Houston Appeals Court Reverses Multimillion-Dollar Arbitration Award

A three-judge panel of Houston’s 14th Court of Appeals has reversed a $7 million arbitration award in an attorney-fees dispute because the arbitrator failed to disclose he had been an expert witness in litigation involving the party who selected a list of arbitrators.

The court’s opinion, issued Thursday by Justice Ken Wise, found the nondisclosure established that the retired Harris County district judge constituted “evident partiality” under Texas Civil Practice and Remedies Code section 171.088 (evident partiality as ground for vacating an award rendered by a neutral arbitrator).

The case involved an objection to retired District Judge David West to arbitrate a fee-calculation dispute between Abdolrahim Sharifan and his onetime attorney, Lloyd E. Kelley of Houston.

The panel remanded the case to the trial court for another arbitration proceeding. But it rejected the argument that the arbitration clause was unconscionable because it allowed Kelley to choose the three potential former judges offered as arbitrators.

Kelley argued on appeal that Sharifan failed to preserve error or waived his argument on appeal because he did not (1) object in writing before the first arbitration hearing pursuant to the agreement, (2) did not provide a full record, (3) did not get a ruling on his motion to vacate, or (4) failed to request or obtain fact findings and legal conclusions. The appeals court rejected those arguments.

“The fact that a reasonable person could conclude that the prior attorney-client relationship between West’s law firm and appellee might affect West’s impartiality triggers the duty of disclosure,” Justice Wise concluded. “West’s failure to disclose the relationship thus constitutes evident partiality …. “

Justices Frances Bourliot and Jerry Zimmerer were on the panel with Wise.

The court remanded to the trial court to vacate the arbitration award “and, barring further evidence of unconscionability, to refer the dispute for further arbitration under the agreement of the parties.”

West had failed to disclose his connections with Kelley and had accused Sharifan of nonpayment of expert fees in the litigation giving rise to the fee dispute.

Sharifan was represented on appeal by Mark Trachtenberg and Christina Fontenot Crozier of Haynes and Boone in Houston and by Martyn B. Hill and Michael A. Harris of Pagel, Davis & Hill in Houston. Kelley represented himself and was joined by Benjamin L. Hall of Houston’s Hall Law Firm.