ARBITRATOR IMMUNITY FOR BIAS OR FAILURE TO DISCLOSE
Pullara v. American Arbitration Association and Paxson¹

by
John Allen Chalk, Sr.

The arbitrator in a construction dispute arbitration under the Texas General Arbitration Act (“TGAA”) failed to disclose to the parties that the arbitrator had served for over ten (10) years as general counsel to the Greater Houston Builders Association (“GHBA”).² The arbitrator did disclose that he was a member of GHBA but not its past general counsel.³ The Claimant (whose apartment was remodeled), although awarded $97,442.29 by the arbitrator, sued the arbitrator and AAA when he learned approximately one year later of the arbitrator's relationship with GHBA.⁴ This meant that the Claimant was outside the TGAA ninety-day period in which to move to vacate the award.⁵ The trial court granted the defendants' motions for summary judgment without specifying the basis for grant of the motions,⁶ which the Texarkana Court of Appeals affirmed in a memorandum opinion.⁷

The court of appeals relied on judicial immunity principles citing U.S. Supreme Court, Eighth and Second (Federal) Circuits cases, and Blue Cross Blue Shield v. Juneau, 114 S.W.3d 126 (Tex.App. - Austin 2003, no pet.).⁸ The Claimant asked the court of appeals to ignore Juneau and issue a contradictory holding which the court refused “...believing the conclusion reached by the Juneau court [regarding arbitrator immunity] is ultimately correct.”⁹ The court of appeals concludes, after its survey of other states’ cases as well as cases from other federal circuits, “In sum, it is the general principle that arbitrators and their sponsoring organizations are immune from civil liability for bias or the failure to disclose a possible source of bias. We adopt that principle.”¹⁰

The court of appeals also encouraged the growing sentiment in the cases, including Texas cases, that parties to arbitration have some “due diligence” obligation to investigate their potential arbitrators for “bias-revealing background information.”¹¹ This ipse dixit observation by the court of appeals may encourage a growing trend by arbitration practitioners to request more information about a prospective arbitrator prior to or at the time of the arbitrator’s appointment. These party requests in some instances include detailed questionnaires, follow-up written questions to the initial inquiries, voir dire of potential arbitrators, personal interviews, and even, in some instances, the parties’ attempts to get the potential arbitrator to commit to a position on legal issues prior to appointment. It will be interesting to watch how various arbitral institutions respond to this judicial encouragement to arbitration parties to use more “due diligence” in the discovery of “bias-revealing background information regarding their arbitrators.”

Nothing in this opinion contracts or limits the potential arbitrator's duty to disclose. The court of appeals stated the Texas “evident partiality” test citing Mariner Financial Group v. Bossley, 79 S.W.3d 30 (Tex.2002) and Burlington Northern R.R. v. TUCO, 960 S.W.2d 629 (Tex.1997).¹² The Texas Supreme Court has observed that “... the conscientious arbitrator should err in favor of disclosure.”¹³ The ABA/AAA Code of Ethics for Arbitrators in Commercial Disputes (2004) also states the arbitrator’s broad duty to disclose “known existing or past financial, business, professional or personal relationships which might reasonably affect impartiality or lack of independence in the eyes of any of the parties.”¹⁴ Many arbitrators continue to make disclosures as determined “in the eyes of” the arbitrator rather than “in the eyes of any of the parties,” as required by the Code. Arbitrators disclose; parties determine impartiality and independence.¹⁵ Pullara v. American Arbitration Association and Paxson in no way diminishes the arbitrator’s duty to disclose but encourage a new “due diligence” responsibility on arbitration parties to know their arbitrator.

^1. 2006 Tex.App.LEXIS 4081 (Tex.App. - Texarkana May 11, 2006, no pet.), not designated for publication.
^2. Not the first time that GHBA has been involved in an arbitrator failure to disclose problem. See Houston Village Buildings, Inc. v. Falbaum, 105 S.W.3d 28 (Tex.App. - Houston [14th] 2003, pet. denied).
^3. 2006 Tex.App.LEXIS 4081, *2fn3.
^4. Pullara asserted breach of contract, fraud, negligence, gross negligence, negligent misrepresentation, unjust enrichment, breach of express warranty, and DTPA violations as causes of action against the arbitrator and AAA. 2006 Tex.App.LEXIS 4081, *3fn4.
^5. See TEX.CIV.PRAC.&REM.CODE §171.088(b) based on evident partiality under §171.088(a)(2)(A). There is a statutory discovery rule at TEX.CIV.PRAC.&REM.CODE §171.088(b) but only for vacatur actions based on §171.088(a)(1) grounds of corruption, fraud, or other undue means, which Pullara didn’t assert.
^6. The Defendants’ motions for summary judgment asserted four defenses of arbitral immunity, statutory preemption, release, and what appears to be a no evidence defense. 2006 Tex.App.LEXIS 4081, *3fn4.
^7. See TEX.R.APP.PROCED. 47.
^8. The court of appeals relied on the statutory direction provided by TEX.CIV.PRAC.&REM.CODE §171.003 that the TGAA “shall be construed to effect its purpose and make uniform the construction of other states’ law applicable to an arbitration.” Citing Alaska, California, New York, and Minnesota cases in support of arbitral immunity even in the face of arbitrator failure to disclose.
^9. 2006 Tex.App.LEXIS 4081,*7.
^10. 2006 Tex.App.LEXIS 4081, *10.
^11. 2006 Tex.App.LEXIS 4081, *15fn6; but the Texas Supreme Court in Mariner v. Bossley refused to decide if the complaining party had a duty to discover the arbitrator’s non-disclosure. 79 S.W.3d at 33.
^12. 2006 Tex.App.LEXIS 4081, *12; quoting TUCO (“[T]he fact that a reasonable person could conclude that the referral might affect [the arbitrator’s] impartiality triggers the duty of disclosure. [The arbitrator’s] failure to disclose the referral thus constitutes evident partiality under the Act.”), 960 S.W.2d at 639; and also observing, “The same standard was applied in Bossley.”
^13. Burlington Northern R.R. v. TUCO, 960 S.W.2d at 637.
^14. See Canon II; cited by Burlington Northern R.R. v. TUCO, 960 S.W.2d at 636.
^15. “... it is for the parties to determine, after full disclosure, whether a particular relationship is likely to undermine an arbitrator’s impartiality.” Burlington Northern R.R. v. TUCO, 960 S.W.2d at 638.