Blind justice: Arbitrators have immunity from lawsuits- Part III
by Carol Thompson
A California resident lost an arbitration case and was forced to pay nearly $90,000 in legal fees for the opposing party, an amount that was close to the amount he had been seeking to recover.
It wasn’t until long after that it was learned that the lawyer acting as the arbitrator, Thomas G. Ryan, may have had more potential conflicts than had been reported.
The resident entered arbitration with Palms Place, LLC and owner George Maloof, Jr. The arbitration was administered through the American Arbitration Association.
Ryan not only ruled against the resident, who was seeking the refund of a deposit of over $100,000 for a condominium purchase that was blight with delays and other issues but ordered the resident to pay Palms nearly $90,000 in legal fees.
Ryan’s disclosure, filed with the American Arbitration Association, states that a non-lawyer member of the firm of which he is a partner, had previously represented Palms Place in “…certain local government issues.” Ryan also stated that he had been invited to serve as an arbitrator in another matter involving Palms Place, however, he had no recollection of the matter or his involvement.
After the fact, the resident learned that there were more potential conflicts than had been reported. Ryan is a partner in the law firm Lewis Roca Rothgerber, a firm that has deep involvement with the gaming industry. The Palms Place condominiums are a part of the Palm Place Casino.
Texas resident Michael Pullara’s dispute with Becker Fine Builder’s, Inc. resulted in Pullara losing an arbitration arising out of a construction agreement that Pullara claimed was delayed. Becker filed a demand for arbitration with the American Arbitration Association. The arbitrator, Stephen B. Paxson, awarded Becker a total of $97,442. Approximately one year later Pullara discovered that Paxson had not disclosed that for many years he had acted as general counsel for the Greater Houston Builders Association. Paxson had only disclosed membership with the organization.
Pullara sued in Texas court asserting causes of action based on breach of contract, fraud, negligence, gross negligence, negligent misrepresentation, unjust enrichment, breach of express warranty, and violation of the Texas Deceptive Trade Practices Act. The court ruled that Pullara’s claims were barred from the doctrine of arbitral immunity.
Courts maintain that an arbitrator’s role is functionally equivalent to that of a judge and that it is necessary to protect arbitrators from undue influence and safeguard their independence.
In L & H Airco, Inc. v. Rapistan Corp., the Minnesota Supreme Court cited the chilling factor should the courts allow civil action against an arbitrator for failure to disclose a conflict. “Failure to disclose possible conflicts of interest creates at the least an impression of bias. An impression of bias contaminates the decision making process when neutrality is essential and is not condoned by this court. Nevertheless, we decline to permit a civil suit against the arbitrator for failure to disclose prior business or social contacts because of our policy of encouraging arbitration and of protecting the independence of the decision made. Permitting civil suit for a lapse in disclosure would chill the willingness of arbitrators to serve because of the difficulty of remembering all contacts, however remote, with parties to the arbitration.”
Despite the number of complaints in regard to conflicts with arbitrators, the courts uphold the basis for immunity for both the arbitrator and the organization.
Image: Flickr/Esten Hurtle