Patten v. Johnson
Dallas Court of Appeals, No. 05-12-01695-CV (April 15, 2014)
Justices O’Neill, Lang (Opinion), and Brown
Dallas Court of Appeals, No. 05-12-01695-CV (April 15, 2014)
Justices O’Neill, Lang (Opinion), and Brown
After the Court of Appeals had vacated a pro-claimant arbitration award because of “evident partiality” of the arbitrator, the arbitration respondents filed a separate lawsuit against the arbitrator, the arbitration claimant, and the claimant’s lawyers. Asserting claims of fraud and breach of contract, they alleged that those parties had “actively concealed the[] social, business, and personal relationship” between the lawyers and the arbitrator that should have disqualified the arbitrator from the start, and that they did so to “financially benefit” the lawyers. The trial court dismissed the case for want of jurisdiction, finding that the Texas Arbitration Act (“TAA”), and specifically TEX. CIV. PRAC. & REM. CODE § 171.088, preempted such claims and deprived the court of jurisdiction. The Court of Appeals affirmed, following a decision by the Austin Court of Appeals and concluding that the TAA confines arbitration parties to the post-arbitration remedies specified in that Act and bars separate claims like those asserted by the plaintiffs here.
Patten, Cooke, and others formed a multi-faceted business organization to provide real estate title services. A dispute arose between Cooke and the others. The various business agreements prescribed arbitration through the AAA, but the parties agreed to use JAMS and signed an arbitration contract with that entity. Robert Faulkner of JAMS was selected as the sole arbitrator. Faulkner disclosed one prior arbitration with the law firm representing Cooke, the claimant, but nothing else. Shortly thereafter, Johnson, another lawyer with the same firm, appeared as counsel for Cooke, but Faulkner made no additional disclosures of relationship or interest. The arbitration went forward and resulted in a $22 million award to the claimant Cooke—$14 million in actual damages (plus interest and costs) and another $6 million to account for the 45% contingent fee for the claimant’s lawyers. On review, however, the Court of Appeals concluded that Faulkner had failed to disclose a material relationship with Johnson, found that this constituted “evident partiality,” and vacated the arbitration award.
Patten and the other arbitration respondents then commenced this separate case, seeking to recover the expenses and other damages caused them by what they alleged to be the deliberate misconduct of the arbitrator, the claimant, and the claimant’s lawyers—“the cover up of a cover up.” The defendants responded with a variety of arguments, including claims of arbitrator and litigation immunity and TAA preemption. The trial court granted the pleas to jurisdiction, and Patten and the other arbitration respondents appealed.
Citing TEX. CIV. PRAC. & REM. CODE § 171.088 and following the lead of Blue Cross Blue Shield v. Juneau, 114 S.W.3d 126 (Tex. App—Austin 2003, no pet.), the Court of Appeals affirmed. It “adopt[ed] the principle stated in Juneau that ‘[a]bsent a statutory ground to vacate or modify an arbitration award, a reviewing court lacks jurisdiction to review other complaints about the arbitration.’” Plaintiffs argued that § 171.088 speaks only to vacating an arbitration award and that, because (i) the award here was vacated before the plaintiffs asserted their claims, and (ii) the plaintiffs’ claims do not seek to modify or vacate such an award, § 171.088 cannot have been intended to preempt their claims. But, again turning to the Austin Court’s reasoning in Juneau, the Court of Appeals decided that allowing a suit like this against an individual arbitrator or opposing counsel would be inconsistent with the purposes of arbitration—including speed, cost savings, and finality—and would, in effect, simply circumvent the limitations on review embodied in the Act. Accordingly, the Court affirmed dismissal of the plaintiffs’ claims, holding them to be “‘about’ the arbitration in the underlying business dispute” and therefore barred because they “did not present ‘a statutory ground to vacate or modify an arbitration award.’” In light of this ruling, the Court did not address the defendants’ arguments of arbitral and attorney immunity.
