# Burlington Northern Railroad v. TUCO Inc.

> Texas Supreme Court · December 4, 1997 · 960 S.W.2d 629

URL: https://www.frixlaw.com/law-library/cases/9770743

## Case

- **Full name:** BURLINGTON NORTHERN RAILROAD COMPANY and the Atchison, Topeka & Santa Fe Railway Company, Petitioners, v. TUCO INC. and Southwestern Public Service Company, Respondents
- **Court:** Texas Supreme Court
- **Decided:** December 4, 1997
- **Citations:** 960 S.W.2d 629
- **Precedential status:** Published
- **Opinion:** Dissent by Enoch
- **Judges:** Phillips, Enoch, Gonzalez, Hecht, Cornyn, Owen, Baker, Spector, Abbott
- **Cited by:** 113 later opinions in the Frix Law Library

## Citator (automated)

- **Yellow flag:** Declined to follow by In re Arbitration of Nordic PCL Construction, Inc. v. LIPHGC, LLC, 136 Haw. 29 (2015).
- Negative treatments: 1
- Distinguished by: 0
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9770743

## How later opinions describe it (automated extraction)

- holding "that a prospective neutral arbitrator selected by the parties or their representatives exhibits evident partiality if he or she does not disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality. We emphasize t…
- holding that a potential arbitrator should disclose facts that, to an objective observer, might create a “reasonable impression” of partiality; and “the parties must have access to all information which might reasonably affect the arbitrator’s partiality.”
- holding that a potential arbitrator should disclose facts that, to an objective observer, might create a Areasonable impression@ of partiality; and Athe parties must have access to all information which might reasonably affect the arbitrator=s partiality.@
- holding that neutral arbitrator’s failure to disclose his acceptance of a substantial referral from the law firm of a non-neutral co-arbitrator during the course of arbitration established evident partiality as a matter of law

## Opinion text

ENOCH, Justice,
joined by SPECTOR and ABBOTT, Justices,
dissenting.
In enacting a statute intended to make arbitration agreements and awards enforceable, the Legislature provided that arbitration awards could be vacated if a neutral arbitrator showed “evident partiality5’ toward one party. Tex. Civ. PRAC. & Rem.Code § 171.014(a)(2). Today, the Court strips the word “evident” from that statute.
“Evident” means “clear to the understanding; manifest; obvious; conclusive.” Web-STER’S THIRD NEW Int’L DICTIONARY 789 (1961); Black’s Law Dictionary 557(6th ed. 1990). Unlike the Court’s “impression” of partiality standard, the Morelite standard is consistent with the plain meaning of “evident” partiality. As the Seventh Circuit has held, the alleged conflict must be “so intimate ... as to cast serious doubt on the arbitrator’s impartiality” and must be “direct, definite and capable of demonstration rather than remote, uncertain or speculative.” Health Services Management Corp. v. Hughes, 975 F.2d 1253, 1264 (7th Cir.1992). I would hold that under this test, a neutral arbitrator need not disclose a circumstance that arises after the proceedings begin unless a reasonable person could believe the circumstance creates actual bias on the part of the arbitrator.
In this case, TUCO’s only evidence of “impression” of partiality is Beall’s failure to disclose a referral, made during the arbitration proceedings, from his co-arbitrator’s law firm. There is no evidence at all that Cole, the co-arbitrator, knew of the referral. In fact, the evidence is just the opposite. Further, Beall had already disclosed his historical business relationship with Cole’s law firm. Finally, it is undisputed that Beall had no relationship whatsoever with the carriers. The Court’s conclusion of partiality is premised on nothing but pure speculation of partiality by Beall toward one of the carriers.
A major flaw in the Court’s reasoning is that it requires one to assume Cole is essentially an agent for the party that appointed him. Although Cole was chosen by the carriers, he is not their agent. While a party arbitrator may be generally favorable to that party’s position, he or she may not abandon all semblance of the independence befitting a quasi-judicial position. See American Arbitration Ass’n., Code of Ethics for Arbitrators in Commercial Disputes (1977, 1993)(A1-though Canon VII-E permits a party-appointed arbitrator “to be predisposed toward deciding in favor of the party who appointed [him or her],” Canon V provides that “[a]n arbitrator should decide all matters justly, exercising independent judgment, and should not permit outside pressure to affect the decision.”); Deseriee A. Kennedy, Predisposed With Integrity: The Elusive Quest for Justice in Tripartite Arbitrations, 8 Geo. J. Legal Ethics 749 , 768 (1995) (“party arbitrators should be required to abide by the same level of ethical standards required of any other decisionmaker of a quasi-judicial capacity.”)
Moreover, that the Court accepts the idea that a party-appointed arbitrator is the agent of the party that appointed him or her condones a violation of Canon V. This is so because an agent has a fiduciary obligation to look out for his principal’s interests. Not even the parties contemplated such a role for party arbitrators. Their agreement specifically states that neither party may appoint its own direct agent (i.e. employee) as an arbitrator. No reason would exist for such a provision if the parties viewed party arbitrators as mere agents with no vestige of independence. Far from “undisputed” as the Court insists, only Hardy, TUCO’s arbitrator, openly advocated violation of Canon V. No party went so far, and certainly not Cole or Beall. A referral among arbitrators simply cannot lead a reasonable person to conclude there is evident partiality. Thus, the award should not be vacated, and certainly not on the ground that Beall merely failed to disclose the referral.
It is telling that virtually all the cases cited by the Court to support its approach deal with relationships between an arbitrator and a party or its counsel. The Court cites no case which vacates an arbitration award due to a business relationship between arbitrators. Significantly, the Court cites one case *641 which applied an “impression of possible bias” standard similar to the Court’s, but held that business referrals between a neutral arbitrator and a party arbitrator need not be disclosed when, as in this case, no consideration is given. San Luis Obispo Bay Properties v. Pacific Gas & Elec. Co., 28 Cal.App.3d 556 , 104 Cal.Rptr. 733, 741-42 (2nd Dist.1972).
The Court questions my reliance on San Luis Obispo, but the line drawn in that case is far clearer than the line drawn by the Court today. The Court purports to hold that the mere failure to disclose a relationship that arises after the arbitration begins is evident partiality as a matter of law. 960 S.W.2d at 637. On the other hand, the Court limits its own holding by noting that the relationship must be “substantial” in order to trigger the disclosure requirement. 960 S.W.2d at 630, 637. The Court neither defines “substantial” nor explains why the referral was substantial in this case. The amount involved in the Mullan case — $1 million in claims — certainly appears “substantial.” But was Wright’s relationship to Beall “substantial?” The Court does not specify whether the value of the case referred or the manner in which the neutral arbitrator met the client renders the relationship “substantial.”
The “impression” of partiality standard adopted today will not, as the Court hopes, decrease judicial interference in arbitration. Instead, the focus of litigation will shift from asking courts to review arbitration proceedings for actual bias to arguing over the nuances of relationships between arbitrators.
As a matter of law, the referral from Cole’s law firm to Beall created no evident partiality. Accordingly, I would reverse the judgment of the court of appeals and remand the case to that court to consider TUCO’s remaining points of error.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9770743. Public record. Not legal advice.