Texas Client Gets Attorneys’ Fee Award Nixed for Arbitrator Bias

A client in a dispute with his lawyer over fees was able to prove that an arbitrator’s failure to disclose a previous relationship with the lawyer made him a biased authority, a Texas court of appeals said Thursday in ordering an arbitration award vacated.

The Texas Court of Appeals, Fourteenth District, concluded that arbitrator David West’s failure to disclose the relationship with attorney Lloyd Kelley constitutes “evident partiality.”

West had previously represented Kelley as his attorney in an undisclosed lawsuit. West alleged that he didn’t remember that he had represented Kelley and that it was an “inadvertent error” on his part.

Abdolrahim Sharifan hired Kelley to represent him in litigation in Texas with his former business associate. The litigation involved multiple trials and an appeal to the Texas Supreme Court.

Kelley also represented Sharifan in his $30 million divorce in Utah that took more than a decade to resolve. After a dispute between Sharifan and Kelley over how to calculate attorneys’ fees, the arbitration agreement kicked in. Kelley picked three former Texas judges or justices to act as arbitrator for Sharifan to choose from. One was West.

Sharifan initially agreed to West as arbitrator but then repeatedly asked him to recuse himself because he had also been an expert witness in the underlying Texas litigation. In the arbitration hearing, Sharifan said he didn’t want to proceed with arbitration because West had also represented Kelley in the past, but West denied his motion and rendered a final award to Kelley.

Kelley argued that Sharifan had missed his chance to object to the arbitrator, because he didn’t present a written objection before the hearing as stipulated in the arbitration provision. He therefore had waived his argument, Kelley said.

The court rejected Kelley’s argument, because the arbitration provision had a second sentence stating that any objection to the arbitrator had to be made before the arbitrator makes a decision. Sharifan had objected before the award was issued, meaning he complied by objecting at the hearing on record, the court said.

“The fact that a reasonable person could conclude that the prior client-attorney relationship between West and Kelley might affect West’s impartiality triggers the duty of disclosure,” Justice Ken Wise wrote for the opinion. “West’s failure to disclose the relationship constitutes evident partiality.”

A state trial court had confirmed the arbitration award in December 2019. The appeals court ordered the trial court to vacate the arbitration award and refer the matter for more arbitration.

Justices Jerry Zimmerer and Frances Bourliot joined the opinion.

Haynes and Boone LLP and Pagel, Davis & Hill PC represented Sharifan. Walker & Patterson PC represented Kelley.

The case is Sharifan v. Kelley, Tex. App., 14th Dist., No. 14-20-00197-CV, 4/14/22.