KARLSENG v. Cooke
346 S.W.3d 85
Tex. App.2011Background
- This is a Texas Court of Appeals case reviewing an order confirming an arbitrator's award of about $22 million in favor of appellee Cooke in a partnership dispute under JAMS rules.
- Arbitrator Faulkner disclosed a prior neutral role in a different arbitration involving appellee's lawyer; he did not disclose a long-standing personal/social relationship with Brett Johnson, appellee's counsel in Cooke's case.
- Johnson and Faulkner had a years-long relationship including dinners, social events, gifts, and business-related discussions that continued during and after Busking arbitration, including social dinners and a Mavericks game.
- During Cooke arbitration, Faulkner did not disclose the Faulkner–Johnson relationship when Johnson appeared as lead counsel for appellee; Faulkner claimed memory issues until later testimony refreshed by his wife.
- On remand, the trial court again confirmed the award; the appellate court reversed, vacated the award, and remanded for new proceedings due to evident partiality from nondisclosure.
- The court held that Faulkner's nondisclosure, viewed against an objective observer, created evident partiality under TUCO and Texas arbitration law, requiring vacatur of the award.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether nondisclosure of a close relationship constitutes evident partiality | Karlseng argues the nondisclosed Faulkner–Johnson relationship created evident partiality. | Cooke contends partial knowledge or recollection excuses nondisclosure; the relationship was minimal. | Yes; the relationship was material and not disclosed, constituting evident partiality. |
Key Cases Cited
- Commonwealth Coatings Corp. v. Cont'l Cas. Co., 393 S.W.2d 145 (Tex. 1968) (emphasizes disclosure principles in arbitrations and appearance of impartiality)
- TUCO, Inc. v. Burlington Northern R.R. Co., 960 S.W.2d 629 (Tex. 1997) (establishes objective standard for evident partiality and broad disclosure duties)
- Mariner Fin. Group, Inc. v. Bossley, 79 S.W.3d 30 (Tex. 2002) (discusses disclosure duties in the context of missing disclosures and partiality)
- Amoco D.T. Co. v. Occidental Petroleum Corp., 343 S.W.3d 837 (Tex. App.-Houston [14th Dist.] 2011) (references disclosure and impartiality standards in arbitration)