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TexLaw, Attorney
Category: Legal
Satisfied Customers: 4430
Experience:  Lead trial/International commercial attorney licensed 11 yrs
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I have an arbitration question. Family retained a law firm,

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I have an arbitration question.
Family retained a law firm, CBH to arbitrate me regarding a perceived contract breach.
The arbitrator seemed to side with CBH on all issues and was not interested in ethical violations of CBH and rather than make family and CHB prove on the merits a breach of contract, he seemed to run the course of allowing CBH to prove the breach by how much money was involved. Essentially proving damages to support the supposed breach. (It must be a breach because it is so large and grievous.......the seriousness of the crime kind of thing). We had two phone discussions to attempt to bifurcate the issue and numerous back and forths that amounted to arguments of discovery etc. About $25,000 in fees to us. We then began to delve deeper into any associations between CBH and arbitrator. It turns out that the arbitrator was partners for about twenty years with two attorneys who now work for CBH. Arbitrator did not disclose this. We spent another $25,000 with a second firm with experience in this area and submitted our case to AAA. The arbitrator recused himself upon being confronted with the lack of disclosure. I am of the opinion that the attorney on the case, the B in CBH also knew of the association as it is a small town and he actually hired the two attorneys and he knew they worked for the firm of AD and he knew the arbitrator was still with the firm of AD. They had been partners and B knew this and did not mention the potential conflict either. My question is.........the lack of disclosure, which the arbitrator admitted to by recusing himself, cost us $50,000. We now have to start over and select a new arbitrator and incur more costs. It is noteworthy, the arbitrator, in his disclosure remarks submitted to the AAA and us did mention he had done work with the C in the firm CBH but failed to mention the other two attorneys which were working at the firm and "of counsel". Is the arbitrator liable for our costs, the CBH firm for not mentioning the conflict, or are we out of luck and the arbitrator got paid for doing something wrong?

Thank you for this very interesting question.

Was the arbitration going forward by agreement under the AAA rules?
Customer: replied 3 years ago.

Yes. The arbitration was proceeding but the arbitrator wasn't making them prove a breach based upon our contract. It was as if his mind was made up. The AAA will now select another arbitrator to proceed. Though some discovery is done, CBH passed around privileged mail and became aware of our position and used it to prepare legal strategy, nearly identical to Rico v. Mitsubishi, (it may be the other way around, Mitsubishi v. Rico). Arbitration will continue, apparently, but I would like some of the wasted money back since the experience level of the arbitrator and CBH should make it obvious they did not disclose to our detriment.

Thank you for your response.

You will need to file a motion for sanctions during the new arbitration to request these fees and you will need to prove malfeasance on the other side's attorneys in order to convince the new arbitrator that this should be part of the award.

This would be treated exactly as it would in a court of law, and an arbitrator has the power under the AAA rules to fashion an award that takes into account vexatious litigation tactics such as the one you have reported.

The issue that could hinder your recovery here would be that as an arbitrating party, you are also under a duty to conduct due diligence in the selection of an arbitrator. This will turn on the level of participation you had in selecting the arbitrator prior to the beginning of the proceedings.

Customer: replied 3 years ago.

In selection of the arbitrator we were given a list of six and my counsel went through the bio's and the disclosures as well as past associations or what have you. Are we supposed to go beyond what they disclose about themselves with a background check? Is that burden on us to dig into their past? Most people don't have the resources to do that.

Well, there is no case law on this which absolutely requires you to dig further (as with most issues in arbitration because of the confidentiality of the proceedings). I do know that some parties spend an inordinate amount of resources on digging into the potential arbitrators past to try and dig up conflict information.

However here I think you have an argument that this was something that should have obviously been disclosed at the beginning, and that the failure not to was an attempt to cover it up and was thus sanctionable.
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