Burlington Northern Railroad Corp. v. TUCO, Inc
In Burlington Northern Railroad Corp. v. TUCO, Inc., 960 S.W.2d 629, 40 Tex. Sup. Ct. J. 701 (Tex. 1997), an arbitration panel's neutral arbitrator accepted a business referral from a partisan arbitrator's law firm during the arbitration. Id. at 631.
There was no dispute that the neutral arbitrator knew about the relationship; the only question was whether failure to disclose the relationship could establish evident partiality. Id. at 631-32.
The Court determined that it could because "a neutral arbitrator . . . exhibits evident partiality . . . if the arbitrator does not disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator's partiality." Id. at 630.
Under this objective test, the consequences for nondisclosure are directly tied to the materiality of the unrevealed information. See id. at 637 (stating a "neutral arbitrator need not disclose relationships or connections that are trivial.").
The relationship in TUCO arose from a lucrative business referral to one of the arbitrators and thus was not trivial. Id.
The undisclosed relationship was obviously known to the arbitrator, and we concluded that his failure to disclose the referral was a material fact that objectively created a reasonable impression of his partiality. Id.
In TUCO, the complaining party did not know about the arbitrator's undisclosed relationship.
Thus, the relationship was unknown in the sense that it was neither open, obvious, nor easily discoverable by the complaining party. TUCO, 960 S.W.2d at 631.
In TUCO, the arbitrator knew that three weeks before the arbitration hearing began, his law firm had received referral of a substantial matter from the law firm of his co-arbitrator.
The Court did not set aside the arbitration award because of the referral but because the arbitrator failed to disclose a material matter about which the parties to the arbitration could not reasonably be expected to know.
The Court said in TUCO: "We emphasize that . . . evident partiality is established from the nondisclosure itself, regardless of whether the nondisclosed information necessarily establishes partiality or bias." TUCO, 960 S.W.2d at 636.