Burlington Northern Railroad v. TUCO Inc.

BURLINGTON NORTHERN RAILROAD Atchison, Topeka &

COMPANY and the Railway Company, Petitioners, Fe

Santa Public INC. Southwestern Company, Respondents.

Service

No. 95-1317.

Supreme Court of Texas.

Argued Sept. 20, 1997.

Decided June

Rehearing Dee. Overruled Jr., IL,

Hаrry DeLung, Michael Chicago, Hatchell, George Whittenburg, Tyler, A Amarillo, White, Sipe, M. Charles G. Samuel Stein, DC, Jr., Washington, David A Petitioners. Hunt, Lubbock, Keely Cynthia M.

Donald Timms, Boydston, H. Col- Michael J. Michael Amarillo, lins, Watson, Jr., Dallas, R. Charles Respondents. Justice, PHILLIPS, Chief delivered Court, GONZALEZ, opinion CORNYN, BAKER, HECHT, OWEN and Justices, join. 171.014 of Civil

Under section the Texas Code, shall a court Practice and Remedies award if there has been vacate an arbitration partiality by appointed “evident an agree proper not adjust- could on the rate aas neutral.” We ment. hold a neutral arbi- TUCO asserts that the in difference parties parties’ positions trator selected repre- or their amounted to more than contracts, sentatives exhibits million. Under the $150 under TUCO provision dispute this if submitted the to arbitration the arbitrator does not under dis- See Tex. close the Texas General Arbitration Act. might, objective facts which to an ob- server, § Civ. Prac. & seq. create a Rem.Code 171.001 et partiality. Applying arbitrator’s this stan- required contracts each side select us, in the dard case before we hold arbitrator, mutually turn would neutral arbitrator’s failure to disclose his ac- they pro- select the third arbitrator.1 While ceptance, during the course of the arbitration selecting hibit the their own proceedings, of a substantial referral from employees arbitrators, as the contracts do the law firm of a non-neutral co-arbitrator specify whether the two arbitrators that established evident as a matter of (the parties unilaterally “party law. Because the appeals court of deter- arbitrators”) rep- would be neutral or would mined that a fact issue existed about evident party resent the appointing interests of the partiality, 912 modify S.W.2d dispute, however, them. There is no that the judgmеnt of the court of and remand parties intended and understood that this cause to the trial court with instructions party with, aligned arbitrators would be act to vacate the arbitration award. for, ultimately as advocates side with the scenario, appointing party. Under this

I third arbitrator act would as the neutral decisionmaker.2 TUCO, Inc., company, an Amarillo-based purchases coal from in Wyoming mines arbitrators, appointed resale to Southwestern Public Service Com- Hardy, transportation Richard a retired at- pany to generating plants fuel its electric in torney, while the Carriers selected Emried the Texas Panhandle. In TUCO en- Cole, attorney with the Baltimore firm of 18-year tered into two contracts Bur- (“Venable-Ba- Venable, Baetjer and Howard lington Company Northern Railroad and the etjer”). parties exchanged When the lists of Atchison, Topeka Railway & Santа Fe Com- Beall, potential George “Carriers”) pany (collectively, the for trans- attorney, appeared Baltimore on both lists. porting coal from Wyoming to Texas. These When the arbitrators interviewed Beall contracts, generally contain the same any potential to determine whether he had terms, provide periodic adjustments rate conflicts, firm, Beall disclosed that Cole’s law changes based on “productiv- the Carriers’ Venable-Baetjer, previously had twice ity,” a operating measure which is tied to expert tained him witness. TUCO’s precisely costs but which is not defined investigation of these occurrences revealed During contracts. a 1990 contractual rate they relatively small involved amount review, parties disputed meaning longer ongo- of time and fees and were no scope “productivity,” ing.3 Hardy of the term and thus TUCO and thus concluded that Levine, (11th appointed by 1. If the arbitrators Co. v. 675 F.2d Cir. arbitrator, Stariha, 1982); agree on the third the contracts Ins. Co. N.W.2d Safeco apply Judge (Minn.Ct.App.1984). allowed either to the Chief While it is not expressly approved by of the United District States Court for the North- the Texas General Arbitra Act, appointment appears implicitly recognize ern District of Texas for of the third the Act procedure by referring "ap arbitrator. to an arbitrator 171.014(a)(2). pointed as a neutral” in section See, This is often-used arbitration format. affidavit, e.g., Coatings Corp. 3.Hardy’s summary judgment v. Continental which is Co., "[tjhese disputed, Cos. 393 U.S. 89 S.Ct. 21 L.Ed.2d states that matters were in Int’l, Co., (1968); i.e., Forsythe past, they completed, they S.A. v. Gibbs Oil been (5th Cir.1990); relatively 915 F.2d Merit Ins. involved a little effort and a small Co., Leatherby Sipe, Co. v. Ins. 714 F.2d amount of fees.” Samuel the Carriers’ lead Cir.1983); Co., counsel, Maryland deposition Cas. testified in his Lozano (11th Cir.1988); occasions, Venable-Baetjer Middlesex Mut. Ins. that on one of the matter not material to the impartiality.

they not affect Beall’s would Therefore, parties’ joint request, continued serv- response proceedings. to the Beall disclosing to serve the neutral arbitrator ‍‌​‌‌​​​​​‌​‌‌‌​‌​​‌‌​​​‌‌‌​‌​​‌​‌​‌‌​​‌​​‌​​‌​​‌‍the refer- agreed ing panel without Hardy. October It ral to TUGO referral, not know about Cole also did conducting discovery, After TUCO and pro- in its and had no involvement that he and sworn wit- submitted exhibits Carriers Similarly, Wright referred curement. when January to the arbitrators ness statements Beall, no knowl- he had the Mullan case February hearing then 1992. A live was and proceedings or that edge of the arbitration 23, 1992, solely for for the scheduled March panel serving on an Beall was cross-examining purpose of the witnesses Venable-Baetjer partner. with another testimony. based on written hearing The referral which lies at heart of At the conclusion the arbitration present dispute occurred about three weeks 27,1992, Beall ruled for the Carri- on March hearing. the March arbitration The Cole, before disposed Siding ers. he Corporation Resolution Trust had asserted favor, major including in their issues damage against substantial claim Thomas adjustments. productivity rate Mullan, Jr., a failed former director later, April on About a month savings Wright, loan James institution. met to decide several lesser is- Venable-Baetjer partner regularly During pending. still sues which were Mullan, could not handle meeting, Hardy this overheard course of claim because of a conflict of interest. RTC already “we’ve Beall remark to Cole that did, however, Stern, Wright meet with Gail were begun you on the matter folks so work family general counsel of Mullan’s busi- does kind to send over.” The record not ness, litigation to discuss who serve response, any, this if disclose Cole’s During meeting, Wright counsel. this either does previously, mark. noted TUCO suggested or Stern Beall.4 After two other knew the Mullan refer- contend that Cole case, lawyers Stem declined the prior ral to this time. Wright Wright contact Beall. she asked so, Stern, arranging meeting did its panel issued written decision on himself, Beall, son.5 and Mullan’s Based on 12,1992. dissent, May Hardy In his accused meeting, repre- Beall Mullan selected bias, contending up Beall that Beall made him, apparently sent on advice his son key hearing his issues before mind on Wright Although and Stern. attended the Hardy cit- reviewing relevant evidence. meeting participants and briefed the other regarding ed the he had overheard comment claim, background of the RTC’s he had referral, speculating the referral authority to no determine whether Beall alleged the source of the could have been be hired. should Hardy it is not whether bias. While clear prior issuing told about the referral TUCO piece The Mullan case was a substantial dissent, it his written litigation involving claims federal excess nothing until TUCO knew of the referral though Even his million. co-arbitrator’s $1 referral, panel remaining had directly firm in the after the decided the was involved April meeting.6 at the issues Beall testified that he concluded that discussed $3,000 paid affidavit not address the Beall about to review its file in a name. Stem’s issue, does testimony deliver rea- although matter and brief about the does that another attor- she state On Venable-Baetjer, sonableness of the firm’s fees. the second ney, not associated occasion, the which are not disclosed details of her. earlier recommended Beall to record, actually testify, Beall did not in- affidavit, only preparing stead he could eighties the time in his 5. Mullan at paid. not recall how much he had been family’s and reаl retired from his construction precise record also does not disclose date development estate business. prior of these associations between Beall either Venable-Baetjer. TUCO’s attor- 6. The stated that "shortly ney before became aware referral 4.Wright that he states his affidavit objec- presentations" no closing and "made first raised Beall’s recall whether or Stem filed this suit to the arbi- TUCO set aside under this standard. Id. The court thus award, contending summary judgment tration undis- the Car- reversed the for However, referral evidently closed rendered riers on this issue. Id. Beall TUCO, partial.7 judgment TUCO also ar- for contended that the did render instead authority by remanding bitrators had exceeded their the cause to the trial court trial . essentially reforming, on evident Id. The court did simply rather than in- terpreting, argument not address TUCO’s transportation contracts. alternative au- summary After both the arbitrators had exceeded their moved for thority. ap- and the judgment, granted summary the trial court TUCO Carriers both plied Court for writ of judgment upholding to this error. the Carriers the ar- bitration award. II appealed appeals, to the court of that Beall arguing was under a to dis- A the referral close and that his failure do so parties’ provide contracts that dis- partiality” “evident section under putes pursuant “shall arbitrated the of the 171.014 Texas Civil Practice and Rem- provisions of the Texas General Arbitration edies as a matter That Code of law. section Act,” party disputes and neither that the in provides part: relevant controlling. argues Texas Act is TUCO (a) Upon application party, the court partiality” Beall “evident under exhibited vacate an shall award where: by accepting section 171.014 the Texas Act sj: % ^ during ease the Mullan the course (2) therе partiality by was evident proceedings disclosing without appointed or as a neutral cor- that fact TUCO. not While Court has ruption any in or miscon- arbitrators previously scope determined the of this stan- any duct wilful misbehavior of dard, jurisdictions courts in numerous other prejudicing rights arbitrators so, as partiality” have done “evident also a is vacating basis for awards under Federal Act, § see 9 Arbitration U.S.C. as well 171.014(a)(2) § PRAC. &

Tex. Civ. Rem.Code many statutes of sister states. added). (emphasis Alternatively, ar- TUCO gued that the arbitrators exceeded au- partiality” The seminal “evident case Thus, thority deciding dispute. in TUCO Coatings Corporation contended, granting the trial court erred in Casualty Company, Continental 393 U.S. summary judgment the Carriers’ motion for (1968). 21 L.Ed.2d S.Ct. granting in not TUCO’s. There, in a suit subcontractor’s appeals against prime surety

The court of that an concluded contractor’s submit- partiality par- arbitrator exhibits еvident under ted the claims arbitration under the here, agreement. the statute when the arbitrator fails to dis- ties’ each select- arbitrator, any relationship jointly close reason- who then ed ably appearance create an claim- neutral arbitrator. Unknown to the ant, regular at Noting prime bias. 912 S.W.2d 318. contractor had been a past engineer- had been concerned about Beall’s rela- customer of the neutral arbitrator’s tionship Venable-Baetjer, ing consulting and that business. had While there dealings essentially Beall had for the been no between them thanked Cole pro- prime pa- in preceding year, referral the midst of contractor’s the arbitration repeated ceedings, tronage significant. the court of been concluded claimant, who learned of this relation- a fact issue existed about evident appeal. рarticipation.” Beall’s TUCO in trial court and on In char- tions to continued supported parties’ S.W.2d at 314. This statement is acterizing arguments, we refer by the record. Compa- TUCO and Southwestern Public Service collectively ny as TUCO. Company 7. Southwestern Public Service inter- proceedings, aligning vened in the itself with gruntled pretext ship only receiving can seize on it as after adverse decision arbitrator, invalidating the award. challenged the neutral on the of evident Id. award basis cautioning Id. at 89 S.Ct. at While at 89 S.Ct. at 338. disclosure, arbitrators to on the side of err recognized that some undis- Justice White Black, delivering Justice Court’s relationships would be “too insubstan- closed opinion, partiali- that the concluded “evident vacating tial warrant an award.” Id. at ty” Congress’ standard reflects efforts to en- at 89 S.Ct. impartial. sure that arbitration be Id. at Although at Justices White Marshall recognizing 89 S.Ct. 338. While joined fully opinion Black’s for the expected are Justice to sever their Court, pur- world, some federal courts have ties lower the business the Court con- ported to see a conflict between the two it scrupulous cluded that must be safe- writings. By treating opinion Black’s Justice guarding impartiality be- they plurality, as mere felt free to have they “completely cause free rein to reject suggestion that “evident the law facts are decide as well bias,” “appearance met and to subject appellate Id. review.” apply a much narrower standard. goal, 89 S.Ct. at 339. To achieve this simple imposed requirement Court “the example, For Morelite Construction any the parties arbitrators disclose to deal- City v. York District Corporation New Coun- ings might pos- that create an Funds, Carpenters cil 748 F.2d 79 Benefit Although sible bias.” Id. the Court noted (2nd Cir.1984), expressly the court referred that thеre was no evidence of actual bias in opinion to a plurali- Justice Black’s as one for it, case before arbitrator’s failure to ty justices. at Working of four Id. 82. “on a relationship disclose his business with the slate,” relatively clean reasoned prime partiali- contractor constituted evident parties agree precisely to that arbitrate be- ty justifying vacation of at the award. Id. they prefer panel expertise a cause with 147, at 89 S.Ct. garding subject dispute. of the matter expertise Id. at 83. this often Because concurring opinion, In a Justice White field, through experience in the comes joined opinion, that he stated Court’s but personal dealings may have involved with the he emphasized that the Court was not sub- parties, something the court concluded that jecting arbitrators to the “same standards of “appearance than an more of bias” was nec- judicial judges. 150, decorum” as Id. at 89 essary disqualify to an arbitrator. Id. at 83- S.Ct. at 340. [arbitra- “It is often because any disqualify arbitrator who had “[T]o affairs, apart are men tors] from but of professional dealings parties with one marketplace, they that are effective (to say nothing acquaintanceship) ‍‌​‌‌​​​​​‌​‌‌‌​‌​​‌‌​​​‌‌‌​‌​​‌​‌​‌‌​​‌​​‌​​‌​​‌‍a social adjudicatory their function.” Id. Justice impossible, would make it in some circum- White thus reasoned that arbitrator stances, qualified all.” find arbitrator at not be disqualified should because of busi- Balancing goals Id. competing at 83. parties relationship party, ness if the expertise impartiality, and the court conclud- relationship willing are aware of are “evidently partial” ed that arbitrator However, to accept risk of conflict. Id. only where the that circumstances were such parties because the must be of all non- aware person “reasonable would have conclude relationships trivial in order to exercise partial was [the] that arbitrator judgment, agreed Justice on a White rule (emphasis at the arbitration.” Id. 84 add- full disclosure: ed). relationship is far better that be [I]t outset, disclosed when the At least three other circuits have federal reject accept adopted free to an “evident are arbitrator also standard. knowledge relationship Peoples Security him with Ins. v. Monu- See Co. Life Co., (4th 141, continuing objectivity, 991 faith his than to mental Ins. 146 Life Cir.1993) standard); light (adopting the Morelite have come after arbitration, Corp., suspicious Apperson when a or dis- v. Fleet Carrier 879 F.2d 634 (6th Cir.1989)

1344, 1358 (same); view Schmitz Health Ser broader reflected and the Management Corp. vices view of See Hughes, v. 975 F.2d narrower Morelite. Wheeler v. (7th Cir.1992) 345, Joseph Hosp., Cal.App.3d St. (holding that (1976) Cal.Rptr. (adopting “impres allеged “must be so ... conflict intimate possible holding sion bias” to cast on im standard serious doubt the arbitrator’s duty that arbitrator had to disclose business partiality,” further in holding that the firm); party’s direct, law San Luis terest or bias “must definite and Obispo Bay Properties remote, Gas & Elec. capable of demonstration rather than Pacific Co., Cal.App.3d 104 Cal.Rptr. speculative”). uncertain or (1972) (adopting “impression possible bias” contrast, courts, focusing other federal holding business that referrals the need for full disclosure to between neutral arbitrator and arbitra choosing own are tor did need be disclosed because the adopted example, a broader standard. For consideration); referrals were Zilveti, 1043, 1049 in Schmitz v. Haynes Constr. Cascella Co. v. & Son Cir.1994), the court held that an arbitrator Constr., 36 Conn.App. 647 A.2d to disclose that his firm had (1994) (holding must parent company arbi of an facts “that tеnd indicate trating party. “par The court reasoned concluding poten- partiality bias” but intelligently ties can choose their arbitrators arising attorney-client tial conflict rela showing potential when facts tionship between arbitrator and in-laws of Concluding are disclosed.” at 1047. Id. waived); party’s principal had Local been Coatings controlling AFSCME, City Council New precedent, the court decided that the “best Haven, Conn.App. 518 A.2d expression” Supreme holding Court’s (1986) (adopting Morelite standard and hold present is that evident when ing the fact that hearing labor impres- “undisclosed facts show reasonable police grievance ap officer had been of partiality.” sion Id. at 1046. This stan pointed public mayor office did not dard, course, of much broader than partiality); constitute evident John E. Reid Morelite, in articulated can circumstances Assoc., v. & Assoc. Wicklander-Zulawski & convey impression partiality an of without 533, 232, 238, Ill.App.3d 255 194 Ill.Dec. 627 necessarily dictating a partiali conclusion of 348, (1993) (suggesting 354 “actual N.E.2d ty, as required under Morelite. See also holding that bias” standard and arbitrator’s Levine, Ins. 675 Middlesex Mutual Co. v. relationship parents long-term business with (11th Cir.1982) 1197, (adopting F.2d 1200 party’s require of witness did not vacation of possible impression “reasonable of bias” award); In re Arbitration Between U.S. standard, holding and that arbitrator had PSI, Inc., Exploration, and Turnkey Inc. duty in to disclose that he was involved 1131, (La.Ct.App.1991) 577 1135 So.2d ongoing legal dispute party); with an insurer and (adopting holding Morelite standard Pierce, Lynch, v. & Olson Merrill Fenner party regarding presen advice to arbitrator’s (8th Cir.1995) Smith, 157, 159-60 partiality); evidence tation of was not evident (recognizing that indirect disclosure “even Ass’n, Albion Public Schools v. Albion Educ. process, ties” will aid arbitration and (1983) 698, 55, Mich.App. 130 344 57 N.W.2d holding duty to that arbitrator was under a (holding that arbitrator must disclose facts relationship his disclose business may reasonably impression to an which lead Citibank, N.A., party); firm and Al-Harbi v. vacating appearance or of bias and award (D.C.Cir.1996) 680, (recognizing F.3d 683 85 failed to disclose that he because arbitrator which duty to disclose facts arbitrator’s previously served as consultant for a “might impression possible create an Stariha, v. party); 346 Ins. Co. Safeco bias”). (al (Minn.Ct.App.1984) 667 N.W.2d courts, refusing interpreting scope though State of “evi- to vacate the award where partiality” respective arbi- the neutral arbitrator had dent under statutes, party, prospectively also law firm of counsel for a tration are divided between

635 person challenging an any that a requiring full dents hold adopting rule disclosure reasonably partiality prove create “must “might award under bias”); Herrin appearance facts which would establish the existence of Inc., Stewart, v. M. 558 So.2d par Milton arbitrator’s impression (Miss.1990) that, (holding justify vacat- tiality party.” 863 S.W.2d at one award, ing partiality “must arbitration substantially language is similar to direct, capable of demonstration definite and and Ninth Circuit’s articulation Schmitz uncertain, remote, specula- rather than language Middlesex the Eleventh Circuit’s concluding tive” that evident and Levine, Company v. Mutual Insurance may merely from rul- not be shown adverse 1197, 1201 Cir.1982), clearly merits); v. ing Bldg. Ave. Co. National approach of parallel the intended to broad Stewart, (Mo.Ct.App. 910 S.W.2d Schmitz, 20 Coatings. See 1995) that, par- (holding to constitute evident Middlesex, 1047; F.2d at 1201. F.3d at tiality, the interest or bias of the arbitrator City Baytown, simply quoted “direct, capable of dem must be definite the standard from Babcock. See S.W.2d remote, uncertain, or onstration rather than at 520. speculative” concluding that arbitrator’s Further, at least Texas rеview offer for a did to serve consultant ing awards under common award); vacating Barcon warrant has relied on Commonwealth standards N.J. Tri-County Asphalt Corp., Assoc. v. Coatings to hold that arbitrators must dis (1981) “ap (adopting A.2d dealings close pearance holding partiality” standard and possible create an bias. See arbitrator had disclose business Obst, 903, 907 659 S.W.2d House Grain Co. party); Kern 303 East (Tex.App —CorpusChristi writ ref'd . Corp., 204 A.D.2d 611 N.Y.S.2d 57th St. n.r.e.). (N.Y.App.Div.1994) (adopting “appearance and hold standard B ing duty to that arbitrator had noted Common Justice White attorney him party’s had referred business Coatings, capable wealth most arbitra Sup proceedings); Beck persons with extensive tors are often those Reynolds, pliers, Inc. v. Dean Witter may (1988) experience industry, natural 1187, 1193 App.3d Ohio 558 N.E.2d parties. ly past dealings have had “appearance (rejecting of bias” Thus, per should not be se dis arbitratоrs evi holding arbitrator did not exhibit qualified because of business merely firm partiality dent because his law 150, 393 89 at represented corporate party); See U.S. at S.Ct. affiliates of with Instead, Shah, (White, J., concurring). v. 533 340 DeBaker 194 Wis.2d (1995) expertise impartiality competing (holding goals that arbi N.W.2d may parties have must all facts trator disclose “which must balanced. Where they reasonably support par ... agreed an inference of to select their own past tiality,” concluding but that arbitrator’s this balance ‍‌​‌‌​​​​​‌​‌‌‌​‌​​‌‌​​​‌‌‌​‌​​‌​‌​‌‌​​‌​​‌​​‌​​‌‍in the selection should strike receipt campaign of small contributions from their arbitrators intelli process. To choose lawyers however, parties with arbitration counsel ac gently, associated must have disclosure). to require trivial might too reason cess to all information which partiality. This ably affect the arbitrator’s appear Texas There to be two оther any potential parties allows the evaluate the stat interpreting cases courts outset, shifting than bias at the rather See utory partiality” “evident standard. when a to the courts do so dissatis burden Ltd., PMAC, 863 Babcock & Wilcox Co. party challenges an award. Justice fied (Tex.App [14th Dist.] S.W.2d 225 . -Houston Coatings: White noted Commonwealth denied); City Baytown v. C.L. writ its role in judiciary should minimize Winter, (Tex.App. 515 886 S.W.2d denied). judge arbitrator’s im- of the arbitration writ [1st Dist.] —Houston Babcock, consigned role best prece- partiality. That the court relied on federal parties, who are the agree architects of their Because we the policy arguments own process, and are far better advanced in Coatings prevailing Schmitz, informed of the ethical stan- prospective we hold that reputations dards and within their busi- by parties or their ness. representatives partiality exhibits evident if or she does not facts might, which (White, J., 393 U.S. at at 340 S.Ct. observer, objective to an create a reasonable concurring). strong policy favoring the impression of the arbitrator’s We up-front potential disclosure of conflicts un- emphasize partiality that this evident is es Supreme “simple” derscored the Court’s itself, tablished from the nondisclosure re quirement that arbitrators disclose deal- gardless of whether ings the nondiselosed infor might impression “that create necessarily partiality mation establishes possible bias.” 393 at U.S. 89 S.Ct. at Coatings, bias. See Commonwealth 393 U.S. at (finding S.Ct. at 338-39 course, Of procedures not all arbitration partiality based on arbitrator’s failure dis grant power particular veto over conflict, though close even there was no evi See, Apperson, arbitrators. e.g., 879 F.2d at Schmitz, bias); dence of actual (collective bargaining agreement provid- 1047. Those which cоurts have failed to committees); Morelite, ed recognize have, comparable (collective F.2d at 81 bargaining agreement believe, needlessly involved themselves provided designation of a single neutral partiality evaluations of that are better left to participation par- without See, parties. e.g., Consolidation Coal Co. ties); Toyota Berkeley v. Automobile (4th Cir.1995); Local 48 F.3d Union, Salesmen’s Union, Mining, Hobet Inc. v. International Cir.1987) (same Morelite). The issue America, United Mine Workers by identified these courts not whether (S.D.W.Va.1994). F.Supp. 1011 parties have access all relevant informa- selection, aid their because there is no This standard II accords Canon Rather, selection to be made. the issue be- Code of Commer- Ethics FORARBITRATORSin comes whether the conflict is so severe as to Disputes, cial provides: wisely, adopted nature of the standard more akin to actual bias would court in indicate that in the arbitrator’s decision. applied should be able to courts parties, addressing different standards Schmitz, standard for arbitrators chosen partiality arbitration. a “reasonable indicated emphasizing “evident choose or bias For example, depending partiality” played Thus, a narrower on the a role some ap A. Persons who are close: arbitrators bias.... tionships create or professional, family ness, social rela- (2) Any Hs any appearance ‡ existing or which are should, or which ^[*] before requested past financial, likely ‡ accepting, to affect im- ‡ reasonably to serve as sfc busi- dis- ‡ ‡ ‡ ‡ ‡ ‡ ply other eases. 20 F.3d at 1047. See Corp., also Woods v. Saturn Distribution obligation C. The to disclose interests or Cir.1996); Int’l Lifecare relationships in the preceding described Medical, Inc. v. CD paragraph continuing duty A is a which (11th Cir.1995); Assoc. v. Barcon Tri-Coun requires person accepts appoint- Asphalt ty Corp., N.J. A.2d disclose, ment as to any an arbitrator at (1981). arbitration, stage any such interests arise, relationships may or which agree may We that the standards dif are recalled or discovered. depending fer on the nature the arbitra case, however, requires only adopted tion. This jointly by us to Code has been the categories settle on a for standard those American Bar and the American Association parties where the Arbitration select arbitrators. Association. Because the statu- prohibition basing on this tory against partiality” impartiality. “evident their decision information, see arbitrators, applies only Hardy to entitled neutral were Tex. 171.014(a)(2), any Crv. PRAC. & Rem.Code § this that Beall not enter into to assume would relationship during the course of apply disclosure does nоt to new such proceedings be the arbitration without disclos- intended to neutral. We proper ing need not and do not the stan- it.8 therefore hold that the disclo- decide We today is for those where a at- sure we have articulated like- dard eases arising during applies to to conflicts the tempting establish “evident wise parties proceedings. arbitration More- arbitrator which did select. course over, preserve integrity to of the selec- argue The that an arbitrator Carriers process, we hold that a who could evidently partial in a nondisclosure ease time of have vetoed if fails she to disclose “a direct financial may during disqualify selection the arbitrator a party or business or its proceedings the course of the based on new agent.” disagree We with such a restrictive might reasonably conflict which affect the discussed, parties standard. should impartiality. If this not the arbitrator’s were have might access all information that rule, the parties control which the contracted reasonably the potential affect arbitrator’s agreement for would include, impartiality. obviously This could undermined.9 example, a familial or close social rela- tionship. facts, reviewing Upon that, Venable-Baetjer’s we hold because of a neutral need not While involvement, might the referral to Beall have relationships or connections that are impression conveyed of Beall’s trivial, the conscientious arbitrator should err person. to a Mullan ease in favor of disclosure. rule full disclo major piece expected litigation, judiciary, sure minimizes role vest generate substantial fees for While Beall. greater ing parties control in the who have (the Wright Venable-Baetjer partner in рrocess. faithfully chosen the arbitration If referral) volved did not have the au to, ultimately adhered it will lead to fewer Beall, thority hire not have post-decision challenges to awards based on initially name, been the one to raise Bead’s or prejudice. bias he nonetheless initiated the contact with behalf, arranging Beall Mullan’s the meet C ing leading hiring. Beall’s Finally, apply this standard to the present Further, facts of this Wright case. The circum fact neither nor unique stances are somewhat in that was aware of the Cole other’s (the referral) suspect relationship negate arose with Beall does not after selected Beall objective neutral arbi An observer could still trator. reasonably person Beall thus have disclosed believe that a in Beall’s potential referral, during pre-selection position, may conflict grateful for Nonetheless, Venable-Baetjer interviews. because the been inclined favor (and agreed entity Wright to select their indirectly) own thus in the properly analyzed proceedings by siding case under the standard with Cole. all, agreeing we have articulated above. Before After Beall himself was to thank moved arbitrator, proceedings Beall as the select the arbitration Cole Hardy sought you TUCO and learn the “matter folks were so kind to send might reasonably that affect his over.” course, parties confirming party letter from the Beall’s 9. Of a a conflict learns of being selection stated that he was hired based on before the arbitrator issues his or her decision assurance, review, subject promptly object waiving his to to a conflicts must avoid com- Here, any way plaint. he knew of no condition would in it that TUCO did not "that is ability truly panel impar- from [his] detract to render a leаnt of the referral until after the had tial decision.” decided the before it. issues 638 Produce, Hardy argue preceding

The Carriers a Second Circuit decision Morelite, standing complain no employed similarly have about refer- court a accept willingness ral because their approaching actual bias. strict standard See knowledge (“There prior Beall with full of his work as 638 F.2d at 551 was no claim bias expert Venable-Baetjer. witness for We arbitrator], part [the on the neutral or conclude, however, person might a rea- of any animosity even toward counsel. sonably past differentiate between relation- Thus, completely any- the record is bare ship shortly or and one arises before partiali- thing remotely resembling ‘evident proceedings. the arbitration More ”) ty.’ accordingly refused to dis- The court importantly, emphasized, as we it qualify a nеutral arbitrator because was determine, disclosure, after full appear a witness in an unre- scheduled particular relationship likely whether proceeding involving lated arbitration impartiality. undermine an arbitrator’s (but parties) law same firms different dispute arbitrating. he was argue The Carriers also that this relation ship Venable-Baetjer is too indirect because by The other cases cited the Carriers are party pro was neither in the arbitration factually proeedurally distinguish- also ceedings argu nor counsel for a Wrestling In able. United States Federa- ignores the ment arbitration format chosen tion, the neutral arbitrator failed parties, in by which the that his law firm Northwestern appointing acted as advocates for the University, which was member recognized, has them. As one court “[a]n NCAA, turn was affiliated with one partisan is a appointed by parties to the arbitration. neu- step one from the removed controver firm no tral arbitrator’s direct relation- Co., sy....” Maryland Lozano v. Cas. 850 parties. ship with or the either the NCAA (11th Cir.1988). 1470, 1472 F.2d chain” The court held this “tenuous The Carriers cite numerous cases where “remote, uncertain, speculative too was find courts have refused to require arbitration award to be set which, Carriers, according on facts to the are Ormsbee, ‍‌​‌‌​​​​​‌​‌‌‌​‌​​‌‌​​​‌‌‌​‌​​‌​‌​‌‌​​‌​​‌​​‌​​‌‍F.2d at In aside.” 605 than egregious more ours. See Internation neutral arbitrator clients com- had some Produce, Rosshavet, Inc. v. 638 al F.2d A/S representing mon firm one of 548, (2nd Cir.1981); Security Peoples 551 rejected parties, which the as a Co., v. Ins. Co. Monumental Ins. Life Life of evident The court did basis (4th Cir.1993); 991 F.2d Consolida clearly it articulate the standard tion Coal v. Local United Mine Co. merely “only applying, concluding that clear America, (4th 48 F.3d Workers justifies impropriety evidence of denial Cir.1995); Wrestling Federa United States summary confirmation of arbitration AAU, Wrestling v. Division of Furthermore, F.2d at 1150. awards.” 668 (7th Cir.1979); F.2d Ormsbee by was not the neutral arbitrator Grace, (10th Co. v. Dev. by parties, the American Ar- but rather Co., Cir.1982); Maryland v. Lozano Cas. Consequently, bitration Association. 1470, 1472 Cir.1988); Alaska State policy court did not discuss the consider- Pleas, Inc., Housing Riley 586 P.2d Auth. ations of full disclosure where are (Alaska 1978); Ins. Co. Safeco Lozano, selecting arbitrators. Stariha, (Minn.Ct.App. 346 N.W.2d arbitrator and counsel for Shah, 1984); DeBaker v. 194 Wis.2d 533 parties were both investors two limited (1995). per We are not N.W.2d partnerships, consisting of seven and nine suaded these authorities. partners respectively. Neither had limited partnership Peoples Security over the activities. The and Consolidation control Life findings court cited the the district follow the narrower standard Morel- Coal ite, which, already comparing we have ex- this financial for reаsons reject issue of plained, controlling buying “two individuals same as the investing in the same corporate In International stock in nondisclosure cases. how not and do not intimate The we need at 1471. court While mutual fund.” cases, the it suffi- above partiality. we would decide consequently found no that, view, they do not in our rejected challenge cient to note also a based The court appli- its persuade either our test or law us that on fact that the neutral arbitrator’s the is incorrect. to facts before us in cation the represented firm clients arties unrelated litigation. There was no evidence hold that a apparently would The dissent at the time the these cases were active relationship party arbi- between a business the neutral arbitrator arbitration or can never and a neutral arbitrator trator they existed. Id. at was even aware that the partiality, because cause evident Authority, Housing In Alaska State appointing for the agent not arbitrator is previ- lawyer had the for one the not not decide party. While we need and do ously represented the neutral arbitrator as an serves whether relationship was litigation. unrelated party arbi- it that the “agent,” opposing to accepted disclosed neutral, case trators were party complained appeal, That on respective ap- open for their were advocates however, had failed because the arbitrator pointing parties. these circum- Under attorney opposing to had disclose that stances, reality hold ignore it would also the neutral arbitrator’s relationship between a business ‘partnership litigation. in unrelated arbitrator cannot render neutral of this court that nondisclosure concluded evidently partial. Because of the light of the material disclosure, favoring full we policy reasons parties’ acceptance attorney- of the direct Obispo Bay Proper disagree Luis with San attorney client Company, 28 Electric ties v. Gas & Pacific In at 1249. the arbitrator. P.2d Safe (1972), Cal.App.3d Cal.Rptr. on co, the neutral arbitrator failed to disclose relies, it extent that which the dissent previous repre one that he occasion a party that business referrals bétween holds firm representing sented a neutral arbitrator need arbitrator and court, parties to arbitration. be disclosed. finding that this did not constitute evident Nothing opinion be taken as in our should partiality, noted that it was a “remote and Beall, respected highly conclusion that unrelated” event which had been concluded Maryland bar with a distin- member prior neutral’s selectiоn as arbitrator. service,10 public was in fact guished record however, Notably, 346 N.W.2d Moreover, fully recognize that we biased. prospectively adopted requiring rules people could debate whether business or social rela- disclosure likely impartiali- to affect Beall’s referral was tionship “likely impartiality affect ty. We reiterate Justice White’s comments might reasonably appear- create capable are often that the most ance of or bias.” Id. at 667. community. with ties to the business those DeBaker, repre- members of the law firm person that a reasonable But the fact senting one of the to the arbitration the referral affect conclude that earlier, had, campaign months made several impartiality triggers the of dis- Beall’s to the neutral arbitrator in contributions failure to disclose refer- closure. Beall’s congressional primary race. unsuccessful partiality under thus constitutes evident ral attorneys in the involved arbi- None Act. contributions, case had all tration made record, contributions were matters and the aggregate amount was public ^{[*****] [*]} reasons, circumstances, modify the $1,475. foregoing For the Under these court of and remand judgment that the failure concluded trial court with instructions this cause to the the contributions did not constitute evident refer at 469. vacate the award 533 N.W.2d Maryland. formerly ney as United States Attor- District 10. Beall served dispute ers, for further arbitration under agent. he is not their party While a agreement parties. may generally be favorable to that party’s position, may he or she not abandon ENOCH, Justice, joined by SPECTOR all semblance of the independence befitting a ABBOTT, Justices, dissenting. quasi-judicial position. See American Arbi- Ass’n., tration Code Ethics In Arbitrators enacting a statute intended make for 1993)(A1- (1977, Disputes in Commercial agreements and awards enforce though able, permits party-ap- Canon VII-E Legislature provided that arbitra pointed predisposed arbitrator “to tion be toward awards be could vacated if deciding party appointed in favor of the partiality5’ arbitrator showed “evident toward her],” provides [him or Canon “[a]n V that PRAC. & Rem.Code Civ. Tex. 171.014(a)(2). § Today, strips justly, should decide all the Court matters exercising independent judgment, word “evident” that from statute. and should permit pressure outside affect “Evident” means “clear to the understand- decision.”); Kennedy, Deseriee A. Predis- manifest; obvious; ing; conclusive.” Web- posed Integrity: Quest With The Elusive STER’S THIRD NEW Int’L DICTIONARY Tripartite Arbitrations, Justice in 8 Geo. J. (1961); 557(6th ed. Dictionary Black’s Law (1995) Legal (“party Ethics arbitra- 1990). Unlike the Court’s “impression” of required tors by should be to abide same partiality standard, the Morelite standard is required level оf ethical standards plain meaning consistent with the of “evi- capac- other quasi-judicial decisionmaker of a partiality. dent” theAs Seventh Circuit has ity.”) held, alleged conflict “so must be inti- ... mate to cast serious doubt Moreover, accepts that the Court the idea impartiality” arbitrator’s and must be “di- party-appointed that a agent arbitrator is the rect, capable definite and of demonstration of the party appointed that him or her con- remote, rather than specula- uncertain or dones a violation of V. Canon This is so tive.” Health Management Corp. Services agent fiduciary because an has a obligation to (7th Cir.1992). Hughes, 975 F.2d look principal’s out for his interests. Not test, I would hold that under this a neutral parties contemplated even the such a role arbitrator need not disclose a circumstance party agreement specifi- arbitrators. Their proceedings begin arises after the unless cally party may appoint states that neither person a reasonable circum- believe the (i.e. agent employee) its own direct as an part stance creates actual bias on arbitrator. No reason would exist for such a arbitrator. provision party if the viewed arbitra- agents tors as case, vestige mere with no of inde- In TUCO’s evidence of “im- pendence. “undisputed” Far as the pression” is Beall’s failure to insists, only Hardy, Court referral, TUCO’s arbitra- made the arbitra- tor, openly advocated V. violation Canon proceedings, from his co-arbitrator’s law far, certainly No so went not Cole Cole, firm. There is no evidence all among or Beall. A referral arbitrators sim- co-arbitrator, knew of the referral. ply person cannot con- fact, lead just opposite. evidence is Fur- Thus, clude ther, there is already Beall had disclosed his histori- vacated, certainly award should cal business Cole’s firm. ground merely not on the Beall failed Finally, it is undisputed that Beall had no disclose the referral. relationship whatsoever with carriers. prem- is Court’s conclusion telling virtually It all the cases cited nothing pure speculation par- ised on by support approach its deal Court tiality by Beall toward one of the carriers. relationships arbitrator and major

A flaw in reasoning the Court’s counsel. The Court no its cites requires that it one to assume is essen- case which Cole vacates an arbitration award due tially agent appointed for the to a business between arbitra- Although Significantly, him. Cole was chosen the carri- tors. the Court cites one case “impression possible applied an Court’s, Texas, Relator, ARLINGTON, similar bias” standard CITY OF a neu- that business rеferrals between held need and a tral arbitrator Administrator, NADIG, Subse Claudia case, when, no be disclosed Injury Fund, quent Texas Workers’ Obispo Luis given. San consideration Commission, and Todd K. Compensation Co., 28 Bay Gas & Elec. Properties Pacific Director, Brown, Work Texas Executive Cal.App.3d Cal.Rptr. Respon Commission, Compensation ers’ Dist.1972). (2nd dents. on San questions my The reliance Court No. 97-0212. case Obispo, but the line drawn ‍‌​‌‌​​​​​‌​‌‌‌​‌​​‌‌​​​‌‌‌​‌​​‌​‌​‌‌​​‌​​‌​​‌​​‌‍Luis by the the line drawn is far clearer than Supreme Court of Texas. purports to hold today. The Court Court June failure to relation- mere ship begins that arises after of law. 960 as matter hand, On the the Court at 637. other

S.W.2d holding by noting

limits own its

relationship must “substantial” in order requirement.

trigger the disclosure The de- Court neither

S.W.2d explains why nor

fines “substantial” substantial in this case. The

ferral was — in the Mullan $1 amount involved case — certainly appears “sub- million in claims relationship to Wright’s But

stantial.”

Beall “substantial?” The Court does of the case re-

specify whether the value

ferred or the manner which the neutral the rela-

arbitrator met the client renders

tionship “substantial.” “impression” not, hopes,

adopted today will the Court judicial interference in

decrease arbitration.

Instead, litigation will from the focus of shift

asking proceed- courts review arbitration the nu-

ings arguing for actual bias to over relationships arbitrators.

ances law, referral

As a matter of firm Beall no evident created

Cole’s I Accordingly, would reverse the and remand

judgment of to consider TUCO’s the case to Jr., Waite, Arlington, King, Don W. Frank remaining points error. for Relator. Joseph Brown, A. Nadig, K. Claudia

Todd Austin, Pitner, Respondents. PER CURIAM. Arlington sought judicial re- City of Compensation a Texas Workers’

view of

Case Details

Case Name: Burlington Northern Railroad v. TUCO Inc.

Court Name: Texas Supreme Court

Date Published: Dec 4, 1997

Citation: 960 S.W.2d 629

Docket Number: 95-1317

Court Abbreviation: Tex.