Texas: Trial Court Properly Set Aside Arbitrator’s Sanctions Orders Based on Evident Partiality

In Builders First Source-South Texas, LP v. Ortiz, the Fourteenth Court of Appeals held, in an interlocutory appeal, that the trial court had jurisdiction to set aside an arbitrator’s sanctions orders on the basis of evident partiality. The trial court also had jurisdiction to require arbitration before a new arbitrator, but the parties had to go through the AAA process for the appointment. The trial court erred to stay the proceedings pending completion of arbitration.

According to the court’s opinion, Ortiz allegedly suffered workplace injuries. An arbitration provision was contained in his employment agreement with Builders First. The AAA appointed an arbitrator who submitted a sworn disclosure to the effect that none of the parties, lawfirms, or party representatives appeared before her in past arbitrations. The disclosure confirmed that the arbitrator checked for conflicts. About a year later, the parties conducted a telephone hearing with the arbitrator. The arbitrator and counsel for Builders First discussed two previous cases where the counsel appeared before the arbitrator. Ortiz joined the call and, according to the court, the Builders First counsel and the arbitrator seemed “extremely friendly and appeared to joke about [the arbitrator’s] favorable decisions for [the counsel] in the past”. After the call, the arbitrator submitted an amended disclosure identifying the cases where she served as arbitrator seven years prior.

Ortiz’s attorney filed an objection with AAA to the arbitrator’s continued involvement based on partiality. Ortiz then nonsuited his arbitrations claims, and afterwards, the AAA reaffirmed the appointment of the arbitrator. Builders First reurged a motion for sanctions that had been filed prior to the nonsuit and the arbitrator issued an order finding Ortiz’s attorney engaged in sanctionalbe conduct, awarding approximately $3,400.00 in sanctions.Ortiz brought an action in district court and filed a motion to set aside the sanctions orders.The district court granted the motion to set aside the sanctions and appointed a second arbitrator. Builders First filed an interlocutory appeal.

Concluding that the sanctions orders were reviewable for evident partiality, the court then examined the evident partiality argument. The court concluded while and arbitrator “need not disclose trivial relationships or connections,” that Builders First’s counsel had appeared twice before was “not a trivial matter under the facts of this case.” Despite the arbitrator’s amended disclosure, the court notes that it came almost a year into the arbitration–“well after the time that [Ortiz] could have struck [the arbitrator] based on the prior appearances by counsel.” The failure to disclose at the start of the arbitration prevented Ortiz from evaluating the arbitrator’s potential bias at the outset.