-arbitration claims of “evident bias” have been increasingly popular tools used by unsuccessful litigants in arbitration to escape the results of that process. Where the complaining party should have known of a relationship, or could have learned of the relationship, between the Arbitrator and the opponent, the complaint about that relationship is waived if not made during the arbitration process itself, prior to the final award.
The Courts’ Decisions
Both Courts concluded that the complaints were waived. Dealer Computer Services held that subtle disclosures, though vague, were sufficient to put Michael Motors on notice of a potential conflict and pointed out that “arbitrating parties have a reasonable duty to investigate information of potential partiality.” Dealer Computer Servs. at LEXIS *11 n.4 (citation omitted).
In Ponderosa Pine Energy, the Court explained that a prospective arbitrator exhibits “evident partiality” if he does not disclose facts that might, to an objective observer, create a reasonable impression of the arbitrator’s partiality. Ponderosa Pine Energy, 2012 Tex. App. LEXIS 6915 at *30, citing Burlington N. R.R. v. TUCO, Inc., 960 S.W.2d 629, 636 (Tex. 1997).
But “[a] party that learns of a basis for objecting to an arbitrator must promptly object in the arbitration proceeding to avoid waiving the complaint.” Ponderosa Pine Energy at *33, citations omitted.
In Ponderosa Pine Energy the arbitrator had disclosed information about his prior arbitrations with the firm involved, but did not specifically identify the persons involved. Moreover the Arbitrator disclosed that he had been involved with connecting the law firm to the services company, though he did not disclose details about his relationship with it.
The complaint was simply waived.
What does this mean?
The lesson that parties and lawyers ought to take away is that Courts, both federal and state, do not look kindly upon attempts to vacate an arbitration award based on claimed bias of the arbitrator – especially if that alleged bias is based on facts disclosed, or even suggested by disclosures, prior to the final award.
Arbitration is a voluntary process and parties to it have an obligation to verify that it is conducted according to their agreements. Failure to do so results in waiver of the complaint. Parties will need to be vigilant in investigating the arbitrator prior to arbitration. Generally, it’ll be too late to do it afterwards.