Dallas’ 5th Court of Appeals has vacated and remanded a $22 million arbitration award after finding the arbitrator failed to disclose that a lawyer representing a party in the dispute had given him a ticket to an NBA basketball game, a wine basket and paid for expensive meals, among other things.
The June 28 opinion in Robert C. Karlseng, et al. v. H. Jonathan Cooke focuses on a number of social contacts between JAMS arbitrator Robert Faulkner, a former U.S. magistrate judge, and Brett Johnson, a partner in the Dallas office of Fish & Richardson – contacts Faulkner did not disclose after Johnson appeared in front of him in an arbitration case on behalf of a client.
“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 5th Court wrote.
According to the decision, the underlying arbitration involves a partnership dispute. Cooke, who is represented by Fish & Richardson, and Karlseng both selected Faulkner to hear the arbitration in 2007. Faulkner disclosed to the parties that he had within the five previous years presided over an arbitration involving Fish & Richardson. Four days after Faulkner made the disclosure, Johnson made his first appearance in the arbitration.
Following a five-day arbitration hearing in 2008, Faulkner ruled in favor of Cooke, awarding him $22 million and more than $6 million in attorneys’ fees. After Karlseng’s attorneys argued there was evidence of “evident partiality” on behalf of Faulkner, the trial judge confirmed the award. Karlseng appealed to the 5th Court.
According to the 5th Court’s opinion, in December 2006, Johnson and Faulkner attended a Dallas Mavericks game with tickets paid for by Johnson that had a face value of $1,200. They also ate dinner at the Capital Grille, a meal paid for by Johnson that cost $428, the 5th Court wrote. Also in December 2006, Johnson and his wife sent Faulkner a basket of wine valued at $75, according to the decision.
Faulkner testified before the trial judge that he did not recall receiving a Christmas gift from Johnson; rather his wife opens and enjoys the Christmas gifts, the 5th Court wrote.
After consulting with his wife, Faulkner recalled attending the Mavericks game and having dinner with Johnson. Faulkner testified that he has attended two other Mavericks games with another attorney, but did not remember the Mavericks game with Johnson until his wife refreshed his memory, according to the decision.
Yet there was “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,” according to the 5th Court’s decision.
“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,” wrote Justice Kerry FitzGerald in an opinion joined by Justices Elizabeth Lang-Miers and Robert Fillmore.
“Faulkner failed to make any effort to reflect on the interests, contacts, and relationship he enjoyed for many years with Johnson, in order to assure the appellants of his impartiality and to safeguard the integrity of the arbitration process . . .,” FitzGerald wrote.
“In a case of this magnitude, in which Cooke requested over $6 million in attorney’s fees and in which arbitrator Faulkner and Johnson did not disclose the nature of their relationship, the evidence of the relationship between arbitrator Faulkner and Johnson is particularly alarming,” FitzGerald wrote.
Faulkner, through a JAMS spokesperson, declines comment.
Johnson says he disagrees with many of the 5th Court’s conclusions.
“I appreciate the opinion’s maintaining a high standard for arbitrator disclosures,” but Johnson says he respectfully disagrees with the standards the 5th Court applied in the case.
“Over the course of 15 years, I went to three dinners and a Mavericks game. My wife sent a wine basket and a Christmas card that he never knew about. So I think to term that an intimate relationship given the span of time is just not appropriate,” Johnson says. “You know, I think the opinion talked about the arbitrator’s duty to disclose, and I don’t read it as a lawyer’s duty to disclose. If I had a legal duty, I would have disclosed it.”
Johnson says, “Look, I absolutely wish there were disclosures made, because my client is an elderly man, and time is not on his side.” Johnson also disagrees with the 5th Court’s conclusion that he and Faulkner acted like “strangers” when they introduced themselves during the arbitration.
“This idea that Faulkner and I introduced ourselves as strangers just did not happen,” Johnson says. “Think about that. A 30-year judge and a 15-year lawyer don’t know each other?”
Tom Melsheimer, the managing partner of the Dallas office of Fish & Richardson who argued the case for Cooke before the 5th Court of Appeals, believes the trial court was correct in confirming the arbitration award.
“We argued that the appellate court should have given credibility and deference to the findings of the district judge. The court saw Judge Faulkner testify. The court saw Brett Johnson testify, and the court saw the defendants testify. And, in fact, some of the conclusions that the appellate court reached are inconsistent with what the district court found based on his personal observation and all of the evidence,” Melsheimer says. “We absolutely applaud and endorse a rule that says arbitrators should fully disclose significant or important material relationships — no question about that. We didn’t argue against a rule of disclosure. We simply argued in the facts of this case that the district court got it right.”
Melsheimer says his client has not decided whether to ask the 5th Court for a rehearing of its decision.
Susan Hays, a shareholder in Dallas’ Godwin Ronquillo who represented Karlseng and related parties on appeal, says the opinion “shores up the integrity of arbitration.”
Hays says, “Arbitrators better disclose everything, and lawyers better disclose everything — just in case — or they risk losing a lot of money in legal fees and a lot of money in the effort of going through arbitration.”
-- John Council