Appeals Court Tosses $22M Arbitration Award

DALLAS (CN) – Texas’ Fifth District Court of Appeals threw out a $22 million arbitration award, citing to a too-cozy relationship between the arbitrator and an attorney representing one of the parties.

     The court found an extensive, undeclared “personal, social, and professional relationship” between JAMS arbitrator Robert Faulkner, a former U.S. magistrate judge, and Brett Johnson, a partner with the Dallas office of Fish & Richardson.
     The contacts included Faulkner getting tickets to Dallas Mavericks basketball games and expensive meals. The appeals court said Faulkner should have disclosed the relationship after Johnson appeared before him as counsel in Robert C. Karlseng, et al. v. H. Jonathan Cooke; Johnson was representing Cooke.
     The $22 million arbitration award included more than $6 million in attorneys’ fees.
     “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,” the court wrote. “It involved private dinners at restaurants and country clubs. The meals were expensive.”
     Despite their existing relationship, the court found “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.”
     Karlseng’s 2007 contract claim involved a partnership. Faulkner ruled for Cooke in 2008, awarding $22 million, including more than $6 million in attorneys’ fees. The trial judge confirmed the award after plaintiffs’ attorneys said there was evidence of partiality, resulting in this appeal.
     Johnson sent the Faulkners a Christmas gift in 2006, refrained from doing so in 2007, then sent them another Christmas gift in 2008. After Faulkner rendered the amended award in February 2008, he treated the Johnsons to dinner 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 claimed that contacts such as these are “expected and accepted” among attorneys practicing in the same community.
     “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,” the court wrote. “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.”

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