SW Legal studies in Business

Court Vacates Arbitrators' Award for Improper Behavior by Arbitrators
Description

Federal judge vacated an award issued by an arbitration panel due to greatly irregular proceedings including business relationships by an independent arbitrator with one of the parties.

Topic Alternate Dispute Resolution
Key Words

Arbitration; Award Vacated

C A S E   S U M M A R Y
Facts

Lighthouse Galleries ran galleries selling artwork by Kinkade. The agreement between the parties contained an arbitration clause to use the American Arbitration Association (AAA) and a panel of three arbitrators. When a dispute arose, Kinkade initiated arbitration; Lighthouse raised counter claims. Each party selected an arbitrator and those two arbitrators chose a third "independent" arbitrator. Kinkade suspected Lighthouse was being assisted by a former Kinkade employee, Sheppard. Lighthouse denied the allegation but then admitted that a live feed of the proceedings was sent to a nearby hotel where Sheppard heard the discussion and helped provide questions for Lighthouse. Kinkade demanded the Lighthouse attorney be disqualified, but the arbitrators did not. Later, after both parties stated that they had finished providing testimony, Lighthouse asked to be allowed to provide more information. Kinkade opposed that, but it was approved. Later, it became known that the third arbitrator's law partners did work for other Lighthouse interests. Kinkade asked for the arbitrator to be removed as being in violation of AAA rules and legal codes of ethics. While that was under consideration, the arbitrators asked for more documents-thousands of pages Lighthouse had failed to produce previously. Kinkade objected that it had not had the opportunity to review the documents, but the arbitrators took the documents. After six years of arbitration, the by a 2-1 vote, the arbitrators awarded Lighthouse $1.4 million, including attorney fees, without explanation. Kinkade filed a motion with the court to vacate the award.

Decision

Award vacated. Courts must intervene when arbitrators so improperly execute their responsibilities as to discourage others from arbitrating in the future. Considering the entirety of the proceeding in this case, including the lack of independence of the third arbitrator, and the fact that the award appears to be inconsistent with the contract between the parties, the motion by Kinkade to vacate is granted.

Citation

Thomas Kinkade Co. v. Lighthouse Galleries, 2010 WL 436604 (E.D. Mich., 2010)

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